Sprott Global Infrastructure Fund

February 2018 Commentary

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Year-to-date to February 28, the Sprott Global Infrastructure Fund generated a total return of -2.38% compared to the S&P Global Infrastructure Index, which generated a total return of -3.76%.

Returns in the month of February were acceptable on a relative basis but disappointing on an absolute basis, with the Fund generating a total return of -1.94% while the benchmark generated a total return of -2.65%. After a fantastic start to the year, the inevitable and normal 2% to 4% market correction quickly accelerated into something more dramatic.  From its high on January 26th of 2,872, the S&P 500 declined to an intraday low of 2,532 on February 9th, a drop of approximately 11.8% in just 10 days. 

The selling was likely triggered by a rally in the US 10-year yield to a five-year high, driven by fears of rising inflation and accelerated FED tightening.  As market volatility spiked, systematic strategies were forced to rebalance their portfolios by selling equities irrespective of valuation or fundamentals, which led to the much larger than anticipated market drawdown. Threats of tariffs on steel and aluminum and talk of an ensuing trade war did nothing to help sentiment. However, the outlook for economic growth and corporate earnings has changed very little during the month and the markets have since recouped some of the losses.  From our perspective, the correction has provided an opportunity to high-grade our portfolios and add exposure to sectors and stocks that benefit most in a mid to late-cycle environment.

Our modelling continues to indicate that the Canadian dollar should weaken in 2018. Although the Canadian dollar strengthened through January on accelerating global growth expectations, the currency did indeed weaken in February. But with at least some of the recent move related to the threat of a global trade war, which may turn out to be less severe for Canada than initially feared, we have hedged approximately half of our USD exposure in order to reduce currency-related volatility in the Fund.

Top contributors to the year-to-date performance of the Sprott Global Infrastructure Fund included Raytheon (+68 bps), Mastercard (+57 bps) and Visa (+31 bps). Top detractors year-to-date included Equinix (-36 bps), Brookfield Asset Management (-33 bps) and Quanta Services (-32 bps).  Rate sensitive securities were hit particularly hard in February on the spike in the US 10-year yield.

On a positive note, one of our holdings, the Spanish airport operator Aena SME SA (AENA SM) recently reported passenger traffic growth of 8.3% to a record 265 million passengers in 2017.  As a result, management increased the dividend 70% to €6.50 per share, moving AENA’s dividend yield from one of the lowest in the sector to one of the highest.  We expect the shares to continue to perform well after this announcement. 

The Sprott Global Infrastructure Fund was concentrated in 31 positions as at February 28, 2018 with the top 10 holdings accounting for approximately 37.1% of the fund.  Over the past year, 26 out of our 31 holdings have announced a dividend increase, with an average hike of 16.8%.  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 February 28, 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; 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 February 28, 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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