Why Jarislowsky Fraser?

Portfolio management team

QUARTERLY COMMENTARIES

The world’s stock markets continued their upward trajectory during the fourth quarter, led by the United States and emerging markets. Economic growth is robust with very few signs of inflation; somewhat of a Goldilocks scenario. Monetary policy remains accommodative and even where rates have increased (e.g. the U.S.), it is clear that the path to normalization is likely to be very gradual.

The Canadian equity market was somewhat held back by the continued struggles of the Energy sector, even though the price of oil rose by 15.4% to close the year at USD59.64 per barrel (WTI). Access to international markets continues to be difficult for Canadian producers, although the approval of Keystone XL was a positive step. The S&P/TSX rose 4.5% during the quarter. This return was essentially matched by international stocks as the MSCI EAFE Net rose by 4.2% in USD (4.4% in CAD). The market leader continued to be the U.S. which, despite historically high valuations, continued to benefit from strong performance from some of the “new” technology titans such as Apple and Amazon, as well as the Trump administration’s tax bill. The S&P 500 rose 6.6% in USD (6.8% in CAD) for the quarter. The Canadian dollar slipped slightly in the quarter by -0.2% to end the year at USD 0.7981.

The NBI JF Select Income Fund slightly underperformed its benchmark in the fourth quarter. The portfolio continues to be overweight high-quality corporate bonds which helped performance, as did the positioning of the maturity of our holdings relative to the benchmark. Our underweight in provincial bonds was the largest detractor given their outperformance, particularly in comparison to longer-term federal and corporate bonds.

New issuance activity in credit markets continued to be robust during the final quarter of 2017. We continue to have an overweight exposure to corporate bonds although with more caution than in the past given richer valuations. We upgraded the portfolio by crystallizing outsized gains in some lower quality issues and moving into either federal or federally-guaranteed bonds.

Disclosures:

Returns of the F Series may vary mainly because of the different fees and expenses: NBI Jarislowsky Fraser Select Income Fund - Series F (as of 12/31/17) 3 months 2.2%, 1 year 3.2%, 3 years 3.5%, 5 years 5.5%, Since Inception 5.5%. 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 world’s stock markets continued their upward trajectory during the fourth quarter, led by the United States and emerging markets. Economic growth is robust with very few signs of inflation; somewhat of a Goldilocks scenario. Monetary policy remains accommodative and even where rates have increased (e.g. the U.S.), it is clear that the path to normalization is likely to be very gradual. The Canadian bond market recouped its losses from the third quarter and the FTSE TMX Canada Universe generated a return of 2.0%. After the rate increase of the first half of the year, the Bank of Canada has shifted to a more cautious stance and has become more data-focused. The Canadian equity market was somewhat held back by the continued struggles of the Energy sector, even though the price of oil rose by 15.4% to close the year at USD59.64 per barrel (WTI). The S&P/TSX rose 4.5% during the quarter. This return was essentially matched by international stocks as the MSCI EAFE Net rose by 4.2% in USD (4.4% in CAD). The market leader continued to be the U.S. which, despite historically high valuations, continued to benefit from strong performance from some of the “new” technology titans such as Apple and Amazon, as well as the Trump administration’s tax bill. The S&P 500 rose 6.6% in USD (6.8% in CAD) for the quarter. The Canadian dollar slipped slightly in the quarter by -0.2% to end the year at USD 0.7981.

The portfolio performed well during the fourth quarter, but came in slightly behind the benchmark. Strong absolute returns from equities, especially U.S. stocks, was the main contributor to the top line, however the portfolio’s equity sections could not beat their benchmarks given the risk-on sentiment and strong performance from cyclicals. The bond portfolio generated a solid return in the quarter, nevertheless the underweight in that asset class was a positive contributor. Over the full calendar year, the portfolio generated solid returns, but slightly lagged the benchmark. Again, the overweight in stocks was a strong positive, but very strong U.S. and international markets driven by expensive technology and momentum stocks outpaced our more conservative, high-quality holdings.

Disclosures:

Returns of the F Series may vary mainly because of the different fees and expenses: NBI Jarislowsky Fraser Select Balanced Fund - Series F (as of 12/31/17) 3 months 3.0%, 1 year 4.5%, 3 years 5.4%, 5 years 8.3%, Since Inception 7.5%. 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 world’s stock markets continued their upward trajectory during the fourth quarter, led by the United States and emerging markets. Economic growth is robust with very few signs of inflation; somewhat of a Goldilocks scenario. Monetary policy remains accommodative and even where rates have increased (e.g. the U.S.), it is clear that the path to normalization is likely to be very gradual.

The Canadian equity market was somewhat held back by the continued struggles of the Energy sector, even though the price of oil rose by 15.4% to close the year at USD59.64 per barrel (WTI). Access to international markets continues to be difficult for Canadian producers, although the approval of Keystone XL was a positive step. The S&P/TSX rose 4.5% during the quarter. This return was essentially matched by international stocks as the MSCI EAFE Net rose by 4.2% in USD (4.4% in CAD). The market leader continued to be the U.S. which, despite historically high valuations, continued to benefit from strong performance from some of the “new” technology titans such as Apple and Amazon, as well as the Trump administration’s tax bill. The S&P 500 rose 6.6% in USD (6.8% in CAD) for the quarter. The Canadian dollar slipped slightly in the quarter by -0.2% to end the year at USD 0.7981.

The fund’s performance lagged the S&P/TSX Composite during the fourth quarter. Both stock selection and group weight were negative, however neither factor was a major contributor in any particular sector. Although we saw good performance from some of our largest positions, this was more than offset by a decline in some energy stocks, related mostly to weak natural gas prices, and the continued weakness in Metro Inc. due to competitive threats (such as Amazon’s acquisition of Whole Foods) despite producing good results.

For the 2017 calendar year, the portfolio lagged the benchmark, with the majority of the underperformance caused by our holdings in the Energy sector. Cenovus Energy, for example, fell as a result of the disappointing structure of their acquisition of Conoco-Phillips’ remaining Canadian assets as well as the weak price of oil in western Canada (WCS).

Disclosures:

Returns of the F Series may vary mainly because of the different fees and expenses: NBI Jarislowsky Fraser Select Canadian Equity Fund - F Series (as of 12/31/17)  3 months 3.5%, 1 year 5.0%, 3 years 6.3%, 5 years 10.8%, Since Inception 8.6%. 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.