MACKENZIE CANADIAN FOCUSED RESOURCE CAD Q COMMENTARY

Transcription

1 MACKENZIE CANADIAN FOCUSED RESOURCE CAD

2 INCEPTION: January BENCHMARK: Blended Index Natural Resources: 38.5% S&P/TSX Energy % S&P/TSX Materials % MSCI World Energy % MSCI World Materials STRATEGY ASSETS: C$ 1,119 million PORTFOLIO MANAGEMENT TEAM: Benoit Gervais, MSc., CFA Portfolio Manager Industry Start: 2001 Firm Start: 2001 Onno Rutten, MSc., MBA Portfolio Manager Industry Start: 1997 Firm Start: 2011 Scott Prieur, MBA, CFA Associate Portfolio Manager Industry Start: 2003 Firm Start: 2013 PERFORMANCE SUMMARY For Q3 2017, the Mackenzie Canadian Focused Resource composite returned 3.5%, (Gross, CAD), 3.3% (Net, CAD). The blended index composed of 38.5% S&P/TSX Energy % S&P/TSX Materials % MSCI World Energy % MSCI World Materials returned 5.2%. CONTRIBUTORS TO PERFORMANCE First Quantum Minerals, a long-term core holding of the fund, was a significant contributor to performance during the quarter as copper prices moved higher. The company continues to advance its project development pipeline which should result in substantial production growth and value creation by 2018/2019. Higher copper prices should also help the company accelerate its much needed balance sheet de-levering. Canfor Corporation and other major lumber producers, West Fraser Timber Co. and Interfor Corporation contributed to performance as lumber prices continued to move higher driven by a strengthening U.S. residential housing market (partially bolstered by the unfortunate aftermath of the 2017 hurricane season), and limited access to fiber in Canada due to beetle infestations and forest fires. We suspect the current market conditions to endure, and provide a good environment for those companies to return capital to shareholders. DETRACTORS FROM PERFORMANCE Advantage Oil & Gas Ltd. and Tourmaline Oil Corp. detracted from performance this quarter. Although Advantage and Tourmaline's long-term growth opportunities and low cost position in the basin remains intact, low Canadian gas prices weighed on the stocks. Both companies continue to screen well on our Sustainable Free Cash Flow screening process. Moreover, Advantage and Tourmaline have solid balance sheets which should allow them to deliver on their growth aspirations, in a prolonged rout for natural gas. Asmaa Marrat, MSc., CFA Senior Investment Analyst Industry Start: 2000 Firm Start: 2013 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.

3 CONTRIBUTORS AVG. ACTIVE WEIGHT CONTRIBUTION TO Q3 RETURNS TOP 5 CONTRIBUTORS SECTOR First Quantum Minerals Ltd. Materials 3.9% 0.7% Capstone Mining Corp. Materials 1.3% 0.4% Pieridae Energy Ltd. Private Placement Energy 1.2% 0.4% Largo Resources Ltd. Materials 0.5% 0.3% Glencore plc Materials 2.4% 0.3% DETRACTORS AVG. ACTIVE WEIGHT CONTRIBUTION TO Q3 RETURNS TOP 5 DETRACTORS SECTOR Advantage Oil & Gas Ltd. Energy 4.3% -0.7% Suncor Energy Inc. Energy -6.6% -0.7% QEP Resources, Inc. Energy 2.0% -0.6% Detour Gold Corporation Materials 3.1% -0.4% Tourmaline Oil Corp. Energy 2.4% -0.4% PERFORMANCE ATTRIBUTION COUNTRY ATTRIBUTION 2017 Q3 Country 2017 Q3 Sector 1 Year Country as at September 30, Year Sector as at September 30, % -7% -6% -5% -4% -3% -2% -1% 0% 1% SECTOR ATTRIBUTION Energy Industrials Materials Utilities Cash Australia Austria Belgium Canada China Denmark Finland France Germany Ireland Israel Italy Japan Netherlands New Zealand Norway Portugal Spain Sweden Switzerland United Kingdom United States Cash Other -2% -1% 0% 1% Other -4% -3% -2% -1% 0% 1% 2% 3% Allocation Stock Selection Currency Cash Other Attribution versus Blended Index Natural Resources in CAD comprised of 38.5% S&P/TSX Energy % S&P/TSX Materials % MSCI World Energy % MSCI World Materials PORTFOLIO ACTIVITY This quarter we exited positions in Randgold and Eastman. This quarter we initiated positions in Halliburton and SM Energy.

4 NAMES ADDED Aston Bay Holdings Ltd. Private Placement (Canada Materials) Copper Mountain Mining Corporation (Canada Materials) Coro Mining Corp. Private Placement (Canada Materials) Halliburton Company (United States Energy) Pieridae Energy Ltd. Subscription Receipts (Canada Energy) Reunion Gold Corp. Private Placement (Canada Materials) SM Energy Company (United States Energy) Trican Well Service Ltd. (Canada Energy) Westgold Resources Ltd Warrant (Australia Materials) NAMES REMOVED Eastman Chemical Company (United States Materials) Petrus Resources Ltd. Private Placement (Canada Energy) Randgold Resources Limited Sponsored ADR (United Kingdom Materials) Tahoe Resources Inc. (United States Materials) OUTLOOK After several years of forced capex discipline, a drought of large scale resource projects is on the horizon, just when demand is inflecting upwards. For 2018, most commodities are anticipated to be in supply deficit which should be supportive for prices. We believe the oil market is in a substantial but also underappreciated deficit, with inventories rapidly declining towards normalized long-term levels. While most commodities tend to perform in sync with inventories (i.e. inventory down, prices up), oil prices seem to be suppressed by some superseding factors. We surmised that EV growth, OPEC discipline, and shale growth explain much of this break in relationship. We do not foresee EV growth, nor discipline, nor shale oil to be meaningful enough to change the supply rebalancing which is currently underway. Nevertheless, we now expect the market to wait for oil inventories to reach lower than usual levels, before responding with higher prices something likely to happen in the next few quarters. Minor metal markets, especially lithium and cobalt, continue to benefit from the broad social acceptance that the global car fleet will transition towards battery powered vehicles. Our modest investments in lithium equities benefited from this trend during the quarter. We will continue to seek other investment opportunities related to the electric vehicle thematic that meet our stringent investment criteria. Copper seems well placed to benefit from the need to strengthen electrical power grids and accommodate the anticipated electrification of transport. With the global economy showing no signs of overheating, and raw materials supply remaining largely constrained, inventory rebalancing is well underway. We continue to expect commodity prices to spend the next several quarters above "mid-cycle" levels; an environment supporting aboveaverage returns for resource equities. COMPOSITE AND BENCHMARK PERFORMANCE (CAD) AS AT SEPTEMBER 30, MONTHS 6 MONTHS 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS SINCE INCEPTION* Mackenzie Canadian Focused Resource (Gross) 3.5% -7.6% -6.1% 14.6% -5.8% -1.5% -1.3% -1.3% Mackenzie Canadian Focused Resource (Net) 3.3% -8.0% -6.9% 13.6% -6.6% -2.3% -2.2% -2.1% Blended Index Natural Resources (comprised of 38.5% S&P/TSX Energy % S&P/TSX Materials % MSCI World Energy % MSCI World Materials) 5.2% -1.5% 1.1% 16.0% -0.4% 2.9% 1.1% 0.6% 1 Mackenzie Investments (the Firm ) has been managing Global Resource assets since January 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 September 30, 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 Focused Resource 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 and Portfolio Activity 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 0.85% 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 Focused Resource Composite contains fully discretionary, Canadian Focused Resource 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 ) and has prepared and presented this report in compliance with the GIPS standards. 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 verification report is available upon request. Verification does not ensure the accuracy of any specific composite presentation. FIRM OVERVIEW Mackenzie Investments provides investment management and related services through multiple distribution channels. Assets under management as at September 30, 2017 were C$ 69.2 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 Focused Resource Composite seeks to provide long-term capital growth by investing primarily in natural resource companies across a broad spectrum of industries. Portfolios in 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. The composite was created on January 31, 2017, and includes accounts from the Natural Resource Composite that must invest at least 50% of assets in Canadian companies. BENCHMARK DESCRIPTION The benchmark is a blend of 38.5% S&P/TSX Energy Total Return Index / 31.5% S&P/TSX Materials Total Return Index / 16.5% MSCI World Energy Total Return Index, net of withholding taxes / 13.5% MSCI World Materials Total Return Index, net of withholding taxes. The S&P/TSX Composite Index is a capitalizationweighted index that represents some of the largest float-adjusted stocks trading on the Toronto Stock Exchange. The S&P/TSX Energy Index includes energy sector stocks within the S&P/TSX Composite Index. The stocks are selected based on the S&P/MSCI Global Industry Classification Standard (GICS ). The S&P/TSX Materials Index includes materials sector stocks within the S&P/TSX Composite Index. The stocks are selected based on GICS. The MSCI World Index is a free float adjusted, market capitalization weighted index that is designed to measure the equity market performance of developed markets. It consists of 23 developed market country indices. The MSCI World Energy Index includes energy sector stocks within the MSCI World Index. The stocks are selected based on GICS. The MSCI World Materials Index includes materials sector stocks within the MSCI World Index. The stocks are selected based on GICS. 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. Mackenzie Financial Corporation All rights reserved /17 MACKENZIE INVESTMENTS 180 Queen Street West, Toronto, Ontario M5V 3K1 T F E apittman@mackenzieinvestments.com mackenzieinvestments.com