Ninepoint Focused Global Dividend Fund

January 2023 Commentary


Year-to-date to January 31, the Ninepoint Focused Global Dividend Fund generated a total return of 1.08% compared to the S&P Global 1200 Index, which generated a total return of 5.54%.

Ninepoint Focused Global Dividend Fund - Compounded Returns¹ As of January 31, 2023 (Series F NPP964) | Inception Date: November 25, 2015

  1M YTD 3M 6M 1YR 3YR 5YR Inception
Fund 1.1% 1.1% 0.4% 3.9% -3.3% 5.3% 5.6% 6.6%
S&P Global 1200 TR (CAD) 5.5% 5.5% 8.6% 7.1% -1.9% 8.4% 8.7% 9.7%

After a dismal 2022, markets roared back in January, with the laggards outperforming on a combination of the January effect (as tax loss candidates from the prior year rebound, once selling pressure abates), short covering and performance chasing (as FOMO feeds into investor psychology). We can see how this played out by examining the individual sectors of the S&P 500. In 2022, the best performing sectors were Energy (+65%), Utilities (+2%) and Consumer Staples (-1%) while the worst performing sectors were Communication Services (-38%), Consumer Discretionary (-36%) and Technology (-28%). In January 2023, these trends almost perfectly reversed, and the best performing sectors were Consumer Discretionary (+15%), Communication Services (+15%) and Technology (+9%) while the worst performing sectors were Utilities (-2%), Health Care (+2%) and Consumer Staples (-1%). Because the year is far from over, investors need to be particularly careful about being whipsawed in what could be a volatile but rangebound market.

The bulk of these sector moves could be explained by changes in the price to earnings multiple, as the multiple for the S&P 500 compressed from approximately 21x NTM estimates at the beginning of 2022, bottomed at just 15x NTM estimates in October before rebounding to 19x NTM estimates at the end of January (according to Refinitiv). Importantly, the negative earning revision cycle seems to be stabilizing. Although 2023 S&P 500 earnings estimates have declined from $255 to $225 today, they have been relatively stable since about mid-December. However, current earnings estimates imply flat earnings growth in 2023, which may still prove to be optimistic once companies begin reporting 2022 financial results and potentially adjust guidance for 2023.

Despite signs of an economic slowdown (most global PMI readings indicate an ongoing contraction) and challenging equity markets, we are still able to find reasons to be optimistic going forward. We are constantly reminding ourselves to keep several things in mind while attempting to navigate 2023. First, back-to-back down years are very rare for the broad equity markets. Second, academic studies have shown almost no correlation between earnings growth and equity market returns. Third, inflation peaked in June at 9.1% and has been steadily trending lower ever since. Finally, the Fed is expected to pause monetary tightening in 2023, with perhaps two more hikes of 25 bps each, reaching a terminal Fed funds rate of 5.0% or 5.25%, possibly as soon as March or May. Although we don’t expect a pivot to easing monetary policy in 2023, we think that a pause would be supportive enough for equity valuations.

We do believe that in an environment of moderating inflation but slowing growth through 2023, the most important drivers of investment performance will likely be valuation, balance sheet strength and the ability to consistently generate cash flow and earnings. Also, a greater component of total returns will likely come from dividend yields, which meshes nicely with our investment philosophy. In keeping with our mandates, we are concentrating our efforts on free cash flow positive, high quality, dividend growth companies and real asset investments given our positive assessment of the risk/reward outlook over the next two to three years.

Top contributors to the year-to-date performance of the Ninepoint Focused Global Dividend Fund by sector included Consumer Discretionary (+74 bps), Information Technology (+57 bps) and Energy (+43 bps) while top detractors by sector included Health Care (-75 bps), Utilities (-40 bps) and Consumer Staples (-4 bps) on an absolute basis.

On a relative basis, a positive return contribution from the Energy (+33 bps) sector were offset by negative contributions from the Information Technology (-116 bps), Financials (-57 bps) and Consumer Discretionary (-57 bps) sectors.

We are currently overweight the Energy, Industrials and Consumer Staples sectors, while underweight the Materials, Communication, and Information Technology sectors. With the US Federal Reserve expected to pause interest rate hikes in 2023, we are carefully watching for the negative earnings revision cycle to bottom and unemployment to peak to signal the start of a new equity bull market. We remain focused on high quality, dividend payers that have demonstrated the ability to consistently generate revenue and earnings growth through the cycle.

The Ninepoint Focused Global Dividend Fund was concentrated in 30 positions as at January 31, 2023 with the top 10 holdings accounting for approximately 36.8% of the fund. Over the prior fiscal year, 19 out of our 30 holdings have announced a dividend increase, with an average hike of 10.2% (median hike of 8.5%). We will continue to apply a disciplined investment process, balancing various quality and valuation metrics, in an effort to generate solid risk-adjusted returns.

Jeffery 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 January 31, 2023; 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 January 31, 2023 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.

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