Sprott Global Infrastructure Fund

January 2018 Commentary

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In January 2018, the Sprott Global Infrastructure Fund generated a total return of -0.26% (Series F) compared to the S&P Global Infrastructure Index, which generated a total return of -1.15% in CAD.

Returns in the first month of the year were disappointing on an absolute basis but decent on a relative basis. From a broader perspective, the traditional interest rate-sensitive sectors (telecommunications, real estate and utilities) have been under pressure since last December, as the US 10-year Treasury yield rallied above 2.40%.  By late January, with the US 10-year Treasury yield approaching 2.85% driven by fears of rising inflation and accelerated FED tightening, the broader equity markets had joined the correction. However, it is important to remember that global economic data remains positive and 2018 expected earnings growth looks to be exceptional. Therefore, we don’t expect anything more than a sharp but normal mid-cycle correction to play out in the markets.

At the beginning of the year, our USD exposure was unhedged, in line with our benchmark.  Our modelling continues to indicate that the Canadian dollar is likely to weaken in 2018. However, recent oil price strength and accelerating global growth has led to US dollar weakness. On counter-trend rallies we have begun to add USD/CAD hedges in order to reduce currency-related volatility in the Fund in 2018.

Top contributors to the January performance of the Sprott Global Infrastructure Fund included Raytheon (+32 bps), Alphabet (+29 bps) and Mastercard (+28 bps). Top detractors in January included Pembina Pipeline (-28 bps), Brookfield Infrastructure Partners (-26 bps) and Transcanada Corporation (-23 bps). Canadian equity markets have had a particularly difficult start to the year and Canadian energy infrastructure has been quite weak given commodity price differentials and NAFTA concerns.

Our total infrastructure approach allows the purchase of stocks that are not traditionally thought of as infrastructure but are essential to the functioning of a modern, developed economy.  Raytheon, the US-based defense prime contractor, fits within this mandate quite nicely. 

Raytheon (RTN US) is perhaps best known for manufacturing the Patriot air and missile defense system, an indispensable component of many sovereign nations’ military infrastructure. Note that the Company is one of the most globally diversified US-based defense contractors, with approximately 40% of the current backlog tied to international sales.  In 2018, the Company is forecasting revenue of $26.4 to $26.9 billion (an increase of 4% to 6%) and earnings from continuing operations of $9.55 to $9.75 per share (an increase of 38% to 40%).  With an effective tax rate of almost 36% in 2017 but only 19% in 2018, Raytheon is a big beneficiary of US tax reform, a theme that has worked since the US election.

The Sprott Global Infrastructure Fund was concentrated in 31 positions as at January 31, 2018 with the top 10 holdings accounting for approximately 35.6% of the fund.  Over the past year, 24 out of our 31 holdings have announced a dividend increase, with an average hike of 15.4%.  Using a total infrastructure approach, we will continue to apply a disciplined investment process, balancing valuation, growth and yield in an effort to generate solid risk-adjusted returns.

Jeffrey Sayer, CFA

1 All returns and fund details are a) based on Series F units; b) net of fees; c) annualized if period is greater than one year; d) as at January 31, 2018; e) 2011 annual returns are from 09/01/11 to 12/31/11. The index is 100% MSCI World Core Infrastructure NR (CAD) and is computed by Ninepoint Partners LP based on publicly available index information.

The Fund is generally exposed to the following risks. See the prospectus of the Fund for a description of these risks: capital depletion risk; concentration risk; credit risk; currency risk; cybersecurity risk; derivatives risk; exchange traded funds risk; foreign investment risk; income trust risk; inflation risk; interest rate risk; liquidity risk; market risk; regulatory risk; securities lending, repurchase and reverse purchase transaction risk; series risk; short selling risk; small company risk; specific issuer risk; tax risk.

Ninepoint Partners LP is the investment manager to the Ninepoint Funds (collectively, the “Funds”). Commissions, trailing commissions, management fees, performance fees (if any), other charges and expenses all may be associated with mutual fund investments. Please read the prospectus carefully before investing. The indicated rate of return for series F units of the Fund for the period ended January 31, 2018 is based on the historical annual compounded total return including changes in unit value and reinvestment of all distributions 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. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Fund may be lawfully sold in their jurisdiction.

The opinions, estimates and projections (“information”) contained within this report are solely those of Ninepoint Partners LP and are subject to change without notice. Ninepoint Partners makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, Ninepoint Partners assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. Ninepoint Partners is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Ninepoint Partners. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by Ninepoint Partners is or will be invested. Ninepoint Partners LP and/or its affiliates may collectively beneficially own/control 1% or more of any class of the equity securities of the issuers mentioned in this report. Ninepoint Partners LP and/or its affiliates may hold short position in any class of the equity securities of the issuers mentioned in this report. During the preceding 12 months, Ninepoint Partners LP and/or its affiliates may have received remuneration other than normal course investment advisory or trade execution services from the issuers mentioned in this report.

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Investment Team

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