The S&P/TSX added 2.5% in June with Information Technology (+14%), Materials (+5%) and Financials (+4%) leading the market while Energy (-5%), Health Care (-4%) and Communication Services (-2%) were in the “red”.
Our portfolio outperformed as security selection in Energy, Materials, Industrials and Consumer Discretionary all added value. The only area that detracted value was Information Technology where, based on our bottom-up value investment philosophy, we find no attractive names.
In Energy, Cenovus Energy (+6%), Ovintiv (+24%) and Crescent Point (+14%) all rallied on the back of the increase in oil prices. We used the strength in Ovintiv’s share price to sell our position, as we are concerned with its debt levels. We continue to hold both Crescent Point and Cenovus as we believe they offer decent upside potential.
In Materials, our positions in Teck Resources (+9%), Interfor Corporation (+21%) and Methanex (+10%) all added value. Teck and Interfor rallied with the general improvement in economic sentiment, as economically sensitive commodities increased in the month. Methanex rallied with the increase in oil prices (+11% in the month).
In the Industrials sector, our position in Westshore Terminals (+15%) added value. Westshore announced that Jim Pattison (directly and indirectly owns 35% of the company), increased his position by ~5%. Our thesis to own Westshore is based on: i) the strong cash flow position of the company (which has a solid market share in the shipping of coal on the BC coast); ii) the value of this asset on a replacement value basis (based on the expansion cost of comparable ports, before considering the “irreplaceability” of Westshore’s location and difficulty in permitting a new coal port in today’s environment); and, iii) the fact that Jim Pattison, a like minded long term investor, is a major shareholder and has representation on the board. We continue to hold our position given the upside that exists in the name.
In Consumer Discretionary, our positions in Gildan Activewear (+10%), UniSelect (+118%) and no position in Dollarama (-3%) all added value. Gildan increased as the stock bounced back from depressed levels. UniSelect rebounded as the company successfully negotiated a US$565mln credit facility, which provides much needed liquidity in a period of depressed sales. We used the price strength to exit our position, as we are concerned about their increased debt levels (and some of their restrictive covenants).
Our Information Technology sector underweight detracted value as Shopify (+23% - no position held) continued its relentless climb higher. While we acknowledge that Shopify has built an impressive e-commerce platform that is taking market share, it is trading at over 3000X forward adjusted earnings and a lot can change in the technology (software) space before the company sees any reasonable future level of profitability (GAAP earnings not expected until 2023).
Ratul Kapur, CFA
Scheer Rowlett & Associates - Sub-Advisor
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 30, 2020; 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.
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