Strathbridge Asset Management

Mulvihill Premium Yield Fund

Fund Overview

Overview

Mulvihill Premium Yield Fund is an actively managed portfolio of large-cap North American equities combined with option writing strategies to generate tax-efficient distributions, potential for capital appreciation and lower risk compared to traditional buy-and-hold strategies.

 

Objectives

The Fund is a mutual fund investment trust that seeks to provide unitholders with (i) high quarterly income on a tax efficient basis; (ii) long-term capital appreciation through investment in a portfolio of high quality equity securities; and (iii) lower overall portfolio volatility. The fund will write options to seek to earn tax efficient option premiums, reduce overall portfolio volatility and enhance the portfolio’s total return.

 

Top Holdings Top 10 Holdings as of December 31, 2019

Holding Name % of Fund
Cash & Short-Term 21.7%
Enbridge Inc. 3.9%
Power Corporation of Canada 3.9%
Gibson Energy Inc. 3.9%
NIKE, Inc. 3.8%
Morgan Stanley 3.8%
Canadian Natural Resources Limited 3.8%
Hydro One Limited 3.8%
Open Text Corporation 3.8%
Merck & Co., Inc. 3.8%
Sector Allocations

Historic Net Asset Value Per Unit

 

Date:   NAV Per
Class A Unit
NAV Per
Class F Unit
NAV Per
Class I Unit
2020-03-27    $8.24  $8.29  $8.29 
2020-03-26    $8.50  $8.55  $8.55 
2020-03-25    $8.36  $8.41  $8.41 
2020-03-24    $8.19  $8.25  $8.25 
2020-03-23    $7.55  $7.60  $7.60 
2020-03-20    $7.91  $7.96  $7.96 
2020-03-19    $8.23  $8.28  $8.28 
2020-03-18    $8.14  $8.19  $8.19 
2020-03-17    $8.38  $8.43  $8.43 
2020-03-16    $7.93  $7.98  $7.98 
2020-03-13    $8.71  $8.77  $8.77 
2020-03-12    $8.04  $8.09  $8.09 
2020-03-11    $8.88  $8.93  $8.93 
2020-03-10    $9.28  $9.33  $9.33 
2020-03-09    $8.89  $8.94  $8.94 
2020-03-06    $9.59  $9.65  $9.65 
2020-03-05    $9.76  $9.81  $9.81 
2020-03-04    $9.93  $9.99  $9.99 
2020-03-03    $9.64  $9.70  $9.70 
2020-03-02    $9.79  $9.85  $9.85 
2020-02-28    $9.48  $9.53  $9.53 
2020-02-27    $9.67  $9.72  $9.72 
2020-02-26    $9.98  $10.04  $10.04 
2020-02-25    $10.03  $10.08  $10.08 
2020-02-24    $10.26  $10.32  $10.32 
2020-02-21    $10.48  $10.53  $10.53 
2020-02-20    $10.55  $10.60  $10.60 
2020-02-19    $10.56  $10.61  $10.61 
2020-02-18    $10.52  $10.58  $10.58 
2020-02-14    $10.55  $10.60  $10.60 
2020-02-13    $10.51  $10.56  $10.56 
2020-02-12    $10.51  $10.57  $10.57 
2020-02-11    $10.50  $10.55  $10.55 
2020-02-10    $10.51  $10.56  $10.56 
2020-02-07    $10.44  $10.49  $10.49 
2020-02-06    $10.48  $10.53  $10.53 
2020-02-05    $10.40  $10.46  $10.46 
2020-02-04    $10.37  $10.42  $10.42 
2020-02-03    $10.26  $10.31  $10.31 
2020-01-31    $10.13  $10.18  $10.18 
2020-01-30    $10.28  $10.33  $10.33 
2020-01-29    $10.24  $10.29  $10.29 
2020-01-28    $10.22  $10.27  $10.27 
2020-01-27    $10.15  $10.20  $10.20 
2020-01-24    $10.23  $10.28  $10.28 
2020-01-23    $10.30  $10.35  $10.35 
2020-01-22    $10.28  $10.33  $10.33 
2020-01-21    $10.23  $10.28  $10.28 
2020-01-20    $10.27  $10.31  $10.31 
2020-01-17    $10.26  $10.30  $10.30 
2020-01-16    $10.20  $10.24  $10.24 
2020-01-15    $10.13  $10.17  $10.17 
2020-01-14    $10.13  $10.17  $10.17 
2020-01-13    $10.09  $10.14  $10.14 
2020-01-10    $10.06  $10.10  $10.10 
2020-01-09    $10.10  $10.14  $10.14 
2020-01-08    $10.02  $10.07  $10.07 
2020-01-07    $10.01  $10.05  $10.05 
2020-01-06    $9.99  $10.03  $10.03 
2020-01-03    $9.97  $10.01  $10.01 
2020-01-02    $10.00  $10.04  $10.04 

 

 

Portfolio Manager Updates

 

PM Updates - December 2019

The NAV of the Fund on December 31, 2019 was $9.99 per unit (Class I & F) and $9.95 per unit (Class A) compared to $10.00 per unit at inception of the fund on December 1, 2019 (Class I & F) and December 12, 2019 (Class A). Unitholders received no cash distributions in this period.

North American equity markets continued their impressive rally from the first three quarters of 2019 with most indices ending the year near all-time highs. U.S. markets led the way in the fourth quarter on expectations a trade resolution between the U.S. with China was to be announced in early 2020. The total return for the S&P/TSX Index in the fourth quarter was 3.2%, while the S&P 500 Index had a total return of 9.1%. In Canada, 7 of 11 sectors generated a positive total return for the quarter, with Information Technology sector leading the way up 10.8%, while Health Care lagged for the third consecutive quarter, down 5.9%, as Cannabis stocks continued to decline. The U.S. market saw 10 of 11 sectors generate positive performance, with the Information Technology sector also leading the way, up 14.4%, while the defensive Real Estate sector lagged during the quarter, down 0.5%.

The total returns for the S&P/TSX Composite Index and the S&P 500 Index (CAD) since inception of the fund were 0.45% and 0.65% respectively and the return for the MX Covered Call Writers Index and CBOE S&P 500 BuyWrite Index (CAD) was 0.64% and negative 1.39% respectively over the same period. Stock within the Portfolio had varied results with Power Corp of Canada rising 4.66 percent followed by Gibson Energy Inc. rising 2.75 percent. The Walt Disney Co was the worst performing stock in the portfolio during the period with a total return of -5.84% in CAD.

Volatility levels as measured by the CBOE SPX Volatility Index (“VIX”) were at the low end of the range for most of the period. The fund opportunistically used option writing strategies to generate additional portfolio income. The Fund had on average 12.9 percent of the portfolio subject to covered calls and 7.8 percent to cash covered puts in the quarter.

The Fund did not hedge any of the U.S. dollar exposure back into Canadian dollars during the period.

Fund Features

Objectives

The Fund is a mutual fund investment trust that seeks to provide unitholders with (i) high quarterly income on a tax efficient basis; (ii) long-term capital appreciation through investment in a portfolio of high quality equity securities; and (iii) lower overall portfolio volatility. The fund will write options to seek to earn tax efficient option premiums, reduce overall portfolio volatility and enhance the portfolio’s total return.

 

Investment Strategy

The fund will use a quantitative approach to select securities that generate strong free cash flow and have a high shareholder yield, utilizing measures such as dividends and share buybacks. The fund will, from time to time employ various investment strategies (described below), including the use of derivative instruments to generate income, reduce portfolio volatility and protect capital. The fund seeks to achieve a 5% yield, with additional capital growth potential beyond such yield target.

The fund may invest up to 100% of its net assets in foreign securities. The fund may (a) from time to time in response to market conditions write covered call options on individual securities to seek to receive premium income, reduce overall portfolio volatility and enhance the portfolio’s total return, (b) from time to time in response to market conditions write cash-covered put options in respect of individual securities that the fund is permitted to hold and in respect of market indices, in order to receive premium income, reduce overall portfolio volatility and reduce the net cost of acquiring the securities subject to put options, (c) purchase call options in respect of securities in which the fund is permitted to invest, (d) purchase put options on individual securities in its portfolio, indexed put options and unleveraged inverse exchange traded funds that provide exposure to such securities, (e) use derivatives, including but not limited to options, forward contracts, futures contracts and swaps for both hedging and non-hedging purposes to generate income, hedge against losses from changes in the prices of the fund’s investments and market declines and from exposure to foreign currencies and/or (f) hold cash or cash equivalents for strategic reasons or to provide cover for the writing of cash covered put options in respect of securities in which the fund is permitted to invest. Options may be either exchange traded or over-the-counter options.

 

Distributions

The Fund expects to make distributions quarterly that may consist of net income, net realized capital gains and/or return of capital, if any. As the fund has existing capital losses, Strathbridge expects that distributions payable on the units going forward will be return of capital distributions or will provide the fund with the ability to facilitate growth in NAV. Depending on the size and future performance of the fund, Strathbridge expects that all or substantially all of the quarterly distributions payable by the fund will be characterized as return of capital distributions for the foreseeable future. Strathbridge automatically pays all distributions in cash unless you tell your dealer to inform us that you want them reinvested in additional mutual fund units of the fund.

 

Redemptions

The Class A, F, UA, UF units will be redeemable daily via FundServ. You may redeem your units of the fund by giving instructions to your registered broker or dealer. The Fund may charge a short-term trading fee of up to 2% of the NAV of any units redeemed within 31 days of purchase.

The Class I, UI units will be redeemable monthly on the last business day of each month, which will be the effective date (the “Monthly Redemption Date”) via Fundserv. In order for a redemption to be effective on a Monthly Redemption Date, a duly completed redemption request must be delivered to the manager at its registered office by 4:00pm on or before the tenth day of the month (or next business day if the 10th day is not a business day).

Eligibility

RRSPs, DPSPs, RRIFs, RESPs and TFSAs

 

Management Fees

Class A and UA units – 2.0%
Class F and UF units – 1%
Class I and UI units – negotiable but will not exceed the management fee payable on the Class A and UA units
The fund will pay all costs associated with its day to day operation and administration and all portfolio transaction costs.

 

Performance Fee

Strathbridge is entitled to receive a performance fee from the fund in respect of any calendar quarter equal to 10% of the amount by which the Adjusted NAV per Unit at the end of such calendar quarter exceeds the performance of the reference index (the “Performance Fee Index”) since the end of the period for which the last performance fee was paid, plus applicable taxes. Notwithstanding the foregoing, no performance fee will be payable with respect to a calendar quarter unless the Adjusted NAV per Unit exceeds both (i) the highest calendar quarter end Adjusted NAV per Unit immediately following the last time a performance fee was paid and (ii) an amount equal to the original issue price (being $10.00) of the Units. In addition, the amount of the performance fee in respect of any calendar quarter will be limited such that the Adjusted NAV per Unit after giving effect to the payment of the performance fee may not be less than either (i) or (ii) above. “Adjusted NAV per Unit” means the net asset value per Unit at the end of a calendar quarter without including any accrual for the performance fee plus the aggregate amount of all distributions paid or payable since the last time a performance fee was paid.

 

Service Fee

A service fee of 1.0% per annum is paid quarterly to dealers whose clients hold Class A and UA units.

 

MER

The Management Expense Ratio (“MER”) is the sum of all operating expenses, including management and service fees but excluding portfolio transaction costs, expressed as a percentage of average net asset value.

 

Inception Date

11/29/2019

 

Manager

Strathbridge Asset Management

 

Documentation

Date:      Type:      Description
March 27, 2020 Press Release MPY: Announces Year End Results
March 03, 2020 Distribution Notice MPY: Declares Quarterly Fund Distributions
March 03, 2020 IRC Report IRC Report for Mulvihill Premium Yield Fund

Administration & Governance

Introduction

Strathbridge Asset Management serves as the Manager and the Investment Manager of the Fund.

 

Manager

The Manager is responsible for providing or arranging for the provision of administrative services to the Fund including but not limited to:

  • authorizing the payment of operating expenses incurred on behalf of the Fund,
  • preparing financial statements and other accounting information,
  • ensuring that unitholders are provided with annual and semi-annual reports and other reports as required by applicable law;
  • ensuring the Fund complies with regulatory requirements;
  • calculating and arranging for the payment of distributions;
  • negotiating any contractual agreements with third-party providers of services to the Fund, including auditors, printers, registrar and transfer agent
  • Overseeing and paying quarterly and annual redemptions;
  • Managing the issuer bid;
  • Maintaining the website and ongoing communication with investors.

The Management fee payable to the Manager includes any amount payable to the Investment Manager.

 

Investment Manager

The Investment Manager is responsible for making all investment decisions and managing the call option writing program in accordance with the investment objectives, strategies and restrictions of the Fund. Fees for the provision of investment management services are included in the management fee.

The Investment Manager has an asset mix committee consisting of senior members of the firm. The investment process for the Fund begins at the asset mix committee. Members of this committee meet monthly to examine macro-economic variables and relationships among dominant economic factors. This process culminates in an outlook for the various capital markets around the world and provides the Fundamental basis for Strathbridge’s long-term market outlook. These views are integrated into the investment decision making process at the portfolio management level. The asset mix committee of Strathbridge oversees investment decisions made by the portfolio managers of the Fund.

 

Independent Review Committee

The Fund has established an Independent Review Committee (“IRC”) in accordance with National Instrument 81-107 – Independent Review Committee for Investment Funds (“NI 81-107”) which is comprised of three members who are independent of the Manager. The mandate of the IRC is to review and provide its decisions to the Manager regarding any conflict of interest matters relating to its management of the Fund that the Manager has identified and brought to the committee.

A conflict of interest matter is a situation where a reasonable person would consider the Manager or an entity related to it to have an interest that may conflict with the Manager’s ability to act in good faith and in the best interests of the Funds and Securityholders. Click here for the IRC Report to Securityholders.

Click here to review members of the IRC.

 

Advisory Board

The Fund has established an Advisory Board to assist the Fund in the provision of services by the Manager and the Investment Manager and to provide oversight of these activities. The Advisory Board consists of five members, three of whom are independent of the Manager and Investment Manager. The three independent members of the Advisory Board are also members of the Independent Review Committee. The Advisory Board includes an audit committee whose mandate is to review the annual and semi-annual financial statements and discuss any issues with the auditors.

 

Trustee and Custodian

Trustee: Strathbridge Asset Management
Custodian: RBC Investor & Treasury Services

 

Registrar and Transfer Agent

SGGG Fund Services Inc.

 

Legal Counsel

Osler Hoskin & Harcourt LLP

 

Auditors

Deloitte & Touche LLP

Financial & Regulatory

The Annual Report and the Interim Report include the Management Report on Fund Performance and the Financial Statements of the Fund.

Report Year:      Release Date Description
2019 March 27, 2020 2019 Annual Report

 

The Annual Information Form (“AIF”) is a regulatory filing that provides material information to investors about the Fund’s structure, operations, risks and other factors that may affect the Fund. The AIF is supplemented throughout the year by other filings including press releases, information circulars, prospectuses, material change reports, the annual and interim management report on fund performance and the financial statements.

Date Description
September 18, 2019 Annual Information Form

 

The Fund has adopted the proxy voting guidelines with respect to the voting of proxies received by it relating to voting securities held by the Fund. The proxy guidelines establish standing policies and procedures for dealing with routine matters, as well as circumstances where deviations may occur from such standing policies. Click here for proxy guidelines.

The Fund has retained ISS Governance Services to administer and implement the proxy guidelines for the Fund. Click here to review the proxy voting record.