Year-to-date to January 31, the Ninepoint Focused Global Dividend Class generated a total return of 4.14% compared to the S&P Global 1200 Index, which generated a total return of 3.61%. After the worst stock market performance in December since 1931, markets rebounded sharply in January with the S&P 500 posting its best performance since 1987.
Essentially, the worst performing stocks and sectors in December reversed course to become the market leaders in January, which speaks to the sentiment/positioning-driven nature of the sell-off to end 2018. Two of the three key investor concerns are already showing signs of improvement in early 2019 with the FED pivoting to a very dovish, “patient” approach to future interest rate hikes and Trump appearing to soften his stance on China. Forward earnings estimates have continued to decline but commentary in the Q4 2018 earnings releases has not been pointing to any significant downward revisions from here. Hopefully, fundamentals will matter again in 2019 and we can get back to stock picking based on company specific analysis.
Top contributors to the year-to-date performance of the Ninepoint Focused Global Dividend Class by sector included Industrials (+130 bps), Energy (+40 bps) and Communication Services (+39 bps) while no sector had a negative contribution on an absolute basis but our holdings in the Financials sector lagged on a relative basis.
Source: Ninepoint Partners
We are overweight the Communication Services and Industrials sectors while underweight the Materials, Financials and Energy sectors. We believe that one of the most important investment decisions that will have to be made in 2019 will be whether to pivot to “value” from “growth”. A weakening USD, a rising WTI crude oil price, a rising 10-year US bond yield and a steepening yield curve will likely be required before value outperforms growth for any sustainable length of time. However, if we do see all those conditions met in 2019 we expect to boost our exposure to the Materials, Financials and Energy sectors. If not, we expect to maintain our quality/defensive positioning.
Source: Ninepoint Partners
At the stock specific level, top contributors to the year-to-date performance included Boeing (+71 bps), Mastercard (+42 bps) and Suncor (+40 bps). Top detractors year-to-date included Intercontinental Exchange (-25 bps), Boston Scientific (-22 bps) and McDonalds (-15 bps).
Boeing has been a phenomenal performer YTD, as fears of a China-led downturn in the aerospace cycle appear unfounded. With the release of the Company’s Q4 and full year 2018 operating and financial results, management called for delivery of 900 planes in 2019 compared to 806 in 2018, implying revenue growth of 9.3%, EPS growth of 37.4% and operating cash flow of between $17.0 and $17.5 billion. Mastercard reported earnings on the final day of January, with 20% currency-neutral revenue growth and 41% currency neutral adjusted earnings per share growth for the full year 2018. The Company’s 2019-2021 performance objectives call for continued impressive performance, with net revenue CAGR of “low-teens” and EPS CAGR of “high-teens”. Suncor merely rebounded from deeply oversold conditions along with the WTI crude oil price as OPEC cut supply in January.
Intercontinental Exchange declined on the news that several major banks and financial institutions were planning to launch a new, lower-cost rival exchange. The two other largest detractors to the year-to-date performance of the Fund were stocks with more defensive characteristics that had worked well in 2018 and were likely used as a source of funds to chase the January 2019 rally.
The Ninepoint Focused Global Dividend Class was concentrated in 28 positions as at January 31, 2019 with the top 10 holdings accounting for approximately 41.8% of the fund. Over the prior fiscal year, 21 out of our 28 holdings have announced a dividend increase, with an average hike of 7.9%. 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
1 All returns and fund details are a) based on Series F shares; b) net of fees; c) annualized if period is greater than one year; d) as at January 31, 2019; e) 2015 annual returns are from 11/25/15 to 12/31/15. The index is S&P GLOBAL 1200 TR (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: ADR risk; Capital depletion risk; Concentration risk; Credit risk; Currency risk; Cybersecurity risk; Derivatives risk; Exchange traded funds risk; Foreign investment risk; Inflation risk; Interest rate risk; Liquidity risk; Market risk; Rule 144A and other exempted securities risk; Securities lending, Repurchase and reverse repurchase transactions risk; Series risk; Short selling 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), and other expenses all may be associated with investing in the Funds. Please read the prospectus carefully before investing. The indicated rate of return for series F shares of the Fund for the period ended January 31, 2019 is based on the historical annual compounded total return including changes in share 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 LP. 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 LP 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.
The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering or tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on the specific circumstances before taking any action.
Ninepoint Partners LP: Toll Free: 1.866.299.9906. DEALER SERVICES: CIBC Mellon GSSC Record Keeping Services: Toll Free: 1.877.358.0540