Canadian Equity Pool Quarterly Review
For the period ending
June 30, 2010
PERFORMANCE REVIEW
It was a difficult quarter for the Canadian Equity market as investors became concerned about the sustainability of the global economic recovery as austerity programmes began to be introduced by various governments. Financials and Technology led the decline with one of the few good news stories coming from the gold subsector, which rose 21.3% and now represents over 13% of the market.
Portfolio performance was adversely affected by our overweight in the Financial sector and an underweight position in golds.
In the Financial sector, Manulife continues to struggle as the declining equity markets once more raised concerns about their segregated fund book of business.
The portfolio was also negatively impacted by the decline of Shoppers Drug Mart after the Ontario Government introduced a plan to change the pricing for generic drugs under the Ontario Drug Benefit Program from 50% of the original brand name to 25%.
REVIEW AND STRATEGY
In the second quarter, the Fund purchased three new holdings - Methanex Corp, Saputo Inc. and Vermillion Energy Trust. Rising demand for methanol, primarily due to the Chinese beginning to blend it with their gasoline, is helping to improve the longer-term outlook for Methanex. A disciplined management approach to acquisitions has enabled Saputo Inc. to successfully develop its dairy and cheese businesses in Canada, the US, Germany and Argentina. Vermillion Energy Trust is a very successful Canadian based international energy producer with operations in Canada, Western Europe and Australia. The company has been very disciplined and successful in the allocation of its capital and has provided investors with a high yield and overall rate of return.
Four stocks were eliminated from the portfolio – Petrobank Energy, Inmet Mining, Canadian Tire and Power Corp. Petrobank and Canadian Tire were experiencing deteriorating fundamentals while Inmet was sold and Teck Resources was trimmed to reduce overall exposure to base metals and coal and to enable increased exposure to precious metals with additional purchases of Agnico Eagle and Silver Wheaton. EnCana and Canadian Oil Sands were trimmed to finance the purchase of more Suncor, which has a more attractive outlook. The Fund also trimmed several banks to finance the purchase of more TD Bank.
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