MARQUEST WEEKLY COMMENTARY – SEPTEMBER 2, 2014

Liis Palmer, Cassels Investment Management Inc.

Last week the Marquest Monthly Pay Fund (A units) closed at $5.38 (with the $0.075 per unit distribution, the equivalent of $5.455, up from $5.41 the previous week). The TSX was up 0.6 percent in the same period. Canadian Q2 GDP grew at 3.2 percent (annualized). The Bank of Canada had been forecasting a gain of 2.5 percent. Stronger GDP and export growth with the Bank of Canada on hold for interest rate increases has been a positive for investors.

Leading contributors in the portfolio were Tim Hortons (up 27.0 percent), Canadian National Railway (up 2.6 percent) and Black Diamond Group (up 4.4 percent). The coffee chain, Tim Hortons, announced plans to merge with Burger King Worldwide in a C$12.6 billion deal. The merger will create the world’s third largest fast food restaurant group with about $23 billion in combined annual sales. The companies will domicile the combined business in Canada to take advantage of a lower corporate tax rate and more favourable tax treatment of overseas earnings. The Conservative government has moved corporate taxes from 20 to 15 percent for larger companies and this could be a source of further tax inversion deals.

Laggards in the portfolio were Bank of Nova Scotia (down 6.0 percent), AutoCanada (down 4.5 percent) and Toronto Dominion (down 5.5 percent). BNS reported improved Q3 profits and raised its dividend, supported by good results in wealth management and insurance. However, investors were disappointed that the bank reported Q3 normalized EPS of $1.40. Analysts had expected $1.41.