Why Jarislowsky Fraser?

Portfolio management team

QUARTERLY COMMENTARIES

Global bond markets posted another quarter of strong returns although Canada was a notable laggard. The Canadian economy does not yet seem to be displaying as much sensitivity to slowing global growth. In Canada, the yield curve continued on its flattening trend with two-year yields rising 12 bps while long yields were down 16 bps.  The decline in corporate bond yields was less than the decline in federal government bond yields. With the extra running yield, corporate bonds managed to slightly outperform government bonds.

The risk of deflation still overhangs the global economies given the historically weak demographic profile, extreme levels of debt and continued efficiencies from the implementation of advancements in technology. For investors, the battle is whether monetary policy can overcome these factors’ weight on growth and inflation.

Canadian bond yields ended the third quarter slightly lower; consequently, the portfolio’s underweight duration position was a detractor to relative performance. Canadian corporate bonds gained more than federal bonds, benefitting the portfolio due to its overweight position in corporates.

Several of the companies in the equity portion of the portfolio performed strongly in the quarter, following good results. Top contributors were Brookfield Asset Management, Industrial Alliance and Intact. Top detractors to performance were Nutrien, CCL and SNC-Lavalin, which had another difficult quarter.

Disclosures:

Returns of the F Series may vary mainly because of the different fees and expenses: NBI Jarislowsky Fraser Select Income Fund 3 months 1.1%, 1 year 5.7%, 3 years 3.1%, 5 years 3.7%, 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

After some panic moments in August, markets for the most part settled back down in September, although the rally in the bond market fizzled. While none of the problems that caused the market angst (trade wars and Brexit) were resolved, there were other developments that occupied the headlines. In Canada, the federal election campaign is well under way, and at this time it looks too close to call, a minority government is not beyond the realms of possibility. In the U.S., yet another scandal involving the President has surfaced, with calls for impeachment getting louder.

On the economic front, growth appears to be slowing in most jurisdictions. Central banks, including the U.S. Federal Reserve and the European Central Bank, have reacted with interest rate cuts. Whether this is enough to maintain the global economy on a growth trajectory remains to be seen, but there are numerous externalities, including the potential for further escalation in the trade war between the U.S. and China, that could have a negative impact.

Canadian and U.S markets saw solid gains for the quarter, whereas international markets had generally weaker performance, with ongoing geopolitical issues and weaker economic data serving to dent risk appetite globally after a strong start to the year.

The Canadian Equity portfolio underperformed partially due to the decline in the Health Care sector, which in Canada are dominated by cannabis companies. Top detractors to performance in Materials were the absence of gold stocks, and declines in CCL, Nutrien and SNC-Lavalin. Top contributors to performance were Brookfield Asset Management, Industrial Alliance and Intact. The fact that we do not invest in Cannabis stocks also contributed to our relative performance. In the Foreign Equities portfolio, UnitedHealth and AIA were top detractors to performance, while Alphabet and Anheuser-Busch InBev were positive contributors.  

The fixed income portfolio modestly outperformed the benchmark in the third quarter. Canadian bond yields ended the third quarter slightly lower; consequently, the portfolio’s underweight duration position was a detractor to relative performance. Canadian corporate bonds gained more than federal bonds, contributing to the portfolio’s outperformance due to its overweight position in corporates.  

Disclosures:

Returns of the F Series may vary mainly because of the different fees and expenses: NBI Jarislowsky Fraser Select Balanced Fund 3 months 1.1%, 1 year 7.7%, 3 years 5.7%, 5 years 5.6%, 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

After some panic moments in August, markets for the most part settled back down in September. While none of the problems that caused the market angst (trade wars and Brexit) were resolved, there were other developments that occupied the headlines. In Canada, the federal election campaign is well under way, and at this time it looks too close to call, with a minority government not beyond the realm of possibility. In the U.S., yet another scandal involving the President has surfaced, with calls for impeachment getting louder.

On the economic front, growth appears to be slowing in most jurisdictions. Central banks, including the U.S. Federal Reserve and the European Central Bank, have reacted with interest rate cuts. Whether this is enough to maintain the global economy on a growth trajectory remains to be seen, but there are numerous externalities, including the potential for further escalation in the trade war between the U.S. and China, that could have a negative impact.

Canadian and U.S markets saw solid gains for the quarter, whereas international markets had generally weaker performance, with ongoing geopolitical issues and weaker economic data serving to dent risk appetite globally after a strong start to the year. As of the end of the third quarter, the world’s equity markets are on track for a strong year. Yet, despite a still relatively rosy economic picture, there remain a number of events that could affect the outcome.

Top detractors to performance were the absence of gold stocks in our holdings and declines in Nutrien, CCL and SNC-Lavalin, which had another difficult quarter. This was partially offset by solid performance from top performers such as Brookfield Asset Management, Industrial Alliance and Intact. The fact that we do not invest in Cannabis stocks also contributed to our relative performance.

CCL declined because of soft quarterly results and fears of a recession. Nutrien was affected somewhat by a weaker demand and lower prices for potash, as well as rising inventories, which happens periodically. While negative sentiment persists on SNC-Lavalin, it has significantly de-risked its balance sheet (using the proceeds from the partial sale of the Highway ETR407), and continues to win important contracts. Management has decided to exit fixed-price contracts that were causing much of the volatility.

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 1.3%, 1 year 7.0%, 3 years 7.1%, 5 years 5.8%, 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.