Tradex Equity Fund Annual General Meeting. April 26, 2018 Andrew Mitchell, CFA, Portfolio Manager Beecher Rusin, CIM, Associate

Transcription

1 Tradex Equity Fund Annual General Meeting April 26, 2018 Andrew Mitchell, CFA, Portfolio Manager Beecher Rusin, CIM, Associate

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3 "Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected." - George Soros Bottom Up Stock Picking Emphasis Continuous Recalibration Never Stand Still - Tradex s Response

4 Performance of Major Global Equity Indices Canada Continues to Struggle Global Market Performance (C$) March 2011 to March 2018 MSCI World Index Sector Weights March 2018 Financials 18% S&P 500 Index 15% Information Technology 18% Consumer Discretionary 13% MSCI World Index 13% Health Care 12% Industrials 12% MSCI EAFE Index 10% Consumer Staples 9% Energy 6% MSCI EM Index 7% Materials 5% Real Estate 3% S&P/TSX Index 4% Utilities 3% Telecommunication Services 3% 0% 5% 10% 15% 20% 0% 5% 10% 15% 20% Source: RBC GAM 4

5 Tradex Equity Fund Going Global Improving Diversification and Broadening Opportunity Set March 2011 March 2018 Cash 1% United States 21% U.S 100% Canada 78% Global 36% Canada 60% Emerging Markets 4% Source: RBC GAM 5

6 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 (Indexed Performance) Global Equity Strong Relative Performance Global Exposure Complemented by Recent Emerging Markets (EM) Addition S&P 500 Index Relative S&P/TSX MSCI World Index Relative S&P/TSX MSCI EM Index Relative S&P/TSX Source: RBC GAM 6

7 Canadian Equity Allocation

8 Tradex Fund Canadian Positioning Emphasis on Bottom-Up Stock Picking Top 5 Active Weights Sector Active Weight (%) Canadian National Railway Industrials 1.1% Canadian Equity Component Active Sector Weight vs. S&P/TSX Capped Composite Index Bank of Nova Scotia Financials 0.9% Power Corporation of Canada Financials 0.8% Royal Bank of Canada Financials 0.8% Magna Consumer Disc 0.7% Bottom 5 Active Weights Sector Active Weight (%) Dollarama Consumer Disc -0.7% Constellation Software Info Tech -0.8% Fortis Utilities -0.9% Barrick Materials -0.9% National Bank Financials -1.0% # of Securities Dividend Yield Beta Tradex Equity Fund Canadian Equities % 1.0x S&P/TSX Capped Composite Index % 1.0x Source: RBC GAM, as at March 31,

9 Energy Sector Outlook The Good Outweighs the Bad for Our Stocks The Good: Bottom-Up Fundamentals Production: Low cost/growing Right-sized cost structure Free Cash Flow: positive/growing Low Valuations: 3-4x Cash Flow Balance sheets: strong & sustainable Stewardship: disciplined capital allocation The Bad: Macro Risks Renewables Pipeline bottleneck in Canada Fund flows NAFTA Technicals But this is already heavily discounted! The Catalysts: What Could Reduce Pessimism? Steady demand growth gradually rebalances oil market Momentum in oil price builds as technicals recover Canadian differentials reverse as pipeline bottleneck eases Earnings revisions turning up again NAFTA resolution Geopolitical surprise or shock 9

10 OECD crude oil surplus stocks (million barrels) Global Oil Inventory Steady Underlying Demand Growth Has Right-Sized Glut 400 Global oil surplus essentially gone Note: OECD commercial crude oil inventory less 5-year average of commercial stocks. Source: EIA, RBC GAM 10

11 Energy Positioning Barbell to Capitalize on Full Opportunity Set Integrated Energy High Quality Producers Junior & Mid-Cap Exposure Cenovus Energy Suncor Energy ARC Resources Canadian Natural Resources Crescent Point Energy Raging River Exploration Vermillion Energy Spartan Energy High Quality Production: low cost, long life, undiscounted reserve upside Energy Playbook Deep Reserve Inventory: long life, low decline projects with attractive return potential Strong internal free cash flow generation: self-fund growth, dividends through bottom Proven/disciplined management team: well-aligned with shareholders Barbell Positioning: Integrateds for insulation + mid-caps for upside leverage 11

12 Share Price Positioning in Attractive IPOs Early Identification of Growth Opportunities $25 Jamieson Wellness July 2017 (IPO) to April 2018 $23 April 2018 $21 $19 $17 Bought IPO $15 Jul-17 Oct-17 Jan-18 Apr-18 Source: Factset 12

13 Foreign Equity Allocation

14 Tradex Equity Fund Global Equity Characteristics March 31, 2018 Top 10 Holdings Portfolio (%) Country Sector Roche Holding 4.6% Switzerland Health Care Estee Lauder 4.6% USA Consumer Staples EOG Resources 4.6% USA Energy UnitedHealth Group 4.4% USA Health Care Fortive 4.1% USA Industrials TJX Companies 3.9% USA Consumer Disc Intuit 3.8% USA Info Tech Unilever 3.7% Netherlands Consumer Staples First Republic Bank 3.7% USA Financials Nidec 3.6% Japan Industrials Industrials 12.0% Health Care 14.1% Info Tech 15.3% U.K. 7.9% Breakdown by Sector Breakdown by Region Cash 1.0% Materials 3.4% Asia-Pacific ex-japan 2.6% Consumer Disc 17.0% Financials 21.4% Emerging Markets 9.9% Consumer Staples 11.3% Energy 4.6% # of Securities Dividend Yield Beta Tradex Equity Fund Global % 1.00x MSCI World Index % 1.00x North America 57.5% Continental Europe 16.5% Japan 4.7% Source: RBC GAM 14

15 % of Index % of Index Emerging Markets Improves Diversification Better than in the Past Sector Composition Sector Composition Energy Info Tech Consumer Staples + Discretionary 0 3 Energy Info Tech Consumer Staples + Discretionary MSCI Emerging Markets Index S&P/TSX Index Source: RBCGAM 15

16 Attribution Highlights Global Equity Component One Year Ended March 31, 2018 SECTORS - Attribution (%) COMPANIES Attribution (%) Consumer Staples Industrials Health Care Consumer Disc Materials Info Tech Financials Telecom Real Estate Energy Utilities -1% 0% 1% 2% 3% Estee Lauder Kite Pharma Nidec Intuit Naspers Sempra Anheuser-Busch Paddy Power First Republic Bank Roche Holding -1% 0% 1% 2% Source: RBC GAM Performance 16

17 (Performance Relative to MSCI World Index) Nidec Benefitting from Electrification of Cars and Robotic Applications Nidec Positioning & Performance Nidec Portfolio Weight Performance Relative to MSCI World Index 6% 5% % 3% 2% 1% (Portfolio Weight) 80 0% Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Source: FactSet ; RBC GAM Date: As of March 31,

18 (Performance Relative to MSCI World Index) Intuit Leading N.A. Financial Management and Tax Software Provider Intuit Positioning & Performance 140 Intuit Portfolio Weight Performance Relative to MSCI World Index 5% 130 4% % 2% (Portfolio Weight) % 80 0% Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Source: FactSet ; RBC GAM Date: As of March 31,

19 (Performance Relative to MSCI World Index) Estée Lauder E-commerce and Chinese Market Penetration Driving Organic Growth Estée Lauder Positioning & Performance 130 Estee Lauder Portfolio Weight Estee Lauder Performance Relative to MSCI World Index 6% % % (Portfolio Weight) 80 3% % Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Source: FactSet ; RBC GAM Date: As of March 31,

20 ESG/Responsible Investment What it isn t, What it is ESG is not: Socially Responsible Investing (SRI) Ethical Investing Values-based judgments of a security or sector Negative screening to eliminate companies or sectors Fossil Free or Carbon Light ESG is: Enhanced analysis of companies through ESG integration Better understanding of risk and opportunity Stewardship: proxy voting and company engagement Working with other managers and owners to address ESG issues 20

21 ESG Accesses Alternative Sources of Value Creation Stock appreciation potential Contingent assets Weak ESG / business practices Strong ESG / business practices Colleagues Lack of training, unsafe working conditions, high turnover Colleagues High level of engagement, strong corporate culture, innovation encouraged, investment in R&D Customers No returns policy, poor product labelling, systematically over-charging Customers Responsive to needs, convenient opening times, effective dispute resolution Suppliers High reputational risk, lack of audit, weak quality-control procedures Suppliers Timely bill payment, efficient production planning, good traceability Environment Pollution, high-cost carbon reserves, excessive water usage Environment Effective emissions control, sustainable sourcing practices, renewable energy usage Contingent liability Stock depreciation potential 21

22 Why Stock Picking Matters? Tradex Long-term Performance Advantage

23 (# of Stocks) Positioning Statistics Tradex Equity Fund Differentiated by Off-Benchmark Positions and Number of Holdings 3000 ~2700 Stocks Canadian, Global and Emerging Market Benchmark Holdings 110 Stocks + 13 Off-Benchmark Positions Tradex Equity Fund Holdings Source: RBC GAM 23

24 Solid Long-Term Outperformance Supported by Strong Stock Picking & Foreign Equity Exposure 3 Months 1 Year 3 Years 5 Years 10 Years As of March 31, 2018 (%) (%) (%) (%) (%) Tradex Equity Fund Ltd.* S&P/TSX Composite Index Performance vs. TSX Index Post-fee performance figures sourced from Globefund Total may not add to 100% due to rounding Outperforming market and peers net of fees during recent bout of volatility 24

25 Staying Ahead of the Competition Working to Capitalize on Our Advantages 3 Months 1 Year 3 Years 5 Years 10 Years As of March 31, 2018 (%) (%) (%) (%) (%) Tradex Equity Fund Ltd.* Peer Group Average Performance vs. Peer Group Post-fee performance figures sourced from Globefund Total may not add to 100% due to rounding Outperforming market and peers net of fees during recent bout of volatility 25

26 Conclusion

27 Renewed Turbulence in Financial Markets 27

28 Not a Stable & Predictable World Never Has Been and Stocks Have Compounded Value 28

29 Low Volatility of 2017 Was to Good To Be True Expect Volatility to Return to Normal Levels Annualized Volatility as of December 31, Last 20 Years Last 20 Years Last 20 Years Last 3 Years Last 3 Years Last 3 Years Annualized standard deviation of monthly returns, in base currencies, as of December 31, 2017; Source: RBC GAM 29

30 Caution Warranted Equity Risk Conditions are Favourable Our View on Asset Mix and Equity Weight RBC GAM Macro Composite Market Conditions of Equities CURRENT STATE: Earnings Inflation HY Spread Volatility Yield Curve Valuations Overall Slightly Positive *Small sample of Indicators that we monitor Cyclical bear markets in secular bull Cyclical bear markets in secular bear 30

31 Risk of Missing Out Final 12-months on Average Account for 1/5 Bull Market Gains 31

32 Summary Experienced strong capital market performance over the past year; led by EM and U.S. Tradex performance is overachieving relative to benchmark and peers Performance is supported by differentiated approaches with an emphasis on stock picking Continuously evolving/broadening opportunity set Fundamental backdrop late cycle 32

33 Thank You

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