The S&P/TSX decreased 0.3% with Health Care (+35%), Energy (+3%) and Utilities (+3%) higher, while Consumer Staples (-5%), Materials (-3%) and Industrials (-3%) led the decline.
Our portfolio underperformed as security selection in both Materials and Energy detracted value as well as having no positions in Health Care. Slightly offsetting these losses were gains from security selection in the Industrials.
In Industrials, NFI Group Inc. (+17%) and Westshore Terminals (+3%) both added value. NFI’s 2021 Investor Day presentation was well received by the market, as they outlined their strong position in the electric bus market and their ambition in securing a 50%+ market share. The company also announced guidance for 2021, showing a potential improvement in EBITDA of +50%, and a long term ambitious target of $400-450 million EBITDA in 2025 (+75% from 2021). Westshore’s west coast port facility is viewed as a key beneficiary of demand growth for bulk exports (mainly metallurgical coal). We continue to own both names.
Within Energy, our position in Cenovus Energy (-3%) detracted value. Cenovus completed the acquisition of Husky Energy at the beginning of the month to form Canada’s third-largest energy producer, and the second-largest Canadian-based refiner and upgrader. We believe the increased vertical integration will benefit the business over the long-term and continue to hold Cenovus as we like the company’s production profile, asset base and valuation.
Within Materials, Methanex Corp. (-28%) fell after they announced they would idle their Titan (Trinidad) methanol production facility on a more permanent basis, due to a natural gas supply dispute with the government. We believe that the dispute will eventually be resolved, but it could take some time. As well, Methanex reported strong Q4 results with average methanol price realizations of US$282/tonne (+30% vs Q3). Based on the ongoing strength in their business and their industry position, we continue to hold Methanex.
The Healthcare sector outperformed the market by ~35% (led by Aphria +77%, which now trades at ~200X forward earnings). As a bottom-up value investor, we continue to find the valuations (especially for the cannabis companies) extremely difficult to justify, and hence continue to have no positions in the sector.
Despite the wild gyrations in pockets of the equity markets over the last few weeks (battle between hedge funds and the “Reddit/wallstreetbets” crowd), fundamental economic results continue to surprise to the upside. GDP results for Q4 have ranged from +0.1% in Germany to +6.5% in China, as the IMF upgraded its prediction for 2021 and 2022 growth to +5.5% and +4.2%, respectively, based on the continued rollout of vaccines. In the meantime, concern has started to bubble about inflation - not a surprise given the huge stimulus, record money supply and rising commodity prices (where demand exceeds supply). While these economic results would be welcomed, as a bottom-up equity value manager, we focus on our fundamental analysis of earnings, cash flow and book value, to find companies that will enhance shareholder and other stakeholder value over time. As such, our portfolio consists of companies that trade at meaningful discounts to their long-term intrinsic value but remains well diversified to preserve capital and compound wealth over the long term.
Ratul Kapur, CFA
Scheer Rowlett & Associates
Sub-Advisor to the Ninepoint Concentrated Canadian Equity Fund
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, 2021; 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, 2021 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.
Ninepoint Partners LP: Toll Free: 1.866.299.9906. DEALER SERVICES: CIBC Mellon GSSC Record Keeping Services: Toll Free: 1.877.358.0540