Why Jarislowsky Fraser?

Portfolio management team

QUARTERLY COMMENTARIES

Bond markets gave back some of the very strong gains from 2020, as shown by the FTSE Universe benchmark declining -5% for the quarter. The NBI Select Income Fund outperformed its respective benchmark for the quarter.

Much as in recent quarters, the higher allocation to corporate and provincial bonds was a key factor to the value added quarterly performance. The allocation to Real Return bonds also contributed notably to the Fund’s outperformance, as did the Fund’s slightly lower exposure to interest rate risk relative to the benchmark. The steepening of the yield curve, with long-term rates rising more than short-term rates, was also a positive contribution to performance as the fund had an overweight in mid-term bonds. With government bond yields now over 100 basis points higher than at their trough last year, we have a much more neutral outlook on interest rates.

There may be some further increases in interest rates as confidence in the recovery builds; however, current interest rates already reflect much of the positive economic news, and therefore increases from this point should be limited. After maintaining an overweight, our risk exposure to corporate bonds is now more neutral as we took advantage of the rally early in the quarter to sell positions that had reached expensive valuations.

The tone in equity markets remained positive in Q1, despite mixed progress around containment of the COVID-19 pandemic. The Canadian market was amongst the strongest globally, as higher rates propelled financial shares higher and commodity exposed stocks also advanced. US markets were also firm (+4.7% in CAD), as progress around vaccinations and the passing of a major $1.9T stimulus program provided continued support for an economic recovery.

Notable contributors during the quarter were the engineering companies Stantec (+31%) and SNC-Lavalin (+24%), life insurance companies Manulife (+21%) and Industrial Alliance (+25%), as well as CCL Industries (+21%), a specialized labeling company, and Magna (+23%).

Disclosures:

The Bank of Nova Scotia (BNS) is the parent company of Jarislowsky, Fraser Limited.  BNS securities held in the portfolio are related securities. Returns of the F Series may vary mainly because of the different fees and expenses: NBI Jarislowsky Fraser Select Income Fund 3 months 2.4%, 1 year 3.6%, 3 years 4.0%, 5 years 4.2%, Since Inception 5.0%. 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

Balanced portfolios performed well on both an absolute and relative basis during the first quarter. The primary reason was the overweight in equities, where most markets delivered strong returns, along with the commensurate underweight in bonds, where rising yields led to losses. Strong relative performance from the Canadian and U.S. equity sections was also helpful as many markets shifted from a focus on less cyclical areas such as Information Technology to more value-oriented and cyclical areas such as the commodity complex.

The tone in equity markets remained positive in Q1, despite mixed progress around containment of the COVID-19 pandemic. The Canadian market was amongst the strongest globally, as higher rates propelled financial shares higher and commodity exposed stocks also advanced. US markets were also firm (+4.7% in CAD), as progress around vaccinations and the passing of a major $1.9T stimulus program provided continued support for an economic recovery.

Notable contributors during the quarter were the engineering companies Stantec (+31%) and SNC-Lavalin (+24%), life insurance companies Manulife (+21%) and Industrial Alliance (+25%), as well as CCL Industries (+21%), a specialized labeling company, and Magna (+23%).

Bond markets posted one of their weakest performances in history while equity markets touched new highs in the quarter. Corporate bonds modestly outperformed their government counterparts although the tone weakened into quarter-end as rising government yields weighed on overall bond market sentiment. Some large mergers and acquisitions also contributed to the softer market environment as investors weighed the possibility of increased corporate issuance to lock in rates.

Given that markets bottomed in March 2020, it is not surprising the portfolio has generated quite stunning returns over the past 12 months. Many of the world’s equity markets have risen by over 30% off their lows and are back to reaching new highs. Relative performance has met expectations over this period, lagging in some of the areas that have rebounded most strongly, but benefitting from good performance in many of the more stable parts of the market.

Disclosures:

The Bank of Nova Scotia (BNS) is the parent company of Jarislowsky, Fraser Limited.  BNS securities held in the portfolio are related securities. Returns of the F Series may vary mainly because of the different fees and expenses: NBI Jarislowsky Fraser Select Balanced Fund 3 months 3,7%, 1 year 4,7%, 3 years 5,9%, 5 years 6,1%, Since Inception 6,9%. 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 portfolio provided strong returns for the quarter, outperforming its benchmark index. Most of the outperformance can be attributed to the decline in the gold sub-sector (-13.8%) within the index, given our relative underweight, and strong stock selection. The main drivers for the index were Energy (+20.3%), followed by Financial Services (+13.9%) and Consumer Discretionary (+12.5%), all sectors that rebounded with expectations of a vaccine-related improvement in the economy. Conversely, we saw Materials (-6.9%) decline, driven by lower prices of gold and gold producers, as well as Technology (-1.1%), following last year’s exceptional price appreciation due to the acceleration of digital adoption. The decline in gold contributed strongly this quarter, partially offset by our underweight in Energy, where stocks reacted positively to favorable supply/demand conditions.

Notable contributors during the quarter were the engineering companies Stantec (+31%) and SNC-Lavalin (+24%), life insurance companies Manulife (+21%) and Industrial Alliance (+25%), as well as CCL Industries (+21%), a specialized labeling company, and Magna (+23%).

The cyclical upturn in energy prices, due to higher demand and continued output controls from OPEC, has led to a rally in energy companies. The rise in Canadian Natural Resources and Suncor during the quarter affected our portfolio’s relative performance given our underweight in Energy, with Enbridge (+15%) being our only holding. That said, we continue to expect that long-term returns will be better for the companies in the portfolio that are less reliant on commodity prices.

In conclusion, despite the strong market appreciation in the first quarter, we believe that the companies in the portfolio will continue to provide attractive expected returns, which will be driven by an improving economy and expanding demand as the uncertainty around COVID dissipates. Our portfolio companies are poised to invest further due to improved confidence, as well as directly benefit from provincial and federal fiscal stimulus and pent-up demand.

Disclosures:

The Bank of Nova Scotia (BNS) is the parent company of Jarislowsky, Fraser Limited.  BNS securities held in the portfolio are related securities. Returns of the F Series may vary mainly because of the different fees and expenses: NBI Jarislowsky Fraser Select Canadian Equity Fund 3 months 5.5%, 1 year 0.0%, 3 years 4.4%, 5 years 6.6%, Since Inception 7.2%. 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.