Why Jarislowsky Fraser?

Portfolio management team

QUARTERLY COMMENTARIES

“There are decades where nothing happens; and there are weeks where decades happen” is a most appropriate quote to summarize the first quarter of the new decade. The COVID-19 pandemic contributed to a multitude of economic, financial, political, and social unknowns. Given the scale of the disruption, global monetary policy coordination has been swift and significant. Central banks, such as the Bank of Canada and the US Federal Reserve, have cut interest rates outside of regularly scheduled meetings and initiated significant fixed income purchase programs in order to provide liquidity. Massive stimulus and bailout packages from governments led markets to finish March with overall losses that were perhaps less than many had expected.

During March, global bond markets experienced record low interest rates for federal government bonds, unprecedented fiscal and monetary policy responses, a broad based breakdown of liquidity, and the fastest ever adjustment in valuations, from expensive to cheap, for corporate credit. The longer the “unknowns” remain outstanding the greater the difficulty in pricing them in and the more of a discount to fair value that markets will demand. By late March markets seemed to have priced in a recessionary scenario with investment grade corporate bond spreads (the difference in yield between a corporate bond and the equivalent maturity federal government bond) reaching 2.7% while spreads for high yield issues reached above 10%.

Central bankers, particularly the US Federal Reserve, took a “kitchen sink” approach to stabilize market liquidity and catalyze a quarter end rebound. The US Federal Reserve’s announcement of unlimited purchases of high quality debt was unprecedented. By including investment grade corporate bonds they have essentially put a floor under valuations.

This quarter, bond performance was affected by slightly less duration relative to the benchmark in a period where yields declined. The Bank of Canada reduced the overnight interest rate by 1.5% contributing to shorter-term federal government bond yields declining by over 0.75% more than long term federal government bond yields. The portfolio’s maturity positioning was tilted towards the longer maturities causing a slight negative contribution to performance from yield curve positioning in the quarter. Over the past couple of years, we had reduced the corporate bond risk in the portfolio as valuations became unattractive and liquidity concerns rose. Despite this, our corporate credit exposure detracted from performance as the higher quality and more liquid names underperformed in the dash for cash. Our previous corporate bond sales did open up our ability to purchase high quality corporate bonds at attractive spreads during the quarter. Security selection was a positive contribution overall despite the underperformance of our small holding in real return bonds.

Notable contributors to performance in the equity portion of the portfolio were Metro, Thomson Reuters, Stantec and Microsoft. The main detractors to performance were Gildan, Canadian Natural Resources and CAE.

Disclosures:

Returns of the F Series may vary mainly because of the different fees and expenses: NBI Jarislowsky Fraser Select Income Fund 3 months -6.6%, 1 year -3.0%, 3 years 0.5%, 5 years 1.6%, Since Inception 4.2%. The NBI Jarislowsky Fraser Select Funds (the “Funds”) are managed by National Bank Securities Inc., a wholly owned subsidiary of National Bank of Canada. Commissions, trailing commissions, management fees and expenses all may be associated with investments in the Funds. Please read the prospectus of the Funds before investing. The Funds’ securities are not insured by the Canada Deposit Insurance Corporation or by any other government deposit insurer. The Funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of returns are based on the historical annual compounded total returns including changes in securities value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns.

Portfolio management team

QUARTERLY COMMENTARIES

The COVID-19 pandemic contributed to a multitude of economic, financial, political, and social unknowns. Simultaneous supply and demand shocks in the oil market only added fuel to the fire. Given the scale of the disruption, global monetary policy coordination has been swift and significant. Central banks, such as the Bank of Canada and the US Federal Reserve, have cut interest rates outside of regularly scheduled meetings and initiated significant fixed income purchase programs in order to provide liquidity. Massive stimulus and bailout packages from governments led markets to finish March with overall losses that were perhaps less than many had expected. There was also a “flight to safety” in the currency markets, with the US dollar rallying, which benefitted Canadian investors as it helped to improve returns.

During March, global bond markets experienced record low interest rates for federal government bonds, unprecedented fiscal and monetary policy responses, a broad based breakdown of liquidity, and the fastest ever adjustment in valuations, from expensive to cheap, for corporate credit. Central bankers, particularly the US Federal Reserve, took a “kitchen sink” approach to stabilize market liquidity and catalyze a quarter end rebound.

The story on the equity side was similar, with global equity markets posting significant and rapid declines as a result of the spread of COVID-19 across the globe. No major markets were spared negative results, as investors indiscriminately sold any and all risk assets in light of the virtual shut down of most major economies. From a regional standpoint, the U.S. and other technology heavy markets were amongst the leading performers globally. Other defensive sectors showing resilience included Consumer Staples and Health Care, with lower economic sensitivity and robust balance sheets. Lagging sectors included Energy and Financials. Emerging markets showed a wide range of variability, with China posting much higher returns than many others. Other developed markets were also generally weaker, with strength in both the Swiss and Japanese markets being offset by most other developed European indices.

In the Canadian Equity portfolio, Metro, Thomson Reuters and Stantec were notable performers. Thomson Reuters continues to benefit from a strong, recurring top-line that is quite insensitive to the economy. The main detractors were Gildan, Canadian Natural Resources and CAE. In the Foreign Equities portfolio, top contributors to performance were Microsoft and Verisk, and top detractors were Booking Holdings and Boston Scientific.

The Fixed Income portfolio’s maturity positioning was tilted towards the longer maturities causing a slight negative contribution to performance from yield curve positioning in the quarter.

Disclosures:

Returns of the F Series may vary mainly because of the different fees and expenses: NBI Jarislowsky Fraser Select Balanced Fund 3 months -10.1%, 1 year -4.2%, 3 years 1.2%, 5 years 2.6%, Since Inception 5.8%. The NBI Jarislowsky Fraser Select Funds (the “Funds”) are managed by National Bank Securities Inc., a wholly owned subsidiary of National Bank of Canada. Commissions, trailing commissions, management fees and expenses all may be associated with investments in the Funds. Please read the prospectus of the Funds before investing. The Funds’ securities are not insured by the Canada Deposit Insurance Corporation or by any other government deposit insurer. The Funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of returns are based on the historical annual compounded total returns including changes in securities value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns.

Portfolio management team

QUARTERLY COMMENTARIES

The COVID-19 pandemic contributed to a multitude of economic, financial, political, and social unknowns. Simultaneous supply and demand shocks in the oil market only added fuel to the fire. Given the scale of the disruption, global monetary policy coordination has been swift and significant. Central banks, such as the Bank of Canada and the US Federal Reserve, have cut interest rates outside of regularly scheduled meetings and initiated significant fixed income purchase programs in order to provide liquidity. Massive stimulus and bailout packages from governments led markets to finish March with overall losses that were perhaps less than many had expected. There was also a “flight to safety” in the currency markets, with the US dollar rallying, which benefitted Canadian investors as it helped to improve returns converted to Canadian dollars.

During March, global bond markets experienced record low interest rates for federal government bonds, unprecedented fiscal and monetary policy responses, a broad based breakdown of liquidity, and the fastest ever adjustment in valuations, from expensive to cheap, for corporate credit. Central bankers, particularly the US Federal Reserve, took a “kitchen sink” approach to stabilize market liquidity and catalyze a quarter end rebound.

The story on the equity side was similar, with global equity markets posting significant and rapid declines as a result of the spread of COVID-19 across the globe. No major markets were spared negative results, as investors indiscriminately sold any and all risk assets in light of the virtual shut down of most major economies. From a regional standpoint, the U.S. and other technology heavy markets were amongst the leading performers globally. Other defensive sectors showing resilience included Consumer Staples and Health Care, with lower economic sensitivity and robust balance sheets. Lagging sectors included Energy and Financials. Emerging markets showed a wide range of variability, with China posting much higher returns than many others. Other developed markets were also generally weaker, with strength in both the Swiss and Japanese markets being offset by most other developed European indices.

The fund performed well against its benchmark, even though the absence of Shopify and gold stocks negatively affected relative performance. Restaurant Brands and Alimentation Couche-Tard, two typically very stable business models, were directly impacted by the constraints that affected dining and gas consumption. Notable contributors to performance were Metro, Thomson Reuters and Stantec. The main detractors to performance were Gildan, Canadian Natural Resources and CAE.

Disclosures:

Returns of the F Series may vary mainly because of the different fees and expenses: NBI Jarislowsky Fraser Select Canadian Equity Fund 3 months -18.1%, 1 year -11.8%, 3 years -1.3%, 5 years 1.9%, Since Inception 5.7%. The NBI Jarislowsky Fraser Select Funds (the “Funds”) are managed by National Bank Securities Inc., a wholly owned subsidiary of National Bank of Canada. Commissions, trailing commissions, management fees and expenses all may be associated with investments in the Funds. Please read the prospectus of the Funds before investing. The Funds’ securities are not insured by the Canada Deposit Insurance Corporation or by any other government deposit insurer. The Funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of returns are based on the historical annual compounded total returns including changes in securities value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns.