Ninepoint Global Infrastructure Fund

September 2018 Commentary

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Year-to-date to September 30, the Ninepoint Global Infrastructure Fund generated a total return of 2.31% compared to the S&P Global Infrastructure Index, which generated a total return of -2.02%.

Returns in the month of September were disappointing on an absolute basis but good on a relative basis, with the Fund generating a total return of -1.41% while the benchmark generated a total return of -1.94%. In September, the US 10-year bond yield rallied from 2.85% to 3.06%, crossing the key psychological level of 3.0%, which acted as a headwind for the rate-sensitive Utilities and Real Estate sectors. Our positioning in the Energy and Industrials sectors also detracted from performance in the month. Conversely, our Information Technology and Communications Services holdings produced gains.

As we write this commentary, the broad equity markets are in selloff mode, down more than 5% from the September peak. In just one week, the S&P 500 earnings multiple on 2019 estimates de-rated a full point, from approximately 17.3x to 16.3x. It is always difficult to pinpoint the exact trigger for a correction but the rapid rise in US 10-year bond yields, more hawkish than anticipated FED language, escalating trade friction between the US and China and concerns regarding the pending earnings season are all weighing on investor sentiment.

However, we believe that it is too early to position for an outright downturn. Economic data remains robust (global GDP is expected to grow 3.7% in both 2018 and 2019 according to the IMF) and 2019 should be another year of double digit earnings growth (consensus estimates imply 10.2% growth). Positive seasonality for the markets should kick in by the end of October (gains in November and December occur 75% of the time based on data from the past twenty years), the midterm elections should prove to be benign (on average markets rally 7% from August 31 to year-end around midterms based on history) and the pending third quarter earnings season will likely be better than feared.

Our modelling indicates that the Canadian dollar should continue to weaken in 2018. However, with Canada now joining Mexico in agreeing to a new trilateral trade agreement with the United States, we anticipate some near term Canadian dollar strength. Further, the equity market selloff has introduced a new level of complexity to our FX analysis as prior correlations become less statistically significant. We have therefore hedged half of our USD/CAD exposure to reduce volatility in the Fund.

Top contributors to the year-to-date performance of the Ninepoint Global Infrastructure Fund included Parkland Fuel (+185 bps), MasterCard (+150 bps) and CSX Corporation (+122 bps). Top detractors year-to-date included Westshore Terminals (-64 bps), Comcast (-62 bps) and Mastec (-58 bps).

The Ninepoint Global Infrastructure Fund was concentrated in 30 positions as at September 30, 2018 with the top 10 holdings accounting for approximately 37.2% of the fund. Over the prior fiscal year, 25 out of our 30 holdings have announced a dividend increase, with an average hike of 8.8%. 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 September 30, 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 September 30, 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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