Why Jarislowsky Fraser?

Portfolio management team

QUARTERLY COMMENTARIES

The Canadian universe bond market was up 0.4% in the quarter, bringing the year-to-date return to 8.0%. Interest rates on government bonds stayed in a very narrow trading range while corporate and provincial bond yields declined as investors continued to seek higher yields given the impact of lower policy rates and historical levels of quantitative easing. The yield curve steepened, with longer-term bonds underperforming, incorporating some of the improving economic outlook and rising inflation expectations. The short end of the yield curve remained anchored by the Bank of Canada’s stated intention to keep policy rates very low for a number of years.

The bond portfolio continues to outperform its FTSE Universe benchmark, providing value-add returns for the quarter and year-to-date. The allocation to corporate bonds and their outperformance relative to federal government bonds, as well as exposure to higher-yielding provincial bonds, were the main positive contributors. In addition, our inflation-linked bond holdings outperformed nominal bonds as inflation expectations rose over the period. The supply of corporate bonds remains robust with levels running over 20% higher than last year as corporations look to lock in historically low interest costs.

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

The third quarter showed a continuation of the strong returns generated since the height of pandemic fears in March. With the exception of a few (e.g. Latin America and the UK), stock markets generated above-average returns, mostly led by companies in growth sectors, as well as cyclicals. As a result, the broad overweight in equities in balanced portfolios provided a substantial tailwind to both absolute and relative performance. The Canadian equity and international equity portfolios performed best on a relative basis as a result of strong stock selection, while the emerging markets also added value, despite its small weight. On a relative basis, the laggard was US equities (mainly due to the portfolio not holding Apple), however the strong absolute return still provided a positive contribution. The bond section also performed well during the quarter.

On a year-to-date basis the portfolio is back in positive territory. The strong rebound in equity markets has been the main contributor, but excellent relative returns in bonds, international equities and emerging market stocks have also contributed.

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 Canadian equity portfolio made solid gains, outperforming the S&P/TSX Index (4.7%) and offsetting some of the portfolio’s underperformance in the first six months. The index rebound was quite widespread, with Industrials (+13.6%) leading the way, followed by Utilities (+9.2%), Consumer Staples (+9.1%) and Materials (+9.0%). Financials (+4.0%) continued to lag while Energy (-8.1%) was the only notable sector to decline.

CCL Industries (+17%), our specialty packaging and labeling company, was one of our main contributors, due to a much better than expected quarter. Gildan (+25%), who manufactures and markets basic active wear globally, rebounded nicely following a very difficult start of the year. Canadian National Railway (+19%), which has proved to be remarkably resilient during this crisis, appreciated strongly this quarter. The resilience is attributable to its much improved productivity ratio and better ability to adjust costs to a weaker environment. The improvement of rail volumes back to pre-COVID-19 levels, as well as multiple expansions, drove the stock price.

Pembina (-15%) was a detractor to the portfolio’s performance, impacted by weak sentiment for energy stocks and fear that this difficult environment could impact the financial condition of its clients. While a large portion of the company’s pipelines and facilities are protected by contracts, lower volumes do affect a portion of revenue. With the rebound in oil price, it is our view that this risk has diminished considerably. CAE (-12%) continued to perform poorly as it is associated with the financial health of airlines, which of course is currently a major concern. Lastly, our lack of exposure to gold stocks such as Kinross (+20%) and Agnico Eagle (+23%) continued to be a headwind to performance, but we maintain that the price of gold is unsustainable at these levels over the long term.

On a year-to-date basis, the portfolio is underperforming the benchmark due to negative contribution from Technology and Materials sectors. While we are quite overweight the technology sector and continue to like the expected returns of the companies in our portfolio, we remain underweight Shopify for now as its stock price has nearly tripled since the start of the year. For Materials, the negative contribution comes from our lack of exposure to gold stocks. This sector has a mixed record of creating shareholder value over the long term, and we question the sustainability of the price of gold in what we expect will be an improving environment over the next 12-24 months.

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.