Sprott Focused US Dividend Class

Year-to-date to November 30, the Sprott Focused US Dividend Class generated a total return of 13.4% compared to the S&P 500 Index, which generated a total return of 15.8%.

Returns in the month of November were good, with the Fund generating a total return of 2.5% while the benchmark generated a total return of 3.1%. Although slightly behind the index over the month, given the outperformance of the consumer discretionary sector (driven by Amazon’s blow-out results), investors should be generally pleased to have kept pace in a dividend-focused, broadly-diversified fund.

Although we had hedged 50% of our USD exposure in November, we removed the hedges at the end of the month, returning to a neutral position relative to our benchmark. Our modelling indicates that the Canadian dollar is likely to weaken through the end of the year, with the US Federal Reserve expected to hike rates on December 13, while the Bank of Canada remains on hold into 2018.

Top contributors to the year-to-date performance of the Sprott Focused US Dividend Class included Unitedhealth Group (+165 bps), Mastercard (+154 bps) and Visa (+149 bps). Top detractors year-to-date included PG&E (-73 bps), Macquarie Infrastructure (-58 bps) and Disney (-58 bps). Note that we have eliminated all three of these securities due to stock-specific factors that led to the disappointing performance.

Corporate activity seemed to pick up this past month and one of our holdings, Delphi Automotive, accelerated its plan to surface shareholder value by spinning its powertrain segment into a new, publicly traded entity renamed Delphi Technologies (DLPH US), effective December 4, 2017. The remaining segments of the business will focus on advanced connectivity, autonomous driving, electronics and safety and will be renamed Aptiv (APTV US).

Delphi Technologies (with approximately $4.5 billion in sales) should benefit from broad industry trends toward improved fuel economy and emissions reduction. DLPH is expected to deliver above market, profitable growth and will mostly likely trade in line or slightly above its automotive peers, given its global, low cost manufacturing base. Aptiv (with approximately $12.5 billion of sales) is poised to benefit from the safe, green and connected-vehicle megatrends. APTV is expected to outpace the overall industry growth by a wider margin and will most likely trade at a premium valuation to its automotive peers, given its global leadership position in advanced automotive technologies. From a value creation perspective, we believe that either entity could eventually become a takeover target for a larger participant in the automotive industry, given the attributes described above.

The Sprott Focused US Dividend Class was concentrated in 27 positions as at November 30, 2017 with the top 10 holdings accounting for approximately 43% of the fund. Over the past year, 20 out of our 27 holdings have announced a dividend increase, with an average hike of 24.1%. We will continue to apply a disciplined investment process, balancing various quality and valuation metrics, in an effort to generate solid risk-adjusted returns.

Jeffrey Sayer, CFA