MACKENZIE CANADIAN ALL CAP VALUE CAD Q COMMENTARY

Transcription

1 MACKENZIE CANADIAN ALL CAP VALUE CAD

2 INCEPTION: December BENCHMARK: S&P/TSX Composite Total Return Index STRATEGY ASSETS: C$ 2,769 million PORTFOLIO MANAGEMENT TEAM: Hovig Moushian, MBA, CFA Portfolio Manager Industry Start: 1996 Firm Start: 2001 William Aldridge, MBA, CFA Portfolio Manager Industry Start: 2002 Firm Start: 2006 Adelaide Kim, CPA, CA, CFA Portfolio Manager Industry Start: 2000 Firm Start: 2011 Andrew Knezy, MBA, CFA Senior Investment Analyst Industry Start: 1994 Firm Start: 2016 PERFORMANCE SUMMARY In Q4 2017, Mackenzie Canadian All Cap Value Composite returned 5.2% (Gross, CAD), 5.1% (Net, CAD). This compares with the S&P/TSX Composite Total Return Index return of 4.5%. The portfolio outperformed the index due to security selection in the Financials and Materials sectors and an underweight position in Energy, offset slightly by an underweight position in Health Care. CONTRIBUTORS TO PERFORMANCE The largest contributors to relative performance at the security level include: Boardwalk REIT Boardwalk owns and manages apartment properties in Canada, with a majority of its buildings in Alberta. Boardwalk suffered from increased vacancy, escalating operating costs and declining rents as the Alberta energy-driven recession accelerated during 2016 and into We used weakness in the share price to build our position during this period. Even prior to the recent upturn in energy prices, Boardwalk began to experience improving fundamentals, with rents increasing and occupancy stabilizing. The shares are trading at very attractive multiples to cash flow and net asset value based on normalized earnings power. Alimentation Couche-Tard Ltd. Couche-Tard shares performed strongly towards the end of the year as the overhang from grocer Metro s large position in Couche-Tard was sold into the market following Metro s announced takeover of pharmacy chain Jean Coutu. We purchased shares on this transaction to increase our weight in the company. Valuation on Couche-Tard is improving as the company begins to realize synergies from several sizable takeover transactions. Earnings are likely to accelerate over the next couple of years. The acquisition landscape is poised to improve as smaller convenience store entities struggle with the shift to electric vehicles. We expect Couche-Tard to be an active player in continued industry consolidation globally. Capital for acquisitions is generated internally and with modest balance sheet leverage, which typically leads to earnings accretion. Canadian Imperial Bank of Commerce CIBC is Canada s fifth largest bank. CIBC shares had underperformed through the first half of the year on worries about the Canadian housing landscape. CIBC has the most relative exposure to Canada, and Canadian housing, of the Big 5 banks. Investors were also concerned about CIBC s takeover of U.S.-based PrivateBancorp. Despite these worries, CIBC generated very strong earnings growth throughout 2017 and investors finally recognized the strong fundamentals towards the tail end of the year. CIBC is the largest overweight bank position in the fund. DETACTORS FROM PERFORMANCE Investing involves risk. Please read the important disclosures under Important Notes which contain more information about the significance and the limitations of the information on this page. The largest detractors from relative performance at the security level include: Suncor Energy Inc. Suncor is Canada s largest energy company by market cap. The shares are owned in the portfolio but at a weight below the benchmark. Suncor shares outperformed the Energy sub-index throughout Suncor has demonstrated attractive growth and free cash flow generation as well as stability in its results given the integrated nature of its business. However, the shares trade at a high multiple relative to the historical range. We have been able to find better relative value in other positions in the Energy sector. Pembina Pipeline Corp. Pembina is an energy pipeline and midstream processing company with primarily Canadian operations. Pembina is not owned in the portfolio and outperformed the TSX Energy sub-index. Enbridge Inc. Enbridge is North America s largest energy pipeline company, with balanced exposure to oil and natural gas following its transformative takeover of Spectra Energy. Enbridge underperformed during the quarter as investors worried about the company s ability to fund its sizable development program and maintain its dividend growth guidance. The shares began to improve towards the end of the year following the announcement it would raise equity capital in a private placement and divest non-core assets to fund the growth program and reduce debt. The portfolio has a significant weight in Enbridge based on an attractive valuation and the stability of its cash flow and dividend.

3 CONTRIBUTORS AVG. ACTIVE WEIGHT CONTRIBUTION TO Q4 RETURNS TOP 5 CONTRIBUTORS SECTOR Boardwalk REIT Real Estate 1.9% 0.2% Canadian Imperial Bank of Commerce Financials 2.2% 0.2% Teck Resources Limited Class B Materials 1.0% 0.2% Alimentation Couche-Tard Inc. Class B Consumer 2.1% 0.2% Staples Canaccord Genuity Group Inc. Financials 0.5% 0.2% DETRACTORS AVG. TOP 5 DETRACTORS SECTOR ACTIVE WEIGHT Canopy Growth Corporation Health Care -0.1% -0.1% AGT Food and Ingredients Inc. Consumer Staples 0.5% -0.1% Valeant Pharmaceuticals Health Care -0.3% -0.1% International Inc. CONTRIBUTION TO Q4 RETURNS First Quantum Minerals Ltd. Materials -0.5% -0.1% ECN Capital Corp. Financials 1.9% -0.1% PERFORMANCE ATTRIBUTION SECTOR ATTRIBUTION 2017 Q4 Sector 1 Year Sector as at December 31, % 0% 1% 2% 3% 4% 5% 6% Allocation Stock Selection Currency Cash Attribution versus S&P/TSX Composite Total Return Index in CAD Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecommunication Services Utilities Cash -0.75% -0.50% -0.25% 0.00% 0.25% 0.50% 0.75% PORTFOLIO ACTIVITY This quarter we initiated positions in Laurentian Bank of Canada. We added to the positions in Alimentation Couche-Tard Inc., Loblaw Companies Ltd., Crescent Point Energy Corp., Enbridge Inc., Precision Drilling Corp., and Boardwalk REIT during the quarter. We reduced positions in Canadian Tire Corp., Linamar Corp., Magna International Inc., Genworth MI Canada Inc., Industrial Alliance Insurance and Financial Services Inc., CAE Inc., Westjet Airlines Ltd., Methanex Corp., and West Fraser Timber Company Ltd. during the quarter. Investing involves risk. Please read the important disclosures under Important Notes which contain more information about the significance and the limitations of the information on this page.

4 NAMES ADDED Laurentian Bank of Canada (Canada-Financials) NAMES REMOVED None OUTLOOK 2017 was a difficult year for Canadian equities as commodity stocks and energy, in particular, dramatically underperformed. In addition the technology sector led the charge in the U.S. and served as another point of Canadian underperformance given weak technology representation in the Canadian benchmark. The underperformance was less so in the fourth quarter as Canadian stocks rallied, netting most of the year s performance in the last three months on broad-based strength across the market. Many of the trends that shaped 2017 have continued early in 2018 so far, with the exception of energy, which has reversed course and has outperformed on the back of much stronger oil pricing. Continuing strong synchronized global growth should be good for the Canadian market given its strong resource makeup. Commodity prices are responding to a general lack of investment, reducing supply while at the same time demand remains strong. Of course, just as the best remedy for weak prices is weak prices, as the saying goes, the reverse is also true. Strong commodity pricing will attract capital to resources and lead to increased supply, serving to reduce pricing and profitability as the cycle plays out. However, it remains early innings for the Energy sector, which had been out of favor for a few years. Investors had shifted capital from energy to technology and some of this capital flow may reverse. Canadian energy companies have used the downturn to reduce cost structures and high-grade assets, which should serve them well in a higher commodity price environment. Furthermore, as valuation multiples has contracted, the potential exists for both improved profitability and multiple expansion. As a result, we increased our Energy weight in the fourth quarter. Trade disputes and the reworking or nixing of NAFTA have been issues at the forefront of Canadian industry. While we are not going to predict the behaviour of President Trump and negotiators working on his behalf, most likely the Canadian markets and currency would weaken on any announcement that NAFTA is to be dissolved. However, this would likely present an opportunity to increase exposure to Canadian stocks given how intertwined the Canadian and U.S. economies are. In other words, the bark of the announcement is likely to be greater than the bite of reality when it comes to implementation of any revised accord that may create the initial perception of the U.S. winning. Changes to mortgage rules are likely to have an impact on the Canadian housing market in As long as the economy is performing well and employment levels remain strong, is it unlikely that a significant deterioration in house prices will occur. However, signs of weakening employment levels and the onset of recession could prove difficult for those Canadians who have purchased homes in the past few years at high loan-to-value ratios and high prices generally. Many of these families may find their debt burdens unmanageable. At the risk of stating the obvious, it is likely that bank profitability would weaken in a tougher market for Canadian housing. With respect to valuation, our models suggest stocks on balance are trading at the high end of our estimates of fair value. As a result, downside risk often outweighs upside potential for most stocks we track. We do, however, remain fully invested in stocks that are attractively valued on a relative basis. COMPOSITE AND BENCHMARK PERFORMANCE (CAD) AS AT DECEMBER 31, MONTHS 6 MONTHS 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS SINCE INCEPTION* Mackenzie Canadian All Cap Value (Gross) 5.2% 8.2% 9.4% 18.2% 8.3% 8.6% 10.9% 7.1% Mackenzie Canadian All Cap Value (Net) 5.1% 8.0% 8.9% 17.6% 7.8% 8.1% 10.4% 6.6% S&P/TSX Composite Total Return Index 4.5% 8.3% 9.1% 14.9% 6.6% 7.6% 8.6% 4.6% 1 Mackenzie Investments (the Firm ) has been managing Canadian All Cap Value assets since December The Firm claims compliance with GIPS starting January 1, 2008 and has been independently verified for the period of January 1, 2008 to December 31, Returns for periods greater than 1 year have been annualized. *The composite inception date is January 1, Investing involves risk. Please read the important disclosures under Important Notes which contain more information about the significance and the limitations of the information on this page.

5 DISCLAIMER Mackenzie Financial Corporation is regulated as a Portfolio Manager in all provinces and territories in Canada by the relevant securities commissions in each jurisdiction. Additional information about Mackenzie Investments Corporation and Mackenzie Financial Corporation is available on the various securities commissions websites in the provinces and territories of Canada. IMPORTANT NOTES Investing involves risk. Any opinion expressed herein is as of December 31, 2017 and is subject to change without notice. The contents of this document are provided for illustrative and marketing purposes and do not constitute specific advice regarding your personal investment situation or provide specific individual advice about investment, insurance, financial, legal, accounting, tax or similar matters. Certain information contained in this document is obtained from third parties. Mackenzie Investments believes such information to be accurate and reliable as at the date hereof, however does not guarantee that it is accurate or complete or current at all times. The information provided is subject to change without notice and Mackenzie Investments cannot be held liable for any loss arising from any use of or reliance on the information contained in this document. No portion of this communication may be reproduced or redistributed without the express permission of Mackenzie Investments. Views expressed regarding a particular company, security, industry or market sector are the views of only that speaker/author as of the time expressed and do not necessarily represent the views of Mackenzie Investments or its affiliates. Any such views are subject to change at any time based upon markets and other conditions and Mackenzie Investments and its affiliates disclaim any responsibility to update such views. These views are not a recommendation to buy or sell and may not be relied on as investment advice and, because investment decisions are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any client. Speculation or stated beliefs about future events, such as market and economic conditions, company or security performance, upcoming product offerings or other projections are forward-looking statements. These forward-looking statements represent the beliefs of the speaker/author and do not necessarily represent the views of Mackenzie Investments or its affiliates. Forward-looking statements are inherently subject to, among other things, risks, uncertainties and assumptions which could cause actual events, results, performance or prospects to differ materially from those expressed in, or implied by, these forwardlooking statements. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, the volatility of global equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings, catastrophic events and the ability of Mackenzie Investments and its affiliates to attract or retain key employees. The foregoing list of important risks, uncertainties and assumptions is not exhaustive. Please consider these and other factors carefully and not place undue reliance on forward-looking statements. In addition, Mackenzie Investments and its affiliates manage a number of separate strategies and portfolio managers for those strategies may have differing views or any analysis with respect to a particular company, security or the economy than the views expressed herein. Mackenzie s Portfolio Analytics Group is responsible for conducting performance attribution. The group uses Factset Research Systems for conducting performance attribution based on daily holdings. The model uses a multi-currency attribution based on Brinson-Fachler Model. The model decomposes portfolio returns into currency, allocation, selection and interaction effects. Past performance does not guarantee or indicate future results. Information under Composite and Benchmark Performance (CAD) reflects the performance of the Mackenzie Canadian All Cap Value Composite, and does not necessarily reflect the performance that any particular account investing in the same or similar securities may have had during the period. The performance of other accounts is likely to differ from the performance shown for a variety of reasons, including, but not limited to: differences in market conditions, portfolio turnover and in the number, types, availability and diversity of securities that can be purchased; economies of scale, regulations and other factors applicable to the management of large separate accounts and mutual funds; client-imposed investment restrictions; the timing of client investments and withdrawals; the deduction of taxes; tax considerations; and other factors. Information presented under the headings Contributors to Performance, Detractors from Performance, Contributors, Detractors, Performance Attribution, Sector Attribution, Portfolio Activity, Names Added and Names Removed are made with specific reference to a representative account within the Composite. Gross performance results do not reflect the deduction of management fees and other expenses except for brokerage commissions and other trading expenses. If those fees and costs were reflected, results would be reduced. Including these fees and expenses would reduce the returns shown. Net performance results reflect the deduction of the maximum standard fee of 0.45% charged to institutional clients without taking into account breakpoints, calculated daily and invoiced quarterly, as well as the transaction costs and certain other fees and expenses, including certain taxes, described in the Investment Management Agreement. Certain clients could pay different fees which would result in different net performance returns. Net performance results also do not include the deduction of custodial fees, which will reduce the returns shown. Taxes have not been deducted. Both gross and net performance returns assume the reinvestment of dividends, interest, and realized and unrealized capital gains and losses. Index returns do not reflect transaction costs or the deduction of other fees and expenses and it is not possible to invest directly in an index. The Mackenzie Canadian All Cap Value Composite contains fully discretionary, Canadian All Cap Value accounts. New accounts are included in the Composite beginning with the first full month under management after they have been fully invested.

6 IMPORTANT NOTES (cont'd) COMPLIANCE STATEMENT Mackenzie Investments claims compliance with the Global Investment Performance Standards (GIPS ). Mackenzie Investments has been independently verified for the periods January 1, 2008 through December 31, Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The Canadian All Cap Value Composite has been examined for the periods January 1, 2008 through December 31, The verification and performance examination reports are available upon request. FIRM OVERVIEW Mackenzie Investments provides investment management and related services through multiple distribution channels. Assets under management as at December 31, 2017 were C$ billion*. We provide our investment management expertise through mutual funds, pooled funds, segregated accounts, and separate accounts for retail and institutional investors. Mackenzie Investments is dedicated to generating consistently superior long-term investment returns for its clients. The Firm is a member of the IGM Financial Inc. (TSX:IGM) group of companies. COMPOSITE DESCRIPTION The Canadian All Cap Value Composite seeks to provide superior long-term capital appreciation by investing in a portfolio of undervalued Canadian equities across all market capitalizations. Portfolios within the composite may use derivatives for hedging and non-hedging purposes and engage in short selling in a manner considered appropriate to pursuing the investment objectives of the composite. As of December 31, 2017, neither strategy has been utilized. The composite was created on December 31, BENCHMARK DESCRIPTION The benchmark is the S&P/TSX Composite Total Return Index. The S&P/TSX Composite Total Return Index is a capitalization-weighted index that represents some of the largest float-adjusted stocks trading on the Toronto Stock Exchange. REPORTING CURRENCY Valuations and composite performance are reported in Canadian dollars. The composite includes Canadian dollar portfolios. LIST OF COMPOSITES A complete list of composite descriptions is available to prospective clients upon request. Please contact Aaron Pittman at apittman@mackenzieinvestments.com. * In October 2017, investment management functions of Investors Group and Mackenzie Investments joined together to form a single global investment management organization. As at November 2017, this merger has resulted in an increase of approximately C$55 billion in Mackenzie's sub-advisory assets under management. Mackenzie Financial Corporation All rights reserved /18 MACKENZIE INVESTMENTS 180 Queen Street West, Toronto, Ontario M5V 3K1 T F E apittman@mackenzieinvestments.com mackenzieinvestments.com