Ninepoint Concentrated Canadian Equity Fund

March 2019 Commentary

The S&P/TSX added 1.0% as Information Technology (+6%), Utilities (+5%) and Real Estate (+4%) led the market while Financials (-1%), Consumer Discretionary (-1%) and Energy (-0.3%) were in negative territory.

Our portfolio underperformed, as the portfolio’s gains in security selection in Financials were insufficient to overcome the losses from security selection in Energy, Materials and Industrials.

In Financials, Element Fleet Management (+13%) and Power Corp. (+12%) both contributed. Element Fleet Management reported in line with consensus and guidance, due to better service revenue, earning assets, and net interest margins which were offset by higher operating expenditures (in part attributable to seasonality of accruals of benefit/bonus payments). As Element Fleet continues with its transformation under its strategic plan, it appears to be on schedule as they have initiated $58 million of run-rate profit improvements (+$18 million more than the initial target). Power Corp is benefiting from a share buyback within the group - Great West Life announced a $2bln share buyback. Power Financial will tender their proportionate shares to the buyback and then will do their own buyback, which Power Corp. will then take to do their own buyback for 10% of their shares (for ~$1.3bln), affirming our view of the value inherent in the company.

In Energy, Trican Well Service (-12%) detracted value. Trican continues to experience a difficult operating environment (lower than expected utilization and competitive, low pricing), as customers decrease activity to reflect lower cash flows. Trican has low debt and trades at a substantial discount to book and replacement value, which we expect to be realized (from a low level) with higher commodity prices and more reasonable Canadian differentials.

In Materials, Sherritt International (-10%), Lundin Mining (-7%) and Detour Gold (-6%) all lost value. Sherritt and Lundin, which had benefited earlier in the year (through February) on improved nickel and copper prices, pulled back as commodity prices were weaker in the month (both copper and nickel declined 2%). We continue to believe that Sherritt has strong longer term upside potential on improvements in Class 1 nickel supply environment (LME inventory levels are down 44% over the last year). As for Lundin, the company is well positioned with quality assets, an excellent balance sheet and an attractive valuation. Detour Gold weakened with the 2% decline in gold prices along with reporting a slight miss in their Q4 results.

In Industrials, WestJet (-6%) underperformed the sector by 10% (while Air Canada (-2%) underperformed by -6%) on the back of the grounding of their Boeing 737 MAX jets. WestJet has 13 of these planes, representing 7% of their fleet (vs. Air Canada’s 24, representing 10% of their fleet) and the rescheduling of flights has caused some uncertainty for the industry. While there is some precedent that Boeing may cover some of the business interruption (as done in 2013 when the 787 Dreamliner’s battery issues grounded planes), there is uncertainty about WestJet’s busy summer period. With fare increases implemented capacity reductions and ratified union agreements, the company’s fundamentals have improved – we continue to believe the stock (~9X forward earnings and ~1X price to book value per share) has good upside potential from current levels.

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 March 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 March 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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