Year-to-date to June 30, the Ninepoint Focused Global Dividend Class generated a total return of 5.08% compared to the S&P Global 1200 Index, which generated a total return of 4.97% in CAD.
Returns in the month of June were good on an absolute basis but slightly disappointing on a relative basis, with the Fund generating a total return of 0.82% while the benchmark generated a total return of 1.20%. As fears of a global trade war intensified, the defensive Consumer Staples, Real Estate and Utilities sectors led the market but we continue to believe that a full blown trade war will be averted.
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 closed out our currency hedging, returning to a neutral positioning relative to our benchmark.
Top contributors to the year-to-date performance of the Ninepoint Focused Global Dividend Class included Mastercard (+144 bps), Microsoft (+91 bps) and Visa (+88 bps). Top detractors year-to-date included Brookfield Asset Management (-45 bps), MGM Resorts International (-39 bps) and Affiliated Managers Group (-29 bps).
We’ve talked about one of our holdings, Constellation Brands (STZ US), in past commentaries and we wanted to revisit the investment thesis post fiscal Q1 2019 reporting. Constellation, the third largest beer distributor in the US (and sole distributor of Corona and Modelo) amazingly contributed 40% of the industry’s total retail dollar sales growth in 2017 and we see a long runway for continued growth in beer. However, in advance of the Company’s quarterly earnings report, we became concerned about commentary from the Company suggesting that margins in the wine segment would be weak in the quarter. Although we very rarely trade our holdings around quarterly reporting, our analysis suggested that the market had not yet correctly priced in the weaker results and we cut our position in half.
When Constellation reported on June 29, the results in the wine segment were indeed weaker than the market’s expectations. Shipment volumes declined 2.9%, net sales declined 2.5% and margin weakness led to a 16.8% decline in operating income. It should be noted that management had telegraphed that operating income would decline in the quarter and but continued to target net sales and operating income growth in the 2% to 4% range for fiscal 2019. Management also remained confident in the longer-term outlook and reaffirmed forward guidance calling for EPS of $9.40 to $9.70, operating cash flow of $2.45 billion and free cash flow of $1.2 to $1.3 billion. Because we had trimmed our position in advance of the quarter, we have the ability to use any share price weakness as a buying opportunity.
The Ninepoint Focused Global Dividend Class was concentrated in 28 positions as at June 30, 2018 with the top 10 holdings accounting for approximately 47.1% of the fund. Over the past year, 24 out of our 28 holdings have announced a dividend increase, with an average hike of 20.8%. 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 June 29, 2018; 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; Capital gains risk; Class 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; 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 June 29, 2018 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