Ninepoint Concentrated Canadian Equity Fund

January 2019 Commentary

The S&P/TSX bounced back 8.7% in January following the decline in December as Healthcare (+43%, led by the cannabis stocks), Consumer Discretionary (+11%) and Energy (+11%) outperformed the market while Consumer Staples (+3%), Communication Services (+5%) and Utilities (+6%) lagged the market.

Our portfolio underperformed as losses from security selection in Energy and Consumer Discretionary as well as no Healthcare positions surpassed our gains from security selection in the Industrials plus no positions in both Consumer Staples and Communication Services.

In Industrials, WestJet (+12%) recovered post its year-end decline. WestJet continues to recover from margin compression in 2018. With fare increases, better capacity alignment and cost initiatives, the company’s financial returns will improve – so we continue to believe that the stock (trading at book value and 10X forward 2020 consensus estimates) offers good upside potential.

Our zero weight position in Consumer Staples added value as the sector underperformed the market by ~5%. In addition, no positions in Communication Services added value as the sector underperformed by ~4%.

In Energy, Crescent Point Energy (-5%), as well as positions in Canadian Natural Resources (+7%) and Cenovus (+7%) (both of which underperformed the Energy sector’s +11% return) detracted value. Crescent Point fell as they announced a 90% reduction in their dividend (10% to 1%) in order to focus their free cash flow on both debt reduction and share buybacks. After recently meeting with management, we continue to believe there is significant upside potential from this undervalued, light oil energy producer, along with our positions in Canadian Natural Resources and Cenovus.

In Consumer Discretionary, Uni Select Inc. (0%) underperformed the sector by ~11% as other companies benefitted from the renewed optimism. Uni Select remains an attractive position given the growth in their UK business, their plans to sell their U.S. business and the valuation multiples at which it trades (<12X forward & trailing earnings and at 1.1X book value per share).

The Healthcare sector outperformed the market by ~34%; our zero weight detracted relative value. After falling in Q4 2018, the cannabis stocks rallied. The four securities now comprise ~1.4% index weight and remain extremely volatile, and as a bottom-up value investor, we find the valuations extremely difficult to justify owning any position.

After a challenging end to 2018 (the worst December for the S&P500 since 1931!), markets seemed to disregard the worries and added one of the best months since 2008. Interesting to note is that between December 24th 2018 and January 25th 2019, the S&P/TSX recovered almost 100% of the losses incurred in all of 2018. Despite this move, the Canadian equity market remains cheaper than the U.S. equity market (as represented by the S&P/TSX versus the S&P500), and our
portfolio, based on our bottom-up value approach, is even more attractive, on a valuation basis. As investors who do not believe in trying to time markets, we continue to hold no positions, on valuation concerns, in some expensive areas of the market (healthcare, utilities, pipelines, REIT’s, consumer staples, communication services). However, we are invested in a number of very attractively priced companies in financials (banks), energy, airlines and basic materials.

With Regards,

Robert Dionne

Vice President & Portfolio Manager
Scheer, Rowlett & Associates Invesment Management Ltd


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 January 31, 2019; e) since inception (March 29,2018). The index is 100% S&P/TSX composite Index 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; Concentration risk; Credit risk; Currency risk; Cybersecurity risk; Foreign investment risk; Inflation risk; Liquidity risk; Market risk; Regulatory risk; Securities lending, repurchase and reverse repurchase transactions risk; Series risk; Small company risk; Specific issuer risk; Sub-adviser 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 January 31, 2019 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 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.

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