Why Jarislowsky Fraser?

Portfolio management team

QUARTERLY COMMENTARIES

Almost all markets, both bond and equity saw strong returns, and for the quarter as a whole it would seem that the concerns felt in December 2018 have all but dissipated. The December collapse was driven predominantly by three factors: fears that higher interest rates would cause a premature end to U.S. economic expansion, concerns over the potential escalation of the trade war between the U.S. and China, and the potential for a broader-based slowdown in global GDP growth. The correction in December reduced the pressure on China to increase tariffs and led to a more considered approach on the part of the U.S. Federal Reserve, to the extent that the market is now betting that the next change in rates is most likely to be a cut.

Bond markets rebounded strongly in the first quarter as interest rates continued to decline. The main influence for the continuation of the rally in yields was the pivot to a more dovish stance by most central banks in response to continued weakness in global growth. The Bank of Canada and the Fed had previously stated, in their justification for interest rate increases last year, that they had become more data dependent. The impact on the bond market from the relatively abrupt shift from stronger to weaker economic data has been amplified by the central banks’ data dependency policy framework. We now have the potential for central banks to abruptly shift policy direction and thereby accentuate asset price volatility. Implicit in the shift by the Fed is a prioritization of economic growth over inflation in terms of policy goals. The European Central Bank backed away from previous intentions to normalize policy and even took a step further, extending their bank loan facility for another two years.

The portfolio underperformed the benchmark in the first quarter. The main contributors of the fixed income portion of the portfolio were the overweight in corporate bonds and the more bulleted structure of the portfolio as mid-term bonds outperformed an equal weighted short and long bond structure. Within the portfolio’s corporate bond holdings, Canadian bank senior notes were particularly strong performers in the quarter. Provincial bonds outperformed federal bonds and thus our underweight was a detractor from performance as our slightly shorter term structure given the notable decline in yields.

Several of the companies in the equity portion of the portfolio performed very strongly in the quarter following good results. Top contributors were Restaurant Brands, Fanuc, Pembina Pipelines, Saputo and Thomson Reuters. While top detractor to performance was SNC-Lavalin. We are reviewing the overall impact of the news flow over the last few months, namely the earnings announcement in late January regarding the short-term impact of the loss related to the mining contract in Chile and the sale of 10% of SNC’s 16.67% stake in Highway 407 ETR.

Disclosures:

Returns of the F Series may vary mainly because of the different fees and expenses: NBI Jarislowsky Fraser Select Income Fund 3 months 5.5%, 1 year 4.3%, 3 years 3.9%, 5 years 4.0%, Since Inception 5.1%. 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 final month of the first quarter continued the positive trend in markets seen since the turn of the year. Almost all markets, both bond and equity saw strong returns, and for the quarter as a whole it would seem that the concerns felt in December 2018 have all but dissipated. The December collapse was driven predominantly by three factors: fears that higher interest rates would cause a premature end to U.S. economic expansion, concerns over the potential escalation of the trade war between the U.S. and China, and the potential for a broader-based slowdown in global GDP growth. The correction in December reduced the pressure on China to increase tariffs and led to a more considered approach on the part of the U.S. Federal Reserve, to the extent that the market is now betting that the next change in rates is most likely to be a cut.

With politics and economics so intertwined, there are a number of non-fundamental factors that investors have been watching closely. Brexit may be top of mind, with the already extended deadline for a deal fast approaching. The effect on the U.K. economy and markets hangs in the balance. In the U.S., the extended government shutdown came to an end, but uncertainties around trade with China, the ratification of the “new” USMCA and slowing economic growth are cause for concern.

The Fund was relatively flat against the benchmark in the first quarter. The Canadian equity portfolio performed very well this quarter due to our large overweight in Consumer Staples and Consumer Discretionary with exposure to Saputo and Restaurant Brands respectively. Saputo’s C$1.7b acquisition of Dairy Crest (DCG) was well received and is consistent with the company’s vision of re-entering Europe with a strong branded player, leading market share (in the UK) and significant scale. A surprising “volte-face” from the U.S. Federal Reserve on interest rates and a perceived thaw in trade relations between the U.S. and China led to a strong preference in the market for cyclically-exposed sectors and growth stocks. With some signs of orders bottoming in the quarter, Anheuser-Bush InBev posted strong quarters, recovering after a challenging 2018.

The fixed income portfolio performed well against the benchmark. Within the portfolio’s corporate bond holdings, Canadian bank senior notes were particularly strong performers in the quarter. Provincial bonds outperformed federal bonds and thus our underweight was a detractor from performance as our slightly shorter term structure given the notable decline in yields.

Disclosures:

Returns of the F Series may vary mainly because of the different fees and expenses: NBI Jarislowsky Fraser Select Balanced Fund 3 months 8.3%, 1 year 7.6%, 3 years 6.1%, 5 years 5.7%, Since Inception 7.1%. 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 final month of the first quarter continued the positive trend in markets seen since the turn of the year. Almost all markets, both bond and equity saw strong returns, and for the quarter as a whole it would seem that the concerns felt in December 2018 have all but dissipated. The December collapse was driven predominantly by three factors: fears that higher interest rates would cause a premature end to U.S. economic expansion, concerns over the potential escalation of the trade war between the U.S. and China, and the potential for a broader-based slowdown in global GDP growth. The correction in December reduced the pressure on China to increase tariffs and led to a more considered approach on the part of the U.S. Federal Reserve, to the extent that the market is now betting that the next change in rates is most likely to be a cut.

With politics and economics so intertwined, there are a number of non-fundamental factors that investors have been watching closely. Brexit may be top of mind, with the already extended deadline for a deal fast approaching. The effect on the U.K. economy and markets hangs in the balance. In the U.S., the extended government shutdown came to an end, but uncertainties around trade with China, the ratification of the “new” USMCA and slowing economic growth are cause for concern.

The Canadian equity portfolio generated very strong returns, but slightly lagged the benchmark in the first quarter. Several of the companies in the portfolio performed very strongly in the quarter following good results. Top contributors were Restaurant Brands and Thomson Reuters, as the market rerated the company post the disposition of 55% of the financial division to Blackstone. The two main remaining divisions in the financial operations are the legal and tax divisions, and they have higher organic growth and margins. Another strong contributor was Saputo, while top detractor to performance was SNC-Lavalin. We are reviewing the overall impact of the news flow over the last few months, namely the earnings announcement in late January regarding the short-term impact of the loss related to the mining contract in Chile and the sale of 10% of SNC’s 16.67% stake in Highway 407 ETR.

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 11.9%, 1 year 9.5%, 3 years 7.9%, 5 years 6.4%, Since Inception 8.0%. 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.