Ninepoint Focused Global Dividend Class

May 2021 Commentary

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Year-to-date to May 31, the Ninepoint Focused Global Dividend Class generated a total return of 4.58% compared to the S&P Global 1200 Index, which generated a total return of 6.14%. For the month, the Fund generated a total return of -1.10% while the Index generated a total return of -0.13%.

The Covid-19 vaccine rollout is accelerating globally and regions with elevated vaccination rates are quickly returning to normal. In the United States, approximately 64% of the population has received at least one dose and approximately 53% of the population has been fully vaccinated. After a slow start in Canada, approximately 68% of the population has now received at least one dose but only approximately 7% of the population has been fully vaccinated. Hopefully, these trends continue to improve since health experts believe that a vaccination rate of about 50% to 60% is needed to dramatically lower the number of new cases and bring transmission of the virus under control. Given the recent progress, it is reasonable to assume that a return to normal is finally in sight.

As we lap the depths of the Covid-19 lockdowns on a year-over-year basis, investors are trying to interpret incoming economic data during what has historically been a tricky month for the markets. Recent data points have been choppy, which has likely contributed to short, sharp rotations from value/cyclicals toward growth/momentum and back again. Most notably, US non-farm payrolls were vastly below expectations for April (released May 7th), coming in at 266,000 jobs with an unemployment rate of 6.1% compared to 1,000,000 jobs and an unemployment rate of 5.8% expected. Our interpretation of the employment situation is not of a stalling economic recovery but rather a timing mismatch between job seekers and employers, particularly in the leisure and hospitality sectors. Conversely, the April Consumer Price Index (released May 12th) was vastly above expectations, coming in at 0.9% for the month or 3.0% over the last twelve months, excluding food and energy, compared to estimates of 0.3% and 2.3% respectively. Because the biggest contributors to the jump were tied to pent up demand for reopening-related goods and services, we believe that the transitory inflation argument still holds.

Over the next few months, determining whether the effects are transitory or more permanent will shape the path of tapering and, eventually, interest rate hikes. For now, we will continue to rely on guidance from the US Federal Reserve and trust that they will provide easy monetary conditions for the foreseeable future thus prolonging the equity cycle through at least 2023. Bond investors seem to generally agree with this outlook, with long-term interest rates still well below 2.0% (the US 10-year Treasury bond yield is currently pinned around 1.60%), which is supportive of elevated equity multiples. Expected earnings growth is also supportive of near-term multiples, with S&P 500 earnings growth to reach almost 35% in calendar 2021 and approximately 10% in calendar 2022, according to FactSet.

But valuations are certainly elevated relative to historical levels, with the S&P 500 currently trading at approximately 21x twelve month forward earnings compared to the 5-year average multiple of approximately 18x and the 10-year average multiple of approximately 16x. We would therefore characterize the current environment as mid-cycle, where positive returns depend on identifying companies with accelerating earnings, cash flow and dividend growth that can offset earnings or cash flow-multiple contraction. We think this environment bodes well for the relative performance of our dividend and real asset strategies over the medium term.

Top contributors to the year-to-date performance of the Ninepoint Focused Global Dividend Class by sector included Industrials (+249 bps), Financials (+219 bps) and Consumer Discretionary (+79 bps) while top detractors by sector included information Technology (-66 bps), Materials (-24 bps) and Consumer Staples (-10 bps) on an absolute basis.

On a relative basis, positive return contributions from the Industrials (+155 bps), Consumer Discretionary (+62 bps) and Energy (+5 bps) sectors were offset by negative contributions from the Information Technology (-94 bps) Materials (-77 bps) and Health Care (-27 bps) sectors.

We are currently slightly overweight the Industrials, Consumer Discretionary and Financials sectors, while slightly underweight the Health Care, Utilities and Real Estate sectors. As the world begins to reopen and the markets anticipate a return to normal, quick rotations are occurring underneath the surface of the broad indices. Therefore, we have maintained relatively neutral sector allocations but are looking to position for the middle phase of the investment cycle, where above-average earnings or cash flow growth is required to compensate for some degree of multiple-compression.

The Ninepoint Focused Global Dividend Class was concentrated in 30 positions as at May 31, 2021 with the top 10 holdings accounting for approximately 37.7% of the fund. Over the prior fiscal year, 20 out of our 30 holdings have announced a dividend increase, with an average hike of 0.3% (median hike of 6.2%). We will continue to apply a disciplined investment process, balancing various quality and valuation metrics, in an effort to generate solid risk-adjusted returns.

Jeffrey Sayer, CFA
Ninepoint Partners

1 All returns and fund details are a) based on Series F shares; b) net of fees; c) annualized if period is greater than one year; d) as at May 31, 2021; e) 2015 annual returns are from 11/25/15 to 12/31/15. The index is S&P GLOBAL 1200 TR (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: ADR risk; Capital depletion risk; Capital gains risk; Class risk; Credit risk; Currency risk; Cybersecurity risk; Derivatives risk; Exchange traded funds risk; Foreign investment risk; Inflation risk; Interest rate risk; Liquidity risk; Market risk; Securities lending, Repurchase and reverse repurchase transactions risk; Series risk; Short selling 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), and other expenses all may be associated with investing in the Funds. Please read the prospectus carefully before investing. The indicated rate of return for series F shares of the Fund for the period ended May 31, 2021 is based on the historical annual compounded total return including changes in share 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.

The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering or tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on the specific circumstances before taking any action.

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