RBC QUBE Market Neutral World Equity Fund (CAD Hedged)

Transcription

1 RBC QUBE Market Neutral World Equity Fund (CAD Hedged) Q Quarterly Report Performance As of September 30, 2017 Three Month Year to Date One Year Three Year Since Inception* RBC QUBE Market Neutral World Equity Fund (CAD Hedged) FTSE TMX Canada 91 Day T-Bill Index Series F performance. *Inception date is August Fund Overview The objective of the fund is to provide consistent absolute returns that are substantially independent of the performance of global equity markets (including emerging markets). Our process is designed to assemble a portfolio of long positions in companies with a more attractive combination of these characteristics than securities we sell short, while targeting a broad equity market exposure of zero. Underlying our approach is the belief that portfolios with a better mix of the characteristics that drive stock returns over time, characteristics such as better valuations, profitability, and growth, will deliver superior returns relative to the market as a whole. Based on this belief, we employ an investment process that scores companies based on these desirable characteristics that we refer to as alpha factors. We also employ risk factors to ensure adequate diversification by sector and market capitalization, manage position sizing, and maintain market neutral positioning. Market Update The global acceleration in economic growth that began in mid-2016 has largely been sustained in both the developed and developing world. Supportive financial conditions have provided a meaningful boost over this period, as the combination of low borrowing costs and friendly financial markets has provided a substantial lift in comparison to the challenging conditions of early While there are many reasons why modern economic growth is unlikely to return to the levels seen around the turn of the millennium including adverse demographics, fading globalization, and the remnants of post-crisis stagnation our constructive outlook is supported by the overall reduction in macro-based downside risks in recent quarters. Major developed equity markets as measured by the MSCI World Index returned 4.84% over the quarter in U.S. dollar terms. Largely due to recent FOR QUALIFIED INVESTORS ONLY Page 1 of 5

2 strengthening in the Canadian dollar, the global equity returns of Canadian investors were negatively affected, with the index returning 0.96% in Canadian dollar terms over the period. Last quarter s most meaningful detractor became this quarter s most meaningful contributor, as Energy added 4.91%, followed closely by the Materials and Information Technology sectors. The Consumer Staples sector detracted the most. Emerging market equities maintained their position as front-runner among major equity markets, returning 3.90% in the third quarter and bringing their year-to-date returns to 19.17% in Canadian dollar terms. EM equity performance was boosted by a recovery in global trade, ample liquidity from central banks, a relatively weak U.S. dollar, and a large economic stimulus package in China. Fund Performance The fund posted a 7.09% return during the third quarter. The fund generated positive returns in 10 out of 11 standard GIC sectors, with the largest gains provided by the Energy, Materials and Industrials sectors. From a regional perspective, security selection in North America and Europe-ex U.K. were strong contributors to the portfolio s performance. From a factor perspective, the Value and Analyst factors were important drivers of returns, as was Profitability. The fund s investment strategy employs multiple factors in part because individual factors will tend to outperform at different times in the economic cycle. Value tends to perform best during periods of economic growth or acceleration, when battered stocks can recover, and when growth is more abundant. We saw such an environment in the second half of 2016, when the prospect of pro-growth policies in the U.S. led Value to perform very strongly, as seen in the oneyear attribution below. This quarter s factor performance was consistent across the board, with all seven factors contributing positively and six out of seven factors contributing meaningfully. One of the largest contributing factors was Analyst, indicating that the most effective sell-side analysts still do have insights into stock returns, though their signal does tend to play out over a relatively short time horizon. We would also note that analysts tend to do better in an environment that is absent macroeconomic shocks, when their bottomup insights are more relevant. Current Positioning During the quarter, we substantially increased our long position in Boeing following several upgrades and positive estimate revisions. Most importantly, the company reported a 20% increase in their 2017 free cash flow outlook, driven by improved operational performance, lower CapEx, and a tax benefit. At almost 5%, the stock is now the largest long holding within the portfolio. We removed two long positions from the portfolio over the quarter: Hewlett-Packard and Campbell Soup Company. Our Profitability score for Hewlett-Packard dropped sharply after the company s latest earnings announcement was released. Campbell Soup Company also missed its recent earnings projection, due to lower sales and a higher-than-expected tax rate. With the company planning to shift its core business away from processed foods to focus on FOR QUALIFIED INVESTORS ONLY Page 2 of 5

3 producing healthier options, analysts are sceptical given this significant investment in higher-risk initiatives. We eliminated short positions in Nokia, Avnet, and Ball Corporation this quarter. Nokia s Analyst score transitioned from negative to meaningfully positive following increased patent revenue visibility and the net positive impact anticipated to follow from the company s involvement in 5G in Avnet continued to struggle with weak margins and supplier loss and we removed it from our short holdings to reduce our overall short exposure to the igics sector in which the company resides. Our view on Ball Corporation was upgraded by a sharp improvement in its Quality score. We established short positions in CBOE Holdings and Equinix over the quarter. Although CBOE Holdings Q2 results beat estimates by a small margin, the company is still working to integrate newly acquired BATS Global Markets. Equinix s Quality score dropped significantly over the quarter as a result of its acquisition of 29 data centre sites. We expect additional acquisitions to further degrade the company s Quality score. FOR QUALIFIED INVESTORS ONLY Page 3 of 5

4 The following tables show sector positioning as well as top long and short holdings as of September 30, GIC Sector Net Long Short Information Technology Industrials Materials Health Care Telecommunication Services Utilities Consumer Discretionary Real Estate Financials Consumer Staples Energy Regional Positioning Net Long Short Europe ex-u.k Asia-Pacific ex-japan EM Latin America EM Asia EM EMEA North America Japan United Kingdom Top 5 Holdings: Long Weight Driving Factor Factor Score 1 Boeing 4.99 Analyst / Quality 2.18 / 2.18 Novo Industries 4.13 Profitability 3.28 Intuit 4.09 Profitability 3.48 VMware 3.91 Quality 1.96 Deutsche Lufthansa 3.68 Value 3.44 Top 5 Holdings: Short Weight Driving Factor Factor Score 1 Anheuser-Busch InBev Quality Schlumberger Ltd Technical Air Liquide Analyst CTrip.com Analyst Enbridge Quality The Factor Score shows the amount by which the driving factor is higher or lower than the average of its sector peers, measured in units of standard deviation. # of Long Holdings # of Short Holdings Total Positions FOR QUALIFIED INVESTORS ONLY Page 4 of 5

5 This information is not intended to be an offer or solicitation to buy or sell securities or to participate in or subscribe for any service. No securities are being offered, except pursuant and subject to the respective offering documents and subscription materials, which may be provided to qualified investors only. This document is for general information only and is not, nor does it purport to be, professional advice or a complete description of an investment in any fund managed by RBC Global Asset Management Inc. (RBC GAM). If there is an inconsistency between this document and the respective offering documents, the provisions of the respective offering documents shall prevail. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM and its affiliates assume no responsibility for any errors or omissions. This document may contain forward-looking statements about the Fund, its future performance, strategies or prospects, and possible future Fund action. The words may, could, should, would, suspect, outlook, believe, plan, anticipate, estimate, expect, intend, forecast, objective and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement. All opinions in forward-looking statements are subject to change without notice and are provided in good faith but without legal responsibility. Investments in alternative funds are speculative and involve significant risk of loss of all or a substantial amount of your investment. Alternative funds may: (i) engage in leverage and other speculative investment practices that may increase the risk of investment loss; (ii) can be highly illiquid; (iii) are not required to provide periodic pricing or valuation information to investors; and (iv) are not subject to the same regulatory requirements as prospectus-offered mutual funds. In assessing the suitability of this investment, investors should carefully consider their personal circumstances including time horizon, liquidity needs, portfolio size, income, investment knowledge and attitude toward price fluctuations. Investors should consult their professional advisors and consultants regarding any tax, accounting, legal or financial considerations before making a decision as to whether the funds mentioned in this material are a suitable investment for them. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund s offering documents before investing. The performance data provided assumes reinvestment of distributions only and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. / Trademark(s) of Royal Bank of Canada. Used under licence. RBC Global Asset Management Inc FOR QUALIFIED INVESTORS ONLY Page 5 of 5