Year-to-date to May 31, the Ninepoint Global Infrastructure Fund generated a total return of 0.13% compared to the S&P Global Infrastructure Index, which generated a total return of -1.97%.
Returns in the month of May were excellent both on an absolute and relative basis, with the Fund generating a total return of 1.36% while the benchmark generated a total return of -0.83%. The US 10-year bond yield was extremely volatile during the month, with rates spiking to a high of 3.13% before declining to a low of 2.76% on Italian political uncertainty and global trade war fears. Although rates ended the month at 2.86%, utilities underperformed, validating our underweight positioning. The energy sector was the clear performance winner in May and we maintained our overweight positioning.
Our modelling indicates that the Canadian dollar should continue to weaken in 2018. Because a resolution to the ongoing NAFTA negotiations is looking less likely in the near term, we have reduced some of our currency hedging, returning to a more neutral positioning relative to our benchmark.
Top contributors to the year-to-date performance of the Ninepoint Global Infrastructure Fund included Mastercard (+94 bps), Marathon Petroleum (+69 bps) and CSX Corporation (+67 bps). Top detractors year-to-date included Westshore Terminals (-63 bps), Comcast (-60 bps) and Brookfield Infrastructure Partners (-38 bps).
With the recovery in crude oil, one of our favourite Canadian midstream companies, Pembina Pipeline Corporation (PPL CN), has rallied nicely off the lows. Operating under three divisions (pipelines, facilities and marketing & new ventures), Pembina gives investors pure exposure to crude oil, natural gas and NGL transportation and storage across basins in both Canada and the United States. In terms of assets, the pipeline division consists of over 18,000 km of pipelines with total capacity of about 3 million barrels of oil equivalent per day. The facilities division is comprised of nineteen natural gas gathering and processing assets capable of processing over 6 billion cubic feet per day, primarily in western Canada. Finally, Pembina’s marketing & new ventures division is designed to add incremental value to the commodities flowing through the Company’s infrastructure and includes the proposed propylene and polypropylene facility in Alberta and the proposed Jordan Cove LNG project.
Pembina currently pays a dividend of $2.28 per share on an annualized basis, implying a yield of 5.1% based on the current trading price. With approximately 85% of the Company’s business fee-based, the dividend and all corporate costs are covered by this stable cash flow stream. Management bumped the dividend 5.6% in May and we expect consistent growth of approximately 5% each year going forward.
The Ninepoint Global Infrastructure Fund was concentrated in 30 positions as at May 31, 2018 with the top 10 holdings accounting for approximately 37.1% of the fund. Over the past year, 25 out of our 30 holdings have announced a dividend increase, with an average hike of 18.1%. 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 May 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; 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 May 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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