Year-to-date to June 30, the Ninepoint Global Infrastructure Fund generated a total return of 1.32% compared to the S&P Global Infrastructure Index, which generated a total return of 1.33% in CAD.
Returns in the month of June were good on an absolute basis but disappointing on a relative basis, with the Fund generating a total return of 1.18% while the benchmark generated a total return of 3.36%. Although the US 10-year bond yield was relatively stable through the month of June, ending at 2.86%, political uncertainty and global trade war fears led to a defensive rotation in the equity markets. The Utilities sector had a relatively strong rally in the month but remain underweight the sector since 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 Global Infrastructure Fund included Mastercard (+115 bps), Visa (+71 bps) and CSX Corporation (+68 bps). Top detractors year-to-date included Westshore Terminals (-64 bps), Comcast (-61 bps) and Brookfield Asset Management (-36 bps).
As crude oil prices rallied to levels not seen since 2014, one of our holdings, Parkland Fuel Corporation (PKI CN), closed at an all-time high. The Company is an independent marketer of fuel and petroleum products, delivering gasoline, diesel, propane, lubricants and heating oil to motorists, businesses, households and wholesale customers in Canada and the United States.
Over the past year, Parkland closed two key acquisitions that have powered the shares higher. First, on June 28, PKI completed the acquisition of CST’s Canadian assets from Couche-Tard, including 495 dealer and commissioned agent retail sites and 159 company-operated retail fuel sites, primarily in Quebec, under the Ultramar brand. Second, on October 1, 2017 PKI completed the acquisition of Chevron Canada’s downstream fuel business including 129 Chevron branded retail service stations primarily in the Greater Vancouver area, three petroleum terminals and a 55,000 bpd refinery located in Burnaby, British Columbia. Based on the management’s projections, the acquisitions will boost Parkland’s EBITDA from $250 million, to approximately $650 million in 2018, an increase of 168%.
With an annualized dividend of $1.1736 per share (but paid monthly), Parkland is currently yielding roughly 3.6%. Management is targeting 3% to 5% long-term organic EBITDA growth, but with a track record of successful acquisitions, we expect PKI to continue to outperform through the balance of 2018.
The Ninepoint Global Infrastructure Fund was concentrated in 30 positions as at June 30, 2018 with the top 10 holdings accounting for approximately 38.6% of the fund. Over the past year, 26 out of our 30 holdings have announced a dividend increase, with an average hike of 17.2%. 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 June 29, 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 June 29, 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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