MARQUEST WEEKLY COMMENTARY – OCTOBER 5, 2014
Liis Palmer, Cassels Investment Management
Last week global markets were mostly down. The TSX was down 1.6 percent in the same period. The MSCI World Index was down 2.3 percent. The C$ was down 0.8 percent against the US$. Given increasing concerns about global economic growth and the weakness in the markets early in the week, good economic news out of the US caused a rally on Friday. US non-farms payrolls rose by 248,000 last month (consensus was a 215,000 increase) and August’s US unemployment rate was revised down to 5.9 percent from 6.1 percent. Unfortunately, Canada’s news was not so good. The Canadian trade deficit in August was reported as $610 million (expectations had been for $1.6 billion) and exports fell 2.5 percent from July. The negative trade report was evidence that our economic recovery was not keeping step with the US. The C$ fell to 88.82 cents. The Marquest Global Balanced Fund was down 0.9 percent.
In the global equities portion of the portfolio, leading contributors were Keyera (up 1.8 percent), Home Depot (up 1.1 percent) and Wells Fargo (up 0.8 percent). Keyera announced management changes. The current CEO Jim Bertram will become Executive Chair of the Board. Current President and COO David Smith will continue as president and take on the CEO position and join the Board. The succession has been well managed. We expect no major change in strategy as David Smith has been President for a number of years and with Keyera since inception. We have always liked the strong management at Keyera. Going forward, Keyera stands to gain from development of the Montney and Duvernay areas.
Laggards were LyondellBasell (down 9.6 percent), Banco Santandar (down 5.1 percent) and Schlumberger (down 5.0 percent). LyondellBasell also announced a pending management change but that is unlikely to account for such a big drop in the share price. The third largest chemicals manufacturer in the world, LyondellBasell has a major competitive advantage being located near the US shale gas fields. Since natural gas is a major feedstock of the olefins chain, this advantage boosts its ethylene margins. It is the largest polypropylene producer and one of the top five polyethylene producers in the world. Plastics demand grows as the economy improves. LyondellBasell has high operating rates, lean manufacturing and an enviable geographic position. We took advantage of last week’s price weakness to add to our position.