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Low Volatility U.S. Equity Income Fund

 

LVU.UN

Portfolio Manager Updates

 

Portfolio Manager Updates for 2016-12-31

As of December 30, 2016, the Net Asset Value (“NAV”) per unit of LVU.UN was $10.16, unchanged from September 30, 2016. Unitholders received regular distributions totaling $0.13805 per unit during the quarter.

The unit’s closing price on December 30, 2016 was $9.86 which represents a 2.95% discount to its underlying NAV.

Most global equity markets rallied strongly in the fourth quarter of 2016 with the majority of the performance coming after the election of Donald Trump as the President of the United States on November 8, 2016. The S&P/TSX Composite Index rose 4.5% while the S&P 500 Index in the U.S. was up 3.8%. Meanwhile, Asian markets declined during the period, dragging the international MSCI EAFE Index down 0.6%.

The S&P 100 Total Return Index rose during the period ending December 30, 2016 at 1,931.7 vs. 1,856.8 on September 30, 2016. Stocks within the portfolio had varying returns, led by Bank of America Corp. which rose 41.7%. The Financials sector was by far the best performing sector in the fourth quarter on expectations of a steeper yield curve and less regulation. Kinder Morgan Inc. was the biggest drag to the performance of the Fund as it declined 12.7% while held within the portfolio.

Volatility moved higher heading into the U.S. Election as the Chicago Board Options Exchange Volatility Index (VIX) went from 13% on October 24th to 22.5% on November 4th. After the election, volatility declined swiftly hitting a low for the year on December 21st at 10.9%. The Fund stayed open on most of the portfolio during the period but did selectively write some covered calls and ended the quarter with 5.0% of the portfolio written vs. 2.4% at the end of the previous quarter.

The Fund maintained an average cash position of 4.6% during the period and ended the quarter at 3.6% vs. 1.6% at the end of the previous quarter.

The U.S. dollar was mostly hedged back into Canadian dollars throughout the period and ended December with approximately 50% of the U.S. dollar exposure hedged.

 

Portfolio Manager Updates for 2016-09-30

As of September 30, 2016, the Net Asset Value (“NAV”) per unit of LVU.UN was $10.16 versus $10.26 on June 30, 2016. Unitholders received regular distributions totaling $0.14025 per unit during the quarter.

The unit’s closing price on September 30, 2016 was $9.81 which represents a 3.4% discount to its underlying NAV.

Global equity markets rallied in the third quarter of 2016 with most of the performance coming in July and August as September, traditionally the weakest month of the year, ended with little change. The S&P/TSX Index rose 5.4% and the S&P 500 Index in the U.S. was up 3.8% while the international index (EAFE) led the way up 6.5% as investor concerns around ‘Brexit” receded.

The S&P 100 Total Return Index rose during the period ending September 30, 2016 at 1,856.8 vs. 1,787.3 on June 30, 2016. Stocks within the portfolio had varying returns, led for consecutive quarters by online retailer Amazon.com, Inc. which rose 17.0%. Bristol-Myers Squibb Company was the biggest drag to the performance of the Fund as it declined 18.4% while held within the portfolio. Most of the decline occurred after the Company announced its Opdivo drug failed in its first-line treatment for non-small cell lung cancer patients.

Volatility was range bound during the period as the Chicago Board Options Exchange Volatility Index (“VIX”) traded in a range of 10% to 15%. The Fund stayed open on most of the portfolio during the period but did selectively write some covered calls and ended the quarter with 2.4% of the portfolio written vs. 6.1% at the end of the previous quarter.

The Fund maintained an average cash position of 6.8% during the period and ended the quarter at 1.5% vs. 15.7% at the end of the previous quarter.

The U.S. dollar was mostly hedged back into Canadian dollars throughout the period and ended September with approximately 100% of the U.S. dollar exposure hedged.

 

Portfolio Manager Updates for 2016-06-30

As of June 30, 2016, the Net Asset Value (“NAV”) per unit of LVU.UN was $10.26 versus $10.52 on March 31, 2016. Unitholders received regular distributions totaling $0.14415 per unit during the quarter.

The unit’s closing price on June 30, 2016 was $10.00 which represents a 2.5% discount to its underlying NAV.

Global equity markets were mixed in the second quarter of 2016 with markets in North America showing positive results while International markets were modestly lower. The S&P/TSX Index rose 5.1% and the S&P 500 Index in the U.S. was up 2.4% while the international index (EAFE) was down 1.2% with most of the decline occurring after the “Brexit” vote was decided on June 23 with 52 percent of Great Britain voting in favor to leave the European Union. The news roiled global markets immediately following the vote but rebounded by quarter-end. The longer term impacts on the region and the world are not yet known.

The S&P 100 Total Return Index rose during the period ending June 30, 2016 at 1,787.3 vs. 1,747.8 on March 31, 2016. Stocks within the portfolio had varying returns led by online retailer Amazon.com, Inc., which rose 20.5% during the quarter with most of the rise coming after the company posted blow out first quarter earnings that nearly doubled analyst’s expectations. American Express Company was the biggest drag to the performance of the Fund as it declined 8.7% while held within the portfolio.

After a fairly volatile first quarter of 2016, the Chicago Board Options Exchange Volatility Index (VIX) retreated for most of the second quarter before briefly spiking on the “Brexit” news on June 23rd. Volatility stayed elevated only for a few days before declining as markets staged a meaningful rally into quarter-end. The Fund was active in its covered-call writing during the period and ended the quarter with 6.1% of the portfolio written vs. 2.2% at the end of the previous quarter.

The Fund maintained a slightly higher average cash position of 6.4% during the period and ended the quarter at 15.7% vs. 3.8% at the end of the previous quarter.

The U.S. dollar was actively hedged back into Canadian dollars throughout the period and ended June with approximately 50% of the U.S. dollar exposure hedged.

 

Portfolio Manager Updates for 2016-03-31

As of March 31, 2016, the Net Asset Value (“NAV”) per unit of LVU.UN was $10.52 versus $10.99 on December 31, 2015. Unitholders received regular distributions totaling $0.14602 per unit during the quarter.

The unit’s closing price on March 31, 2016 was $10.15 which represents a 3.5% discount to its underlying NAV.

Global equity market performance was “A Tale of Two Cities” in the first quarter of 2016. From the start of the year up to the lows on February 11, 2106, most global indices over 10% due to concerns surrounding global growth. The WTI Crude Oil spot price declined over 30% during the same period. Since then, many markets have advanced over 10% erasing most if not all of the losses incurred earlier in the year as global macroeconomic indicators started to show some signs of improvement. By the end of the quarter, the S&P/TSX Composite advanced 4.5%, the S&P 500 Index advanced 1.3%, while the WTI Crude Oil spot price ended the period down only 0.5% to end at US$36.94 per barrel.

The S&P 100 Total Return Index rose slightly during the period ending March 31, 2016 at 1,747.8 vs. 1,734.4 on September 30, 2015. Stocks within the portfolio had varying returns led by Exelon Corporation, an Illinois based utility holding company that advanced 20.2%, as yield and defensive sectors led the market during the quarter. Home improvement retailer Lowe’s Companies Inc. was the biggest drag to the performance of the Fund as it declined 16% while held within the portfolio.

After a fairly stable fourth quarter of 2015, the Chicago Board Options Exchange Volatility Index (“VIX”) rose on the back of market weakness in January and February up to the 30 level which was last observed in August of 2015. The VIX has subsequently declined back to around 14, the low end of the range over the past few years. The Fund was active in its covered-call writing during the period and ended the quarter with 2.2% of the portfolio written, showing no change from the previous quarter.

The manager actively altered the cash position during the period and ended the quarter at 3.8% vs. 4.5% at the end of the previous quarter.

The manager became more concerned with the Fund’s exposure to the U.S. dollar during the quarter and increased the hedge to 100% of the U.S. dollar exposure from 50% at the end of 2015.

 

Portfolio Manager Updates for 2015-12-31

As of December 31, 2015, the Net Asset Value (“NAV”) per unit of LVU.UN was $10.99 versus $10.39 on September 30, 2015. Unitholders received regular distributions totaling $0.14859 per unit during the quarter.

The unit’s closing price on December 31, 2015 was $10.37 which represents a 5.6% discount to its underlying NAV.

Global equity markets mostly advanced in the fourth quarter of 2015 with strong gains generated in October partially offset by weakness in December. The S&P 500 Index advanced 7.0% during the period, while the S&P/TSX Composite was an exception as it declined 1.4% due to weak commodity prices emanating from concerns surrounding slower growth in China and other emerging markets.

The S&P 100 Total Return Index also rose during the period ending December 31, 2015 at 1,734.4 vs. 1,604.8 on September 30, 2015.

Stocks within the portfolio had varying returns led by NVIDIA Corp. which advanced 20.8% during the period, and was up 8.1% alone on October 22nd when the company reported better than expected third quarter earnings as well as the first rise in sales in the U.S. in over 2 years. Apple Inc., on the other hand, was the biggest drag during the period declining 4.2%.

After a fairly volatile third quarter, the Chicago Board Options Exchange Volatility Index (“VIX”) declined in the fourth quarter to an average level of 17.1 for the period. The Fund was active in its covered-call writing during the period and ended the quarter with 2.2% of the portfolio written vs. 10.2% at the end of the previous quarter.

As investment opportunities arose, the Fund’s cash position was reduced during the period with an average cash position of 6.6% and ended the quarter at 4.5% vs. 26.6% at the end of the previous quarter.

The Fund ended the period with approximately 50% of the U.S. dollar exposure hedged back to the Canadian dollar.

 

Portfolio Manager Updates for 2015-09-30

As of September 30, 2015, the Net Asset Value (“NAV”) per unit of LVU.UN was $10.39 versus $10.94 on June 30, 2015. Unitholders received regular distributions totaling $0.15056 per unit during the quarter.

The unit’s closing price on September 30, 2015 was $10.40 which represents a $0.01 premium to its underlying NAV.

Global equity markets were down across the board in the third quarter of 2015 due to concerns surrounding slower growth in emerging market economies (most notably China) and the effects on global growth. Global indices were down anywhere from 6.9% for the S&P 500 Index to 28.6% for the Shanghai SE A Share market, with the flash crash on August 24th contributing most of the weakness. The resource heavy S&P/TSX Composite was also down 8.6% during the quarter, due to its dependence on emerging market’s demand for its resources.

The S&P 100 Total Return Index declined during the period ending September 30, 2015 at 1,604.8 vs. 1,708.5 on June 30, 2015.

Stocks within the portfolio had varying returns led by Nike Inc. that advanced 14.1% during the period, and was up 8.9% alone on September 25th when the company reported a 23% increase in its first quarter earnings due to sales rising 36% in China. Healthcare companies, Abbott Laboratories and Pfizer Inc., were the biggest drags to the performance of the Fund declining 11.5% and 5.6% respectively. Meanwhile, National Oilwell Varco Inc., which the Fund did not own, was the biggest decliner in the universe, down 21.1% in the quarter as Crude Oil WTI Spot prices declined by 24.2% over the same period.

Volatility was fairly subdued in July and the first half of August, but started to rise after the FOMC meeting in August when the minutes revealed there was less of chance for the Federal Reserve to embark on its first tightening cycle in over a decade. The Chicago Board Options Exchange Volatility Index (“VIX”) spiked over 45% to a level of 40.74 on August 24th, the same day as the flash crash when the Dow Jones Industrial Average was down more than 1,000 points intraday. The Fund was active in its covered-call writing during the period and ended the quarter with 10.2% of the portfolio written.

The Manager became more cautious during the period and increased the Fund’s cash position which ended the quarter at 26.6% vs. 2.9% in the previous quarter.

The Fund ended the period with approximately 70% of the U.S. dollar exposure hedged back to the Canadian dollar.

 

Portfolio Manager Updates for 2015-06-30

As of June 30, 2015, the Net Asset Value (“NAV”) per unit of LVU.UN was $10.94 versus $11.33 on March 31, 2015. Unitholders received regular distributions totaling $0.15218 per unit during the quarter.

The unit’s closing price June 30, 2015 was $10.82 which represents a 1.1% discount to its underlying NAV.

Global equity markets generated mixed returns in the second quarter of 2015 due to concerns surrounding whether Greece would exit the Eurozone or not. European markets felt most of the brunt of “Grexit” risk as the DAX 30 in Germany and CAC 40 in France declined 8.5% and 4.8% respectively. Although the Shanghai Class A market declined 7.2% in June, it was still the top performing market globally in the 2nd quarter, rising 14%.

The S&P 100 Total Return Index rose slightly during the period ending June 30, 2015 at 1,708.5 vs. 1,687.4 on March 31, 2015.

Stocks within the portfolio had varying returns, led by Eli Lilly & Company and Mondelez International Inc. - Class A, up 15.7% and 14.4% respectively. Meanwhile, Wal-Mart Stores, Inc., which the Fund did not own, was down 13.2% in the quarter.

Volatility during the quarter remained towards the low end of the range it has traded in the past few years. The Fund has been selective in its covered call writing and ended the quarter with 8.2% of the portfolio written.

The Fund maintained a high investment position during the period and ended the quarter with a cash position of 2.9% vs. 0.7% at the end of the previous quarter.

The Fund ended the period with approximately 80% of the U.S. dollar exposure hedged back to the Canadian dollar.

 

Portfolio Manager Updates for 2015-03-31

As of March 31, 2015, the Net Asset Value per unit of LVU.UN was $11.33, flat vs. $11.33 on December 31, 2014. Unitholders received regular distributions totaling $0.1568 per unit during the quarter.

The unit’s closing market price March 31, 2015 was $11.34 which represents a 1 cent premium to its underlying NAV.

Global equity markets advanced in the first quarter of 2015, albeit at differing degrees as Europe, China and Japan led the way on optimism that recent quantitative easing measures by their respective central bank would have a similar effect that it did for U.S. markets.

The S&P 100 Total Return Index was essentially flat during the period ending the quarter at 1,687.4 vs. 1,689.8 on December 31, 2014.

Stocks within the portfolio had varying returns led by Starbucks Corp. up 15.8% while, National Oilwell Varco Corp., which the Fund didn’t own, was down 23% as oil prices continued to decline with WTI Spot Cushing down another 10.7% during the period.

After starting off 2015 at elevated levels, volatility slowly declined to end the first quarter at the low end of the range for the past few years. The Fund has been selective in its covered-call writing and ended the quarter with 10.6% of the portfolio written.

The Fund maintained a high investment position during the period and ended the quarter with a cash position of 0.7% vs. 1.4 % at the end of the previous quarter.

The Fund ended the period with approximately 50% of the U.S. dollar exposure hedged back to the Canadian dollar.

 

Portfolio Manager Updates for 2014-12-31

As of December 31, 2014, the Net Asset Value (“NAV”) per unit of LVU.UN was $11.33 versus $10.97 on September 30, 2014. Unitholders received regular distributions totaling $0.1524 per unit during the quarter plus a special distribution of $0.10 per unit that was paid on October 31, 2014.

The unit’s closing price on December 31, 2014 was $11.00 which represents a discount of 2.9% to its underlying NAV.

Most global equity markets retreated in the early part of the fourth quarter of 2014 on concerns around the U.S. Federal Reserve ending quantitative easing in October, a substantial decline in energy commodity prices as well as deflation risks surrounding Europe and Japan. However, most markets rebounded strongly into the end of the year as U.S. payrolls continued to strengthen and third quarter GDP in the U.S. came in well above expectations at 5%.

The S&P 100 Total Return Index increased during the period, rising to 1,701.96 from 1,630.35 on September 30, 2014. Stocks within the Low Volatility U.S. Equity Income Fund portfolio had varying returns, led by CVS Health Corp. up 21.4% during the quarter. Meanwhile, Apache Corp., which the Fund didn’t own during the period, was down by approximately 33% on the back of weaker oil prices as WTI Spot Cushing dropped 41.4% in the quarter to end the year at US$53.45 per barrel.

Volatility levels remained at the low end of the range for most of the period and the Fund was less active with its covered call writing. The Fund ended the quarter with 2.2% of the portfolio subject to covered calls.

The Fund maintained a high investment position during the period and ended the quarter with a cash position of 1.4% vs. 0.2% at the end of the previous quarter.

The Manager remains positive on companies within the Low Volatility U.S. Equity Income Fund universe due to their leverage to an improving U.S. economy, strong corporate balance sheets and earnings as well as continued attractive valuations on both an absolute and relative basis. All of this while at the same time providing superior diversification and lower volatility.

 

Portfolio Manager Updates for 2014-09-30

As of September 30, 2014, the Net Asset Value (“NAV”) per unit of LVU.UN was $10.97 versus $10.89 on June 30, 2014. Unitholders received regular distributions totaling $0.14496 per unit during the quarter plus a special distribution of $0.10 per unit that was paid on September 30, 2014.

On July 23, 2014, the Fund announced a 10% increase in the annual distribution rate to 5.5% of NAV from 5% of NAV due to the strong performance of the Fund along with realized capital gains which are expected to exceed the regular monthly distributions for 2014.

The units closing price on September 30, 2014 was $10.75 which represents a discount of 2.0% to its underlying NAV.

Many global equity markets reached all-time highs during the third quarter of 2014 before retreating into the end of the period due to concerns about slowing global growth as well as deflation risks surrounding Europe and Japan. U.S. equities outperformed Canadian and International stocks during the period, especially when converted into Canadian dollars as the U.S. dollar rose 4.7% vs. the Loonie.

The S&P 100 Total Return Index increased during the period to 1,630.35 from 1,592.32 on June 30, 2014. Stocks within the Low Volatility U.S. Equity Income Fund portfolio had varying returns led by Facebook Inc. up 17.5% after reporting a 138% increase in second quarter earnings and a 61% increase in revenues to $US2.81 billion during the period. Meanwhile, Walgreen Co. lagged in the third quarter, down 19.6% with most of the decline occurring after it reported on August 6, 2014 it would also abandon its plan to do a corporate inversion and shift its tax base out of the United States that was expected to cut corporate taxes significantly. Walgreen’s also reported that it would acquire the 55% of Alliance Boots, Britain’s largest pharmacy chain, it didn’t own for 5 billion pounds.

Volatility levels remained at the low end of the range for most of the period but did start to rise towards the end of September as the S&P 500 started to sell off after reaching an all-time high on September 19, the same day that Chinese e-commerce company Alibaba became the biggest initial public offering ever. The fund was less active with its covered call writing for most of the period but did increase the call writing into the end of September as volatility rose. The Fund ended the quarter with 1.1% of the portfolio subject to covered calls.

The fund maintained a high investment position during the period and ended the quarter with a cash position of 0.2% vs. 0.8% at the end of the previous quarter.

The Manager remains positive on companies within the Low Volatility U.S. Equity Income Fund universe due to their leverage to an improving U.S. economy, strong corporate balance sheets and earnings as well as continued attractive valuations on both an absolute and relative basis. All of this while at same time providing superior diversification and lower volatility.

 

Portfolio Manager Updates for 2014-06-30

As of June 30, 2014, the Net Asset Value (“NAV”) of LVU.UN was $10.89 versus $10.98 on March 31, 2014. Unitholders received distributions totaling $0.13512 during the quarter.

The units closing price on June 30, 2014 was $10.65 which represents a discount of 2.2% to its underlying NAV.

After posting mixed returns during the first quarter of 2014, global equity markets resumed their uptrend in the second quarter, as economic data out of the U.S. started to rebound from the weakness driven by harsh weather experienced this past winter.

The S&P 100 Total Return Index increased slightly during the period to 1,592.32 from 1,515.28 on March 31, 2014. Stocks within the Portfolio had varying returns led by Intel Corporation up 19.7% on better than expected first quarter earnings reported during the period. Meanwhile, IBM Corp. lagged the group in the second quarter, down 5.8% after reporting the 8th consecutive quarterly decline in revenues with hardware sales declining 23% year-over-year in the first quarter of 2014.

The Fund maintained a high investment position during the period and ended the quarter with a cash position of 0.8% vs. 2.7% at the end of the previous quarter.

The Manager remains positive on companies within the Investment Universe due to their leverage to an improving U.S. economy, strong corporate balance sheets and earnings as well as continued attractive valuations on both an absolute and relative basis while, at the same time, providing superior diversification and lower volatility.

 

Portfolio Manager Updates for 2014-03-31

As of March 31, 2014, the Net Asset Value (“NAV”) of LVU.UN was $10.98 versus $10.97 on December 31, 2013. Unitholders received distributions totaling $0.1340 during the quarter.

On March 25, 2014, the Fund declared a special cash distribution in the amount of $0.25 per unit payable on April 30, 2014 to unitholders of record on April 15, 2014.

The units’ closing price on March 31, 2014 was $10.57 which represents a discount of 3.7% to its underlying NAV.

After performing strongly in 2013, global equity markets posted mixed returns for the first quarter of 2014 due to geo-political tension between Ukraine and Russia as well as concerns that U.S. Federal Reserve might start to raise interest rates sooner than expected.

The S&P 100 Total Return Index increased slightly during the period to 1,515.28 from 1,498.88 on December 31, 2013. Stocks within the portfolio of Low Volatility U.S. Equity Income Fund had varying returns led by Exelon Corporation, up 23.8% on increased power generation and higher electricity prices in Illinois and Pennsylvania due to harsh winter weather during the quarter. Meanwhile, The Boeing Company lagged the group in the first quarter, down 7.5% on valuation concerns after its stock increased 84.7% in 2013.

Volatility levels rose briefly at the end of January to around 21.5 after it was reported that Russian troops were occupying Crimea, an autonomous republic of Ukraine. The CBOE SPX Volatility Index (VIX) averaged just under 15 for the first quarter of 2014. Due to the low level of volatility, the Fund was less active with its covered call writing during the period and ended with 12.1% of the portfolio subject to covered calls.

The Fund maintained a high investment position during the period and ended the quarter with a cash position of 2.1% vs. 2.3% at the end of the previous quarter.

The Manager remains positive on companies within the portfolio universe of Low Volatility U.S. Equity Income Fund due to their leverage to an improving U.S. economy, strong corporate balance sheets and earnings as well as continued attractive valuations on both an absolute and relative basis. All of this while at the same time providing superior diversification and lower volatility.

 

Portfolio Manager Updates for 2013-12-31

As of December 31, 2013, the Net Asset Value (“NAV”) of LVU.UN was $10.97 versus $10.06 on September 30, 2013. Unitholders received distributions totaling $0.13088 during the quarter

The units closing price on December 31, 2013 was $10.45 which represents a discount of 4.7% to its underlying NAV.

Global equity markets continued to advance in the fourth quarter of 2013 with many indices finishing the year at new all-time highs reflecting improved global economic data and accommodative central bank monetary policy.

The S&P 100 Total Return Index increased to 1,498.88 from 1,353.22 during the period. Stocks within its portfolio had varying returns led by Google Inc. (“GOOG”) up 27.9% on strong third quarter earnings and revenues that topped analyst’s expectations. Meanwhile, Starbucks Corporation (“SBUX”) lagged the group in the fourth quarter, up 2.2% during the period after an analyst report raised concerns about slowing sales growth in the Americas.

Volatility levels rose briefly at the start of the period as the U.S. Government shut down for 16 days in October as brinkmanship ruled the day. The CBOE SPX Volatility Index (“VIX”) rose to over 20 but quickly retraced and ended 2013 at the lower end of the range over the last twenty years. The Fund was not very active with its covered call writing during the period and ended with none of the portfolio subject to covered calls.

The Fund maintained a high investment position during the period and ended the quarter with a cash position of 2.3% vs. 2.7% at the end of September.

The Manager remains very positive on companies within the investment universe due to their leverage to an improving U.S. economy, strong corporate balance sheets and earnings as well as continued attractive valuations on both an absolute and relative basis. All of this while at same time providing superior diversification and lower volatility.

 

Portfolio Manager Updates for 2013-09-30

As of September 30, 201, the Net Asset Value (NAV) of LVU.UN increased to $10.06 compared to $9.53 on June 28, 2013. Unitholders also received distributions totaling $0.12196 during the quarter.

The closing price of the units on September 30, 2013 was $9.81 which represents a discount of 2.5% to its underlying NAV.

Global equity markets continued their rally from the first two quarters of 2013 on improved global economic data and also after U.S. Federal Reserve Chairman, Ben Bernanke, surprised the market by delaying the tapering of quantitative easing at its Federal Open Market Committee meeting in September.

The S&P 100 Total Return Index increased to 1,353.22 from 1,295.91 during the period. Stocks within the Low Volatility U.S. Equity Income Fund portfolio had varying returns led by Gilead
Sciences Inc. (GILD) up 22.6% on strong trial results for its HIV drug, Viread, and also its hepatitis C treatment. Meanwhile, Target Corp. (TGT) lagged the group, down 6.5% during the period after the stock was downgraded by a large U.S. brokerage firm in August on valuation and concerns that the expansion into Canada is not as profitable as originally expected.

Volatility levels remained low for the period with the CBOE SPX Volatility Index (VIX) still at the lower end of the range over the last twenty years. The Fund was selective with its covered call writing during the period and ended the quarter with 18.9% of the portfolio subject to covered calls.

The Fund maintained a high investment position during the period and ended the quarter with a cash position of 2.7% vs. 5.8% at the end of June.

The Manager remains very positive on companies within the Low Volatility U.S. Equity Income Fund universe due to their leverage to an improving U.S. economy, strong corporate balance sheets and earnings as well as continued attractive valuations on both an absolute and relative basis. All of this while at same time providing superior diversification and lower volatility.

 

Portfolio Manager Updates for 2013-06-30

As of June 28, 2013, the Net Asset Value (NAV) of LVU.UN was $9.53 versus $9.45 on March 28, 2013. Unitholders received cash distributions totaling $0.12 during the quarter.

The unit’s closing price on June 28, 2013 was $9.02 which represents a discount of 5.4% to its underlying NAV.

Global equity markets continued their rally from the first quarter of 2013 advancing in April and most of May on improved economic data out of the U.S. and other parts of the world. Markets corrected considerably for the rest of the period after the U.S. Federal Reserve chairman, Ben Bernanke, signaled to the market that the Central Bank may start to taper their bond purchase program later this year.

The S&P 100 Total Return Index increased from 1259.65 to 1295.91 during the period. Stocks within the investment portfolio had varying returns led by The Boeing Company (BA) up 16.18% as concerns dissipated. Investors were concerned that Washington would drastically cut defense spending after the passage of the Fiscal Cliff at the end of 2012. Meanwhile, American Electric Power Company, Inc. (AEP) lagged the group, down 7.01% during the period as interest sensitive sectors such as Utilities underperformed at the time when 10-year U.S. Treasury Yields went back up from 1.85% at the end of March to 2.49% at the end of June.

Volatility levels remained low for the period with the CBOE SPX Volatility Index (VIX) still at the lower end of the range over the last twenty years. The Fund was selective with its covered call writing during the period but increased its overwriting activity during the correction in June and ended with 29.1% of the portfolio subject to covered calls.

The Fund maintained a high investment position during the period and ended the quarter with a cash position of 5.8% vs. 42.9% at the end of March as the Fund started trading on March 13, 2013.

The Manager remains very positive on companies within the Low Volatility U.S. Equity Income Fund universe due to their leverage to an improving U.S. economy, strong corporate balance sheets and earnings as well as continued attractive valuations on both an absolute and relative basis. The Fund is expected to benefit from these factors while at same time providing superior diversification and lower volatility.

 

Portfolio Manager Updates for 2013-03-31

As of March 31, 2013, the Net Asset Value (“NAV”) of LVU.UN was $9.45 versus the initial NAV of $9.32 on the closing date of March 13, 2013. The unit’s closing price on March 31, 2013 was $9.70 which represents a premium of 2.6% to its underlying NAV.

No distributions were paid during the period since the inception date of the Fund was March 13, 2013. The first distribution of $0.03954 per unit, payable April 30, 2013, represents a distribution policy of 5.0% per annum on the NAV of the unit.

Global equity markets moved higher in the first quarter of 2013 as markets concerns surrounding the “Fiscal Cliff” in the U.S. dissipated after a last minute deal was reached at the end of 2012 that increased taxation but pushed out mandatory spending cuts to March 1, 2013. At the same time, sovereign default risk in Europe reared its head once again as Cyprus became the latest country requiring a bailout of its banking system.

During the period beginning March 13, 2013, the S&P 100 Total Return Index increased 0.9% from 1248.65 to 1259.65 on March 31, 2013.  Stocks within the Low Volatility U.S. Equity Income Fund universe (the “portfolio universe”) had varying returns led by Walgreen Company (“WAG”), which the Fund still owns, that increased 16.2%. WAG announced a 10year contract with AmerisourceBergen on March 19, 2013 which will help create one of the first truly global drug supply chains. Meanwhile, FedEx Corp. (“FDX”), which the Fund also owned, lagged the group, down 7.7% during the period on weaker international air cargo statistics.

Volatility levels remained low for the period with the CBOE SPX Volatility Index (“VIX”) back to levels not seen since 2007. The Fund wrote calls on only one position during the period and ended with 1.9% of the portfolio subject to covered calls.

As at March 31, 2013 the Fund was 64% invested as the Manager judiciously invested the proceeds of the offering in a systematic manner over the period. The rest of the proceeds have been subsequently invested with the objective of reducing the cash position down below 5% being achieved in early April.
Stocks within the portfolio universe are characterized as having a low beta relative to the market and are generally regarded as defensive investments with strong dividend growth. The Manager remains positive on companies within the portfolio universe due to their ability to provide some downside protecting in a declining market but still give investors market exposure in a rising market. At the same time, many of these companies have demonstrated a track record of paying strong and growing dividends over time which we view as positive in the current low interest rate environment.

 

 

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