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Top 10 Canadian Financial Trust

 

TCT.UN

Portfolio Manager Updates

 

Portfolio Manager Updates for 2017-03-31

As of March, 31 2017, the Net Asset Value (“NAV”) of TCT.UN increased to $10.30 from $10.24 on December 31, 2016. Unitholders received a distribution of $0.19706 during the quarter in accordance with the distribution policy of 7.5 percent per annum of the NAV of the unit. The unit’s last trading price on March 31, 2017 was $10.11, which represents a discount of 1.8 percent to its underlying NAV.

The S&P TSX Composite Index returned 2.4 percent, including reinvestment of dividends, over the quarter closing at 15,548. Canadian Financials outperformed the broader Canadian market as the S&P/TSX Capped Financials Index (XFN) posted a total return of 3.4 percent over the quarter. The return on an equal weighted basket of the ten portfolio stocks was 3.6 percent. The total fund return for the fourth quarter was 2.5 percent.

The S&P/TSX Life and Health Insurance Index underperformed the S&P Diversified Bank Index Total Return Index over the past quarter with a return of 0.1 percent vs. 4.6 percent of the latter. The returns of our portfolio holdings followed the same pattern as the insurance and bank indexes. The insurance company returns underperformed at 2.2 percent vs. 4.5 percent of the banks. The top bank and insurance holdings were Royal Bank of Canada and Industrial Alliance Insurance and Financial Services Inc. with gains of 7.6 percent and 8.6 percent respectively. The laggards were Sun Life Financial Inc. and Manulife Financial Corp. returning -5.0 percent and -0.5 percent respectively.

Annual dividend increases averaged 7.2 percent for the portfolio holdings for the four quarters ending calendar Q1 of 2017. The dividend increases of bank holdings averaged 6.2 percent per annum lagging the insurance companies at 8.4 percent. The five-year average rate of dividend increase was 6.6 percent for the portfolio holdings on a weighted average basis.

The 30-Day historical volatility in the S&P/TSX Capped Financials ETF (XFN) hit a low of 7.0 percent near the end of February climbing to a high of 10.7 at the end of March. The quarter started at just over 8 percent volatility and ended near the highs of about 10.5 percent. The Fund had an average cash position of 3.0 percent. Average covered call writing strategies decreased to 5.6 percent from 6.2 percent in Q4 of 2016 and the overwritten position reached a high of 15.5 percent. There were no put option transactions executed in the Fund in the first quarter.

 

Portfolio Manager Updates for 2016-12-31

As of December 31 2016, the Net Asset Value (“NAV”) of TCT.UN increased to $10.24 from $9.32 on September 30, 2016. Unitholders received a distribution of $0.19219 during the quarter in accordance with the distribution policy of 7.5 percent per annum of the NAV of the unit. The unit’s last trading price on December 29, 2016 was $9.94, which represents a discount of 2.9 percent to its underlying NAV.

The S&P/TSX Composite Index returned 4.5 percent including dividends over the quarter closing at 15,288. Canadian Financials outperformed the broader Canadian market as the S&P/TSX Capped Financials Index (XFN) posted a total return of 11.3 percent during the quarter. The return on an equal weighted basket of the ten portfolio stocks was 15.4 percent. The total fund return for the fourth quarter was 12.0 percent.

The S&P/TSX Life and Health Insurance Index beat the S&P Diversified Bank Index Total Return Index over the past quarter with a return of 21.4 percent versus 12.5 percent of the latter. It is a very good indication that the Financials stocks were strong when the lowest performer, the Bank of Nova Scotia, returned 8.6 percent over the quarter. Manulife Financial Corp. had the highest return at 30.2 percent.

Common dividends increased an average of 6.4 percent when compared to the same quarter last year. The bank distributions were up 6.5 percent while the insurance holdings were up 8.3 percent. Comparing calendar Q4 to Q3 this year, the average dividend increase for the portfolio holdings was 1.0 percent even though less than half of the names chose to increase distributions since September. Sun Life Financial Inc. was the pleasant outlier with a 3.7 percent quarterly increase.

The 30-Day historical volatility in the S&P/TSX Capped Financials ETF (XFN) hit a low of 6.2 percent at the end of October steadily climbing to a high point of 10.5 percent in mid-December. The quarter ended with the volatility levels around 8 percent. The Fund had an average cash position of 4.0 percent. Average covered call writing strategies increased to 6.2 percent from 3.7 percent in Q3 and the Fund ended the quarter with nil percent of the portfolio written. There were no put option transactions executed in the Fund in the fourth quarter.

 

Portfolio Manager Updates for 2016-09-30

As of September 30 2016, the Net Asset Value (“NAV”) of TCT.UN increased to $9.32 from $9.03 on June 30, 2016. Unitholders received a distribution of $0.17738 during the quarter in accordance with the distribution policy of 7.5 percent per annum of the NAV of the unit. The unit’s last trading price on September 30, 2016 was $9.05, which represents a discount of 2.9 percent to its underlying NAV.

The S&P/TSX Composite returned 5.4 percent including dividends over the quarter closing at 14,726. The index posted a low of 14,134 on July 7th and a high of 14,813 on September 6th. Canadian Financials outperformed the broader Canadian market as the S&P/TSX Capped Financials Index (XFN) posted a total return of 6.6 percent during the quarter. The return on an equal weighted basket of the ten portfolio stocks was 6.4 percent. The total return of the Fund for the third quarter was 5.2 percent.

The S&P Diversified Bank Index beat the S&P/TSX Life and Health Insurance Index over the past quarter with a total return of 7.2 percent versus 3.5 percent. The laggards of last quarter, were Great West Lifeco and Sun Life Financial returning -4.2 and -1.6 percent respectively. Industrial Alliance and the Bank of Nova Scotia (BNS) were the top performers at 17.1 percent and 11.0 percent respectively. The median performers in the portfolio were CIBC at 6.1 percent and Toronto Dominion Bank at 6.0 percent.

For the most part, dividends remained unchanged from the last quarter. BNS and Royal Bank were the exceptions raising their distributions by 2 cents to $0.74 and $0.83 respectively. More impressively, the distributions for the portfolio holdings this quarter compared with the same quarter of 2015 averaged 6.6 percent higher. The banks’ were up 5.9 percent and the insurers’ were up 7.2 percent. Longer term, the five-year dividend growth for all portfolio holdings averaged 6.3 percent. The average five-year earnings growth was 7.2 percent.

The 30-Day historical volatility in the S&P/TSX Capped Financials ETF (XFN) hit a high of 15.6 percent in mid-July then moved down to more moderate levels of about 8 percent in mid-August through the remainder of the quarter. The Fund had an average cash position of 5.6 percent. Average covered call writing strategies decreased to 3.7 percent from 7.8 percent in Q2 and the overwritten position reached a high of 8.6 percent during the period. There were no put option transactions executed in the Fund in the third quarter.

 

Portfolio Manager Updates for 2016-06-30

As of June 30 2016, the Net Asset Value (“NAV”) of TCT.UN decreased to $9.03 from $9.26 on March 31, 2016. Unitholders received a distribution of $0.17944 during the quarter in accordance with the distribution policy of 7.5 percent per annum of the NAV of the unit. The unit’s last trading price on June 30, 2016 was $8.85, which represents a discount of 2.0 percent to its underlying NAV.

The S&P/TSX Composite Index returned 5.1 percent over the quarter. The Index closed the quarter at 14,065 after posting a low of 11,843 in late January and a high of 15,451 in mid-April. Canadian Financials underperformed the broader Canadian market as the S&P/TSX Capped Financials Index (XFN) posted a total return of 0.8 percent during the quarter. The return on an equal weighted basket of the ten portfolio stocks was 1.7 percent. The total return of the Fund for the second quarter was negative 0.5 percent.

The S&P Diversified Bank Index Total Return Index beat the S&P/TSX Life and Health Insurance Index over the past quarter with a return of 2.2 percent vs. negative 2.0 percent. The laggards of last quarter were Great West Lifeco and Manulife Financial returning negative 3.7 and negative 2.9 percent respectively. The National Bank of Canada and the Bank of Montreal were the top performers at 5.3 percent and 5.0 percent respectively.

Quarter over quarter (2016 vs. same period 2015), dividend increases averaged 7.6 percent for all of our holdings. The Insurance companies edged out the banks with an average dividend increase of 9.0 percent vs. 6.8 percent for the banks. Outliers on the upside were Industrial Alliance (14.3 percent), and CIBC (11 percent). Five-year earnings growth on our holdings averaged 13.3 percent. In contrast to the dividend history, the earnings growth story is reversed. The bank earnings growth is lower at 6.7 percent as compared to the insurance holdings growth rate of 23.3 percent.

The 30-day historical volatility in the S&P/TSX Capped Financials ETF (XFN) hit a high of 15.5 percent at the end of the quarter from more sedate levels between 9.5 and 13.5 percent over most of the last three months. The Fund had an average cash position of 4.4 percent. Average covered call writing strategies decreased to 7.8 percent from 14.4 percent in Q1.The overwritten position reached a high of 15 percent in the quarter. There were no put option transactions executed in the Fund in the second quarter.

 

Portfolio Manager Updates for 2016-03-31

As of March 31, 2016, the Net Asset Value (“NAV”) of TCT.UN decreased to $9.26 from $9.53 on December 31, 2015. Unitholders received a distribution of $0.166690 during the quarter in accordance with the distribution policy of 7.5 percent per annum of the NAV of the unit. The unit’s last trading price on March 31, 2016 was $8.90, which represents a discount of 3.9 percent to its underlying NAV.

The S&P TSX Composite Index returned 4.5 percent in the quarter. The Index closed the quarter at 13,494 posting a low of 11,530 in late January. Canadian Financials underperformed the broader Canadian market as the S&P/TSX Capped Financials Index (XFN) posted a total return of 3.1 percent during the quarter. The return on an equal weighted basket of the ten portfolio stocks was 1.8 percent. The Fund’s total return for the first quarter was -1.1 percent.
The S&P Diversified Bank Index Total Return Index handily beat the S&P/TSX Life and Health Insurance Index over the past quarter with a return of 5.5 percent vs. -4.2 percent. The laggards of prior quarter, namely The Bank of Nova Scotia, CIBC, and National Bank of Canada, were the Fund’s top performers in Q1 returning 13.4, 7.7, and 6.7 percent respectively. Manulife Financial and Industrial Alliance trailed, returning -10.5, and -10.4 percent respectively.

This past quarter (q4 reporting for insurance companies) Manulife was the only one of our insurance holdings to raise its dividend. They bumped their distribution by 1.5 cents to $0.185 per quarter for an 8.8 percent increase. CIBC, Scotiabank, and RBC all raised their distributions between 2.5 and 3 percent. TD’s dividend increase was 7.8 percent to 55 cents per common share.

The insurance companies reported their fourth quarter earnings in February. All of our insurance holdings reported higher earnings as compared with Q4 2015.The standout was Sun Life Financial with core earnings increasing 26.5 percent over the same quarter last year. Great West Life lagged with a 4.7 percent increase in quarter to quarter (2015 Q4 vs. 2014 Q4) earnings growth. Insurance companies in Canada continued to remain in a strong capital position with very healthy reserves. Canadian banks reported Q1 2016 earning and, with the exception of RBC, they all improved on their Q1 2015 earnings. Royal Bank earnings this year relative to Q1 last year fell by a marginal 1.8 percent.

The 30 Day historical volatility in the S&P/TSX Capped Financials ETF (XFN) ranged from a low of 13.7 percent at the beginning of the quarter to a high of around 23.5 over the month of March. The Fund had cash position at the end of the first quarter of 6.8 percent. Average covered call writing strategies increased to 14.4 percent from 7.4 percent in Q4 2015.The overwritten position reached a high of 28.1 percent in the quarter. There were no put option transactions executed in the Fund during the first quarter.

 

Portfolio Manager Updates for 2015-12-31

As of December 31, 2015, the Net Asset Value (“NAV”) of TCT.UN decreased to $9.53 from $9.56 on September 30, 2015. Unitholders received a distribution of $0.18881 during the quarter in accordance with the distribution policy of 7.5 percent per annum of the NAV of the unit. The unit’s last trading price on December 31, 2015 was $9.98, which represents a premium of 4.7 percent to its underlying NAV.

The S&P TSX Composite Index returned -1.4 percent in the quarter. The index closed the quarter at 13,010 posting a low of 12,618 in mid-December. The high of 14,053 was reached in mid-October. Canadian Financials outperformed the broader Canadian market as the S&P/TSX Capped Financials Index (XFN) posted a total return of 1.5 percent over the quarter.
The return on an equal weighted basket of the ten portfolio stocks was 2.6 percent. The Fund’s total return for the fourth quarter was 1.6 percent.

The S&P Life and Health Insurance Total Return Index beat the S&P/TSX Diversified Banks Total Return Index over the past quarter with a return of 3.1 percent. The S&P/TSX Diversified Banks Total Return Index was 1.4 percent. The top three performers in the Fund were Industrial Alliance Insurance, Great West Lifeco and the Bank of Montreal returning 11.6, 9.0 and 8.4 percent respectively. The National Bank of Canada, CIBC, and the Bank of Nova Scotia lagged with returns of -4.1, -3.7 and -2.5 percent respectively. Our insurance company holdings’ median return of 5.1 percent far outpaced the bank holdings’ median return of -0.5 percent.

Sun Life Financial was the only one of our insurance holdings to raise its dividend. They bumped up their quarterly distribution by 1 cent to $0.39 for a 2.6 percent increase. The Bank of Montreal, CIBC and the National Bank of Canada raised dividends by 2.4, 2.6 and 3.8 percent respectively. All of our other holdings held their distribution levels constant from the third quarter.

The insurance companies reported their third quarter earnings in November. All of our insurance holdings with the exception of Manulife Financial saw higher earnings as compared with Q3 2014. Once again, the market had factored this in as the quarterly return on Manulife was 1.3 percent, a positive figure but shy of the average 3.1 percent we saw in the S&P Life and Health Total Return Index. Insurance companies in Canada continued to remain in a strong capital position with very healthy reserves. All our bank holding returns were stronger than both consensus estimates and Q4 2014 results across the board.

The Fund maintained an average cash position of 5.3 percent over the period, closing the quarter at 1.9 percent. Average covered call writing strategies decreased to 4.9 percent from 7.9 percent in Q3.The overwritten position got as high as 12.5 percent in the quarter. The 30 Day historical volatility in the S&P/TSX Capped Financials ETF (XFN) ranged from a high of 23.9 percent at the beginning of the quarter to a low of 12.6 in early December. There were no put option transactions executed in the Fund over the fourth quarter.

 

Portfolio Manager Updates for 2015-09-30

As of September 30, 2015, the Net Asset Value (“NAV”) of TCT.UN decreased to $9.56 from $10.15 on June 30, 2015. Unitholders received a distribution of $0.18488 during the quarter in accordance with the distribution policy of 7.5 percent per annum of the NAV of the unit. The unit’s last trading price on September 30, 2015 was $9.32, which represents a discount of 2.5 percent to its underlying NAV.

The S&P TSX Composite returned negative 7.8 percent in the quarter. The Index closed the quarter at 13,307 posting a low of 13,719 toward the end of August. The high was 13,818 achieved in mid-July. Canadian Financials outperformed the broader Canadian market as the S&P/TSX Capped Financials Index (XFN) posted a total return of negative 3.4 percent over the quarter.

The S&P Life and Health Insurance Total Return Index lagged the S&P/TSX Diversified bank over the past quarter with a return of negative 7.2 percent. The S&P/TSX Diversified Banks Total Return Index was negative 0.3 percent. CIBC and Sun Life Financial were standouts returning 5.4 and 4.2 percent respectively. TD Bank got a honorable mention with a 0.1 percent positive result. All the other portfolio holdings failed to find themselves in positive territory. Great West Lifeco and Manulife Financial lagged the group with quarterly negative returns of 11.2 and 10.4 percent respectively.

Scotiabank, CIBC, and the Royal Bank boosted distributions between 2.5 and 3.0 percent during the quarter. Q3 2015 earnings improved on the 2014 results across the board. They also beat earnings per share consensus expectations by an average of 3.6 percent.

While Manulife Financial and Sun Life Financial both raised dividends in Q2, Industrial Alliance was the only one to do so this quarter with an increase of 7.1 percent. The insurance companies reported their second quarter earnings in August. Manulife Financial was the only insurance company in the group with negative earnings growth year on year. Great West Lifeco, despite missing expectations, had a year over year improvement of 6.5 percent on core earnings per share. Insurance companies in Canada continued to remain in a strong capital position with very healthy reserves.

The Fund maintained an average cash position over the quarter of 9.6 percent before closing the quarter at 15.2 percent due to greater market uncertainty. Covered call writing decreased to an average of 7.9 percent from 9.6 percent in Q2.The overwritten position got as high as 12.1 percent in the quarter. The 30-Day historical volatility in the S&P/TSX Capped Financials ETF (XFN) ranged from a low of 11.8 percent at the start of the quarter to a high of 23.9 percent at the close of the quarter. There were no put option transactions executed in the Fund over the third quarter.

 

Portfolio Manager Updates for 2015-06-30

As of June 30, 2015, the Net Asset Value (“NAV”) of TCT.UN decreased to $10.15 from $10.27 on March 31, 2015. Unitholders received a distribution of $0.19613 during the quarter in accordance with the distribution policy of 7.5% per annum of the NAV of the unit.

The unit’s last trading price on June 30, 2015 was $10.00, which represents a discount of 1.5 percent to its underlying NAV.

Canadian Financials outperformed the broader Canadian market as the S&P/TSX Capped Financials Index (XFN) posted a total return of 0.5 percent over the quarter.

The two outstanding performers were Manulife Financial (up 8.7 percent), and Sun Life Financial (up 7.9 percent). The Toronto-Dominion Bank and the Bank of Montreal disappointed somewhat with returns of negative 1.2 percent and negative 1.5 percent respectively.

Great West Lifeco and Industrial Alliance showed improved earnings per share (EPS) over Q1 2014 and also beat analyst consensus EPS expectations. Manulife Financial and Sun Life Financial both suffered EPS declines as well as missing consensus expectations. The market seems to see through these earnings somehow as these two stocks are the same ones that outperformed the whole fund universe. Insurance companies in Canada continue to remain in a strong capital position with very healthy reserves.

The Fund maintained an average cash position over the second quarter of 3.3 percent. Covered call writing strategies increased 2.3 percentage points from last quarter moving to an average of 9.6 percent in Q2. The overwritten position got as high as 15.9 percent in the quarter. The 30-day historical volatility in the S&P/TSX Capped Financials ETF (XFN) ranged from a high of 12.7 percent at the beginning of the quarter to a low of 7.1 percent in mid-May. The 30-day historical volatility closed out the quarter near the high at 12.2 percent. There were no put option transactions executed in the Fund over the second quarter.

 

Portfolio Manager Updates for 2015-03-31

As of March 31, 2015, the Net Asset Value per unit of TCT.UN was $10.27 vs. $10.85 on December 31, 2014. Unitholders’ received a regular distribution of $0.19875 per unit during the quarter.

On March 31, 2015 the closing market price of the Unit was $10.10 which represents a 1.6% discount to its underlying NAV.

The S&P/TSX Capped Financials Index posted a total return of negative 2.1% for the quarter underperforming the broader market as concerns from declining oil prices affected the outlook for the banks and the drop in the overnight rate by the Bank of Canada reduced the outlook for the insurers.

Great West Lifeco was the standout performer this quarter with a return of 10.0%, which is in stark contrast to the balance of the portfolio which had returns ranging from -1.5% to -7.0% amid earnings reports that met or slightly exceeded analyst expectations but failed to ignite share prices.

Balance sheets among the insurers remain strong with healthy capital reserves.

Call writing increased this quarter to an average of 7.3% written with a high of 15.6% of the fund overwritten during the quarter. Volatility declined generally declined from a high of 18.3 in mid-February to close the quarter at 12.7%.

The Fund was generally fully invested during the period and ended the quarter with a cash position of 2.5% vs 0.5% at the end of the previous quarter.

 

Portfolio Manager Updates for 2014-12-31

As of December, 2014, the Net Asset Value (“NAV”) of TCT.UN decreased to $10.85 from $11.08 on September 30, 2014. Unitholders received a distribution of $0.21619 during the quarter in accordance with the distribution policy of 7.5% per annum of the NAV of the unit.

The unit’s last trading price on December 31, 2014 was $11.43, which represents a premium of 3.5 percent to its underlying NAV.

The S&P TSX Composite returned -1.5 percent in the quarter. The index made a high of 15,184 towards the end of November checking back to 14,632 at the end of December. Canadian Financials outperformed the broader market Canadian Market as the S&P/TSX Capped Financials Index posted a total return of 1.2 percent over the quarter. The return on an equal weighted basket of the ten portfolio stocks was 0.8 percent. The total return of the Fund for the fourth quarter was -0.2 percent.

The total return of the ten individual financial stocks within the portfolio was generally mixed this quarter. The Fund was led by Great –West Lifeco, Sun Life Financial, and Manulife financial returning 4.3 percent, 3.3 percent, and 3.0 percent respectively. Laggards were the Bank of Nova Scotia, Industrial Alliance, and the National Bank of Canada returning -4.3 percent, -4.2 percent, and -3.1 percent respectively. With the exception of Industrial Alliance, the insurance companies handily outperformed the bank stocks. The S&P Life and Health Insurance Total Return Index was 3.8 percent and the S&P/TSX Diversified Banks Total Return Index was 0.1 percent.

CIBC and the Bank of Montreal both had earnings that fell short of Q4 2013. The Bank of Montreal dropped 5 cents from the Q4 2013 to $1.57 per share also falling just shy of analysts’ expectations. CIBC Q4 2014 dropped 10 cents from the 4th quarter earnings last year, also shy of consensus expectations. Otherwise the rest of the bank holdings all had earnings that beat the Q4 levels of 2013. Though generally a bit lower than average analysts’ expectations, the earnings results look fairly robust. Dividend levels continued to increase for the Bank of Montreal, CIBC, and the National Bank of Canada as they bumped distributions between 2 and 3 cents per share last quarter. The Bank of Nova Scotia, Royal Bank of Canada, and The TD Bank all held the line on distribution levels but the recent dividend trend for these three banks has been positive.

Industrial Alliance earnings fell $0.16 from Q3 2013 to Q3 2014. The company warned that they would expect continued weakness in the group insurance line. The other Canadian life insurance companies in the portfolio reported third quarter earnings during the period that were in line or better than analysts’ expectations. Industrial Alliance increased their dividend 2 cents to $0.28. All the other insurance companies in the portfolio held their dividends steady over the quarter. All have a strong minimum continuing capital and surplus requirements ratios. The strong financial position of insurers could lead to the other three insurers increasing their payouts or repurchasing shares.

The Fund maintained an average cash position over the fourth quarter of 1.9 percent. Average covered call writing strategies were relatively the same as last quarter moving from with an average of 1.7 percent Q3 to 1.8 percent Q4. The overwritten position got as high as 9.8 percent in Q4 unchanged from Q3. The 30 Day historical volatility in the S&P/TSX Capped Financials ETF (XFN) ranged from a low of 8 percent in late November after hitting a high of 16.3 percent at the beginning of the month. 30 day historical volatility closed out the quarter closer to the high at 13.5 percent. There were no put option transactions executed in the Fund over the third quarter.

 

Portfolio Manager Updates for 2014-09-30

As of September 30, 2014, the Net Asset Value (“NAV”) of TCT.UN increased to $11.08 compared to $10.90 on June 30, 2014. Unitholders received a distribution of $0.21525 during the quarter in accordance with the distribution policy of 7.5% per annum of the NAV of the unit.

The unit’s last trading price on September 30, 2014 was $11.05, which represents a discount of 0.3% to its underlying net asset value.

The S&P/TSX Composite returned -0.6 percent in the quarter. The index made a few rallies in the latter half of July and August before dropping off to around the 15,000 level at the end of September. Canadian Financials outperformed the broader market as the S&P/TSX Capped Financials Index posted a total return of 2.7 percent over the quarter. The total fund return for the second quarter was 3.6 percent.

The total return of the ten financial stocks within the portfolio was generally positive again this quarter. The fund was led by the National Bank of Canada at 13.8 percent and Great West Lifeco returning 7.8 percent.
The laggards were the Bank of Nova Scotia at -2.6 percent and Industrial Alliance with -0.3 percent. As a group, the insurance companies marginally outperformed the bank stocks as the S&P Life and Health Insurance Total Return Index was 3.7 percent and the S&P/TSX Diversified Banks Total Return Index was 3.0 percent.

The Canadian bank holdings in the portfolio reported third quarter earnings that were generally in line or higher than analyst’s estimates. All of the major banks improved on third quarter earnings from 2013. The Bank of Nova Scotia, the Royal Bank of Canada, and Toronto-Dominion Bank increased their dividend by 2 cents, 4 cents and 2 cents per share respectively. The Bank of Montreal, the Canadian Imperial Bank of Commerce and the National Bank of Canada all held their dividends steady from the second quarter. The general trend amongst all the major Canadian Banks has been to moderately increase dividends over the last several years.

The Canadian life insurance companies in the portfolio reported second quarter earnings during the period that were in line or better than analysts’ expectations. Manulife Financial Corp. increased its dividend by 2.5 cents per share while each of the other insurance companies in the portfolio held their dividends steady over the quarter. All of the insurance companies in the portfolio have strong minimum continuing capital and surplus requirements ratios. Although dividends for the insurance companies have remained largely unchanged over the past number of years, their strong financial position could lead to some companies increasing their payouts or repurchasing shares.

The fund maintained an average cash position over the fourth quarter of 1.7 percent. Covered call writing strategies declined to an average of 1.7 percent down from 3.8 percent the prior quarter. The highest overwritten position got as high as 9.8 percent in Q3 down from the 12.1 percent high in Q2. The 30 Day historical volatility in the S&P/TSX Capped Financials ETF (XFN) ranged from a low of 4.7% percent in July hitting a high of 9.7 percent at the end of September. The historical volatility closed out the quarter just below 9.4 percent. There were no put option transactions executed in the fund over the third quarter.

 

Portfolio Manager Updates for 2014-06-30

As of June 30, 2014, the Net Asset Value (“NAV”) of TCT.UN increased to $10.90 compared to $10.66 on March 31, 2014. Unitholders received a distribution of $0.20138 during the quarter in accordance with the distribution policy of 7.5% per annum of the NAV of the unit.

The unit’s last trading price on June 30, 2014 was $10.83, which represents a slight discount of 0.6% to its underlying NAV.

The S&P/TSX Composite returned 6.41% in the quarter. Around half of that return occurred over the month of May. Canadian Financials underperformed the broader market slightly as the S&P/TSX Capped Financials Index posted a total return of 5.7% over the quarter. The return on an equal weighted basket of the ten portfolio stocks was 4.6%. The total return of the Fund for the second quarter was 4.2%.

The total return of the ten financial stocks within the portfolio was positive over the quarter. The bank holdings generally outperformed the Fund’s insurance holdings. Reversing a recent trend, the S&P/TSX Diversified Banks Total Return Index was 7.2% while the S&P Life and Health Insurance Total Return Index was 1.8%. The portfolio was led by the Bank of Nova Scotia at 12.1% and the Bank of Montreal returning 7.2%. The laggards were Manulife and Great West Lifeco both squeaked in at 0.1%.

The Canadian bank holdings in the portfolio reported second quarter earnings that were generally higher than analysts’ estimates. Bank of Nova Scotia, Royal Bank, and TD Bank all held their dividends steady from the first quarter. CIBC increased its dividend by 2 cents per share to $1.00 and the National bank of Canada increased its dividend to 48 cents up 2 cents per share.

The Canadian life insurance companies in the portfolio reported first quarter earnings during the period that were in line with analysts’ expectations. Each of the insurance companies held their dividends steady over the quarter. All have a strong minimum capital and surplus requirements. Although dividends were unchanged, their strong financial position could lead to some companies increasing their payouts or buying back shares.

The Fund maintained an average cash position over the fourth quarter of 1.5%. Covered call writing strategies declined to an average of 3.8% from 5.8% the prior quarter. The overwritten position got as high as 12.1% in Q2. The 30 Day historical volatility in the S&P/TSX Capped Financials ETF (XFN) ranged from a low of 6.3% to a high of 7.9% both in May. The historical volatility closed out the quarter just below 6.5%. There were no put option transactions executed in the Fund over the third quarter.

 

Portfolio Manager Updates for 2014-03-31

As of March 31, 2014, the Net Asset Value (“NAV”) of TCT.UN decreased to $10.66 compared to $10.82 on December 31, 2013. Unitholders received a distribution of $0.20156 during the quarter in accordance with the distribution policy of 7.5% per annum of the NAV of the unit.

The unit’s last trading price on March 31, 2014 was $10.79, which represents a premium of 1.2% to its underlying NAV.

The S&P TSX Composite Index returned 5.5% for Q1 of 2014. January was somewhat range bound. Most of the positive moves occurred in February with March effectively performing flat. The Financials sector underperformed the broader Canadian market as the S&P/TSX Capped Financials Index (XFN) posted a total return of 2.5% over the quarter. The return on an equal weighted basket of the ten portfolio stocks was 1.5%. The total fund return for the 1st quarter was 0.3%, lagging the benchmark due to an excess cash position that was established in early January to facilitate the December annual redemption. A relatively higher level of option writing at the end of January and into February, on higher volatility attributed to tensions between Ukraine and Russia, also contributed to the drag as the stocks continued to advance.

Seven of the ten financial stocks within the portfolio had positive returns over the quarter. The bank holdings generally outperformed the Fund’s insurance holdings. The S&P/TSX Diversified Banks Total Return Index was 2.9% while the S&P Life and Health Insurance Total Return Index was 1.3%. The portfolio was led by the Canadian Imperial Bank of Commerce and the Bank of Montreal returning 5.0% and 4.5% respectively. The Bank of Nova Scotia and Great West Lifeco Inc. lagged with negative returns of 3.6% and 7.0% respectively.

The Canadian bank holdings in the portfolio reported 1st quarter earnings that were generally higher than analysts’ estimates. All of the banks either increased their dividends in the quarter or announced increases for Q2. National Bank of Canada and The Toronto-Dominion Bank both declared a 2 for 1 stock split. As at the end of the quarter, the Fund is overweight banks as they are expected to continue to perform well.

The Canadian life insurance companies in the portfolio reported 4th quarter earnings that were mostly in line or better than analysts’ expectations. Great-West Lifeco’s earnings were marginally below expectations; however, synergies with the Irish Life acquisition are expected to enhance the company’s business profile. Industrial Alliance Insurance raised its dividend to 26.0 cents per share from 24.5 cents per share. All insurance companies have a strong minimum capital and surplus requirements. Although dividends are largely unchanged, their strong financial position could lead to some companies increasing their payouts or share buybacks. Although the Fund is underweight the insurers relative to its bank holdings, we remain positive on the insurance companies and the financial stocks in general.

The Fund maintained an average cash position over the 1st quarter of 2.9%. Covered call writing strategies for the quarter averaged 5.8% and got as high as 20.3%. The 30-day historical volatility in the S&P/TSX Capped Financials Index (XFN) ranged from 6.7% at the end of the quarter to 13.0% at around mid-February. Average implied volatilities were somewhat higher, ranging from 9.8% to 13.8%. There were no put option transactions executed in the Fund over the 1st quarter.

 

Portfolio Manager Updates for 2013-12-31

As of December 31, 2013, the Net Asset Value (“NAV”) of TCT.UN increased to $10.82 compared to $10.03 on September 30, 2013. In addition, Unitholders received a distribution of $0.206630 during the quarter in accordance with the distribution policy of 7.5 percent per annum of the NAV of the unit.

The unit’s last trading price on December 31, 2013 was $10.55, which represents a discount of 2.5 percent to its underlying NAV.

The S&P TSX Composite returned 7.3 percent with most of the positive moves occurring in October and December. Canadian Financials outperformed the broader Canadian market as the S&P/TSX Capped Financials Index posted a total return of 10.7 percent over the quarter. The total fund return for the fourth quarter was 10.0 percent beating the S&P TSX composite and 70 basis points lower than the S&P/TSX Capped Financials index.

All ten financial stocks within the portfolio had positive returns over the quarter. The insurance holdings outperformed the Fund’s bank holdings. The total return of the S&P/TSX Diversified Banks Index was 9.5 percent while the S&P Life and Health Insurance Index total return was 16.9 percent. The portfolio performance was led by the Manulife Financial, up 23.8 percent. Industrial Alliance was the lowest performing insurance holding with a return of 8.4 percent. Our best bank holding, Bank of Nova Scotia, returned 12.6 percent while the Bank of Montreal lagged the portfolio with a return of 4.0 percent.

The Canadian bank holdings in the portfolio reported fourth quarter earnings that were generally higher than analyst’s estimates. Three of the six major banks announced dividend increases in the quarter while the remainder left distributions unchanged. Banks continued to perform very well in the face of slowing loan growth and margin pressures.

The Canadian life insurance companies in the portfolio reported third quarter earnings during the period that were in line or better than analysts’ expectations. All have a strong minimum capital and surplus requirements. Although dividends have remained unchanged over the recent past, their strong financial position could lead to some companies increasing their payouts or buying back shares. We are positive on the Financial Services sector and the insurance space in particular.

The Fund maintained an average cash position over the fourth quarter of 1.7 percent. Covered call writing for the quarter averaged 3.0 percent. This is in contrast to the preceding two quarters at 9.9 percent and 14.7 percent for the second and third quarter respectively. In Q4 the maximum overwritten exposure peaked at 17.2 percent. The 30 Day historical volatility in the financial indices (S&P/TSX Financials Index) was somewhat subdued ranging from 4.5 to 10.1 percent. There were no put option transactions executed in the Fund over the fourth quarter.

 

Portfolio Manager Updates for 2013-09-30

As of September 30, 2013, the Net Asset Value (NAV) of TCT.UN increased to $10.03 compared to $9.56 on June 30, 2013. In addition, unitholders received a distribution of $0.18788 during the quarter in accordance with the distribution policy of 7.5% per annum of the NAV of the unit.

The unit’s last trading price on September 30, 2013 was $9.91, which represents a discount of 1.2% to its underlying NAV. The S&P/TSX Composite Index returned 5.24% with the bulk of the return occurred in early July. Canadian Financials outperformed the broader market Canadian market as the S&P/TSX Capped Financials Index posted a total return of 8.45% over the quarter. The Fund returned 6.91% for the quarter settling between the performance of S&P/TSX Composite Index and the S&P/TSX Capped Financials Index.

All ten financial stocks within the portfolio had positive returns over the quarter. Reversing a recent trend, the banks outperformed the insurers. The S&P/TSX Diversified Banks Total Return Index was 9.94% while the S&P Life and Health Insurance Total Return Index was 4.35%. The portfolio was led by the National Bank of Canada, up 14.53%. The Bank of Nova Scotia lagged the bank holdings with a return of 6.05%. Manulife Financial was the lowest performing holding with a return of 1.99%. Sun Life Financial led the insurance company holdings with a return of 6.77%.

All of the Canadian bank holdings reported third quarter earnings that were higher than analyst’s estimates. Three of the six major banks announced dividend increases in the quarter while the remainder left distributions unchanged. The Canadian banks continued to perform very well in the face of slowing loan growth and margin pressures.

The Canadian life insurance companies reported improved second quarter earnings during the period as the negative effect of low interest rates has diminished from premium increases and product repositioning. All holdings except Manulife Financial beat analysts’ expectations. All four of our insurance company holdings improved on earnings from Q3 of 2012.

The Fund maintained an average cash position over the quarter of 2.3%. The Fund employed covered call writing strategies at times as high as 39.1% of the portfolio; however, the average portion of overwriting was 29.1%. Historical volatility in the financial indices fluctuated in the range from a high of 18% tapering to around 7% near the end of the period. There were no put option transactions executed in the Fund over the third quarter.

 

Portfolio Manager Updates for 2013-06-30

As of June 30, 2013, the Net Asset Value (NAV) of TCT.UN was $9.56 versus $9.49 on March 31, 2013. In addition, unitholders received a cash distribution of $0.18188 during the quarter in accordance with the distribution policy of 7.5% per annum of the NAV of the unit.

The unit’s last trading price on June 28, 2013 was $9.27, which represents a discount of 3.0% to its underlying NAV.

North American equity markets traded in a more volatile manner in the second quarter of 2013 ending about 5% lower than at the end of March. In the April Monetary Policy Report, the Bank of Canada reported that Japan has introduced significant policy stimulus while European Central Bank and the U.S. Federal Reserve continue to maintain easy monetary policy.

The U.S. S&P 500 Composite Index outperformed the S&P/TSX Composite Index on a total return basis during the period, up 2.9% vs. down 4.1% respectively. This continued the trend established in the first quarter. Canadian Financials outperformed the broader Canadian market as the S&P/TSX Capped Financials Index posted a total return of 0.9% during the period.

Eight of the ten Financial stocks within the portfolio had positive returns over the period with the insurers outperforming the banks. The S&P/TSX Diversified Banks Total Return Index was down 1.2% while the S&P/TSX Life & Health Insurance Total Return Index increased 10.5%. The portfolio was led by Sun Life Financial, up 13.7% during the period while The Canadian Imperial Bank of Canada lagged the group during the quarter down 5.1%.

Canadian banks reported second quarter earnings that were in line with or slightly higher than analysts’ estimates. Two of the six major banks announced dividend increases of 2 cents per share in the quarter while the remainder left distributions unchanged. Banks continued to perform reasonably well in the face of slowing loan growth and margin pressures.

The Canadian life insurance companies reported improved first quarter earnings during the period as the negative effect of low interest rates has diminished due to premium increases and product repositioning. Capital positions remain strong and companies have shown confidence by setting impressive earnings growth targets for the next 3 years.

Volatility levels for Canadian Financials picked up at times in April and June; however, they remain moderate by historical standards. Following a light period of overwriting in the first quarter, the Fund was more active in the second quarter with an average overwritten position of 9.9%. The Fund did not engage in any put transaction over the same period.

The Fund maintained a relatively high invested position during the period with an average cash position of 1.3%. The Fund ended the quarter with a cash position of 0.6%.

 

Portfolio Manager Updates for 2013-03-31

As of March 31, 2013, the Net Asset Value (“NAV”) of TCT.UN was $9.49 versus $9.09 on December 31, 2012. In addition, unitholders received a distribution of $0.18525 during the quarter in accordance with the distribution policy of 7.5% per annum of the NAV of the unit.

The unit’s last trading price on March 31, 2013 was $9.50, which represents a premium of 0.1% to its underlying NAV.

North American equity markets rallied in the first quarter of 2013 as concerns regarding the U.S. budget imbalance at the end of 2012 did not result in a market disruption. This followed mediocre returns in the previous quarter and continued expectations that both the European Central Bank and the U.S. Federal Reserve would maintain quantitative easing.

The US S&P 500 Composite Index outperformed the S&P / TSX Composite Index on a total return basis during the period, up 10.6% and 3.3% respectively. This reversed a two consecutive quarter trend where the Canadian markets outperformed their U.S. counterparts. Canadian Financials outperformed the broader market as the S&P/TSX Capped Financials Index posted a total return of 4.5% during the period. 

Nine of ten Financial stocks within the portfolio had positive returns over the period with the insurers outperforming the banks. The S&P/TSX Diversified Banks Total Return Index was up 3.0% while the S&P/TSX Life and Health Insurance Total Return Index increased 10.5%. The portfolio was led by Industrial Alliance Inc. up 19.9% during the period while The National Bank of Canada lagged the group during the quarter down 2.3%.

Canadian banks reported steady first quarter earnings that were generally in line with analysts’ estimates. Four of the six major banks announced dividend increases in the quarter. In early February, Royal Bank of Canada completed the takeover of Ally Financial Inc. Banks continue to perform well in the face of slowing loan growth and margin pressures.

The Canadian life insurance companies reported improved fourth quarter earnings during the period as the negative effect of low interest rates has diminished from premium increases and product repositioning. Capital positions remain strong and companies have shown confidence by setting impressive earnings growth targets for the next 3 years.

Volatility levels for the Canadian financials remain low by historical standards but increased over Q1 of 2013 after a decline in Q4 of 2012. The Fund was less active in its covered-call writing over this quarter with an average of 1.6% of the portfolio subject to covered calls options and none of the portfolio hedged with protective put options.

The Fund maintained a relatively high invested position during most of the period but started the quarter with a higher than normal cash position of 7.5% in order to finance the annual retraction vs. an average of 3.6% over the entire quarter. The Fund ended the quarter with a cash position of 0.8%.

Earnings growth will be a key driver of Canadian bank performance. Earnings multiples may improve should the housing market experience a soft landing as expected. Slower growth and margin pressures will be limiting factor in the rate of earnings growth. The profitability of Canadian insurance companies is likely to improve in 2013 as earnings sensitivities to equity markets and interest rates have diminished. In the context of low interest rates, the valuations of companies in the portfolio remain at attractive levels when measured by price to earnings ratios and current dividend yields.

 

Portfolio Manager Updates for 2012-12-31

As of December 31, 2012, the Net Asset Value (“NAV”) of TCT.UN was $9.09 versus $8.66 on September 30, 2012. In addition, unitholders received a distribution of $0.16819 during the quarter in accordance with the distribution policy of 7.5% per annum of the NAV of the unit.

The unit’s closing price on December 31, 2012 was $8.99, which represents a discount of 1.1% to its underlying NAV.

North American equity markets leveled out in the 4th quarter of 2012 over uncertainties surrounding the outcome of the U.S. presidential election in November as well as the pending Fiscal Cliff that was expiring on December 31, 2012. This followed very strong returns in the previous quarter on expectations that both the European Central Bank (ECB) and the U.S. Federal Reserve would enter another round of quantitative easing.

For the second consecutive quarter, the S&P/TSX Composite Index outperformed the U.S. S&P 500 Index on a total return basis during the period, marginally up 1.72% and down 0.38% respectively. Canadian Financials outperformed the broader markets as the S&P/TSX Capped Financials Index posted a total return of 6.78% during the period.

All ten Financial stocks within the portfolio had positive returns over the period with the insurers outperforming the banks. The S&P/TSX Diversified Banks Total Return Index was up 5.78% while the S&P/TSX Life and Health Insurance Total Return Index increased 13.29%. The portfolio was led by Sun Life Financial Inc. during the period, up 17.11%, while The Toronto-Dominion Bank lagged the group during the quarter up 3.11% only.

Canadian banks reported steady fourth quarter earnings that were mostly in line with analysts’ estimates. None of the banks raised their dividends in the quarter, which was expected after all five banks raised their dividends in the previous quarter. Following the announcements of issuer bids by the Canadian Imperial Bank of Commerce and the Royal Bank of Canada last quarter, the Bank of Montreal announced it has filed a normal course issuer bid to purchase its shares in the market.

The Canadian life insurance companies reported improved third quarter earnings during the period as the negative effect of low interest rates has diminished with price increases and product repositioning. Capital positions remain strong and companies have shown confidence by setting impressive earnings growth targets for the next three years.

Volatility levels for the Canadian Financials continued to decline in the fourth quarter other than a brief spike around the U.S. presidential election in November and ended the year towards the low end of the range. The Fund was active in its covered-call writing during the period and ended 2012 with 13.22% of the portfolio subject to covered call options and none of the portfolio hedged with protective put options.

The Fund maintained a high invested position during most of the period but ended the quarter with a cash position of 7.48% in order to finance the annual retraction vs. 0.8% at the end of the previous quarter.

The profitability of Canadian banks is likely to continue to grow in 2013, however, at a slower pace than in 2012 due to decelerating consumer loan growth and net interest compression. On the other hand, the profitability of Canadian insurance companies is likely to improve in 2013 as earnings sensitivities to equity markets and interest rates have diminished. In the context of low interest rates, the valuations of companies in the portfolio remain at attractive levels when measured by price to earnings ratios and current dividend yields.

 

Portfolio Manager Updates for 2012-09-30

As of September 30, 2012, the Net Asset Value (“NAV”) of TCT.UN was $8.66 versus $8.53 on June 30, 2012. In addition, Unitholders received a distribution of $0.16088 during the quarter in accordance with the distribution policy of 7.5% per annum of the NAV of the unit.

The unit’s last trading price on September 28, 2012 was $8.63, which represents a discount of 0.35% to its underlying NAV.

North American equity markets posted strong gains in the third quarter of 2012 on expectations that both the European Central Bank (ECB) and the U.S. Federal Reserve would enter another round of quantitative easing in response to a slowing global economy.

Central Banks did not disappoint and the ECB announced in August they would soon be implementing a bond purchase program to lower borrowing costs while Ben Bernanke, Chairman of the U.S. Federal Reserve, announced a third round of quantitative easing in order to improve labour market conditions.

Unlike the previous few quarters, the S&P/TSX Composite Index outperformed the U.S. S&P 500 Index on a total return basis during the period, albeit marginally, up 7.0% and 6.4% respectively. Canadian Financials underperformed the broader market as the S&P/TSX Capped Financials Total Return Index was up 5.3% during the period.

All ten Financial stocks within the portfolio had positive returns over the period with the insurers underperforming the banks again after briefly outperforming in the first quarter of 2012. The S&P/TSX Diversified Banks Total Return Index was up 5.8% while the S&P/TSX Life and Health Insurance Total Return Index increased 5.3%. The portfolio was led by Industrial Alliance Insurance and Financial Services Inc. during the period, up 15.8% after significantly lagging the group in the first half of 2012. Meanwhile, Great-West Lifeco Inc. lagged the group during the quarter up only 2.7% after outperforming in the first half.

Canadian banks reported strong third quarter earnings that beat analyst’s estimates. All five banks within the portfolio raised their dividends by 3–7% and The Toronto-Dominion Bank increased its payout ratio to 40-50% from 35-45%. Both the Canadian Imperial Bank of Commerce and the Royal Bank of Canada also announced significant share buybacks that should provide some support for the shares.

The Canadian life insurance companies reported mixed second quarter earnings during the period as low interest rates continue to be the biggest issue. Capital concerns were alleviated during the quarter and most companies remain comfortable with their capital ratios despite regulatory headwinds.

Volatility levels for the Canadian financials remained low in the third quarter, trading in a range of 10% to 20%. The Fund had been active in its covered-call writing, with an average of 34.9% of the portfolio overwritten during the period, but ended the third quarter with no covered calls or protective puts.

The Fund maintained a high investment position during the period and ended the quarter with a cash position of 0.8% vs. 1.3% at the end of the previous quarter.

The profitability of Canadian banks and life insurance companies is likely to continue to grow at a slower pace in 2012 due to decelerating consumer loan growth, volatile capital markets and record low interest rates. In the context of low interest rates, the valuations of companies in the portfolio remain at attractive levels when measured by price to earnings ratios and current dividend yields.

 

Portfolio Manager Updates for 2012-06-30

As of June 30, 2012, the Net Asset Value (“NAV”) of TCT.UN was $8.53 versus $9.49 on March 31, 2012. In addition, Unitholders received a distribution of $0.16331 during the quarter in accordance with the distribution policy of 7.5% per annum of the NAV of the unit.

The unit’s last trading price on June 29, 2012 was $8.63, which represents a premium of 1.17% to its underlying NAV.

After rallying in the first quarter of 2012, equity markets took a breather and corrected in the second quarter due to continued concerns regarding the European debt crisis as well as growing fears over a decelerating global economy.

Similar to the last few quarters, the S&P/TSX Composite Index underperformed the S&P 500 Index in the U.S. during the period, down 5.7% and down 2.8% respectively. Canadian Financials were down in the second quarter as the S&P/TSX Capped Financials Total Return Index decreased to 255.52 from 273.13.

All ten Financial stocks within the portfolio had negative returns over the period with the insurers underperforming the banks again after briefly outperforming in the first quarter of 2012. The S&P/TSX Diversified Banks Total Return Index was down 6.9% while the S&P/TSX Life and Health Insurance Total Return Index decreased 13.0%. The portfolio was led by the Bank of Montreal and the Bank of Nova Scotia during the period, down 4.0% and 4.6% respectively, while Industrial Alliance Insurance and Financial Services Inc. and Manulife Financial Corp. both lagged the group down 19.2% and 17.1%, due to weaker global equity markets and falling 10-year bond yields in both Canada and the U.S.

Most Canadian banks reported better than expected second quarter earnings. Canadian banks continued to show their strength relative to other nation’s banks as the World Economic Forum named the Canadian banking system the soundest for the fourth year running. The National Bank of Canada was the only bank within the portfolio to raise its dividend in the quarter, up 5.33%.

The Canadian life insurance companies reported mixed first quarter earnings as stronger equity markets were offset by continued low interest rates as well as concerns about their capital ratio. Expectations have been falling for second quarter earnings estimates due to weak equity markets and record low 10-year U.S. Treasury yields which declined by 56 basis points during the period to 1.64%.

Volatility levels for the Canadian financials remained low in the second quarter, trading in a range of 10% to 20%. The fund increased both its covered-call writing and protective put buying during the period and ended the second quarter with 57.0% of the portfolio subject to covered calls options and 28.1% of the portfolio hedged with protective put options.

The Fund maintained a high investment position during the period and ended the quarter with a cash position of 1.3% vs. 1.2% at the end of the previous quarter.

The profitability of Canadian banks and life insurance companies is likely to continue to grow at a slower pace in 2012 due to decelerating consumer loan growth, volatile capital markets and record low interest rates. In the context of record low interest rates, the valuations of companies in the portfolio remain at attractive levels when measured by price to earnings ratios and current dividend yields.

 

Portfolio Manager Updates for 2012-03-31

As of March 31, 2012, the Net Asset Value (“NAV”) of TCT.UN was $9.49 versus $8.71 on December 31, 2011. In addition, unitholders received a distribution of $0.17231 during the quarter in accordance with the distribution policy of 7.5% per annum of the NAV of the Fund.

The unit’s last trading price on March 30, 2012 was $9.07, which represents a discount of 4.42% to its underlying NAV.

Equity markets continued to rally in the first quarter of 2012 after stabilizing and rallying into year-end 2011 on the back of better U.S. employment and housing numbers as well as reduced risk of a European sovereign default.

Similar to the fourth quarter of 2011, the S&P/TSX Composite Index underperformed the S&P 500 Index in the U.S. in the first quarter of 2012. During the period, the S&P/TSX Composite Total Return Index increased 4.4% while the S&P 500 Total Return Index increased 9.9%. Canadian Financials were the third best performing sector in Canada in the first quarter as the S&P/TSX Capped Financials Total Return Index increased to 273.13 from 245.18.

All ten Financial stocks within the portfolio had positive returns over the period with the insurers outperforming the banks after significantly underperforming in 2011. The S&P/TSX Diversified Banks Total Return Index was up 10.4% while the S&P/TSX Life and Health Insurance Total Return Index increased 22.1%. The portfolio was led by two of the laggards of 2011, Sun Life Financial Inc. and Manulife Financial Corp. which were up 27.3% and 25.8% respectively, due to stronger global equity markets and rising 10-year bond yields in both Canada and the U.S. The Bank of Montreal and Canadian Imperial Bank of Commerce lagged the group but still generated positive total returns of 7.4% and 4.5% respectively.

Canadian banks reported in-line to better than expected first quarter earnings as wholesale bounced back on better than expected trading revenues. However, loan growth continues to moderate and net interest margins are under incremental pressure in the current low interest rate environment. The Toronto-Dominion Bank, Royal Bank of Canada and the Bank of Nova Scotia all raised their dividends in the quarter by an average of 6%.

The Canadian life insurance companies reported mixed fourth quarter earnings due to weak equity markets and continued low interest rates. However, expectations have been rising for first quarter earnings estimates due to strong equity markets and rising 10-year U.S. Treasury yields which have backed up over 30 basis points since year-end to 2.21%.

Volatility continued to decline in the first quarter, reaching levels not seen since July 2011, as economic statistics in the U.S. continued to improve and concerns about European sovereign default subsided. The percent of the portfolio subject to covered calls on average during the period was 15.0% and the Fund ended the first quarter with 6.7% of the portfolio subject to covered calls.

No put protection was purchased during the quarter due to an improved outlook on the securities within the portfolio.

The Fund maintained a high investment position during the period and ended the quarter with a cash position of 1.2% vs. 2.3% at the end of 2011.

The Canadian banks and life insurance companies profitability is likely to grow at a slower pace in 2012 due to decelerating consumer loan growth, volatile capital markets and net interest margin compression. In the context of record low global interest rates, the valuations of companies in the portfolio remain at attractive levels when measured by price to earnings ratios and current dividend yields.

 

Portfolio Manager Updates for 2011-12-31

As of December 31, 2011, the Net Asset Value (“NAV”) of TCT.UN was $8.71 versus $9.17 on September 30, 2011. In addition, the Fund paid a distribution of $0.15656 during the quarter which represents a distribution policy of 7.5% per annum on the NAV of the unit.

The unit’s last trading price on December 30, 2011 was $8.40, which represents a discount of 3.56% to its underlying NAV.

Equity markets continued their volatile ride in the fourth quarter of 2011. After correcting significantly in the 3rd quarter of 2011 due to Standard and Poor’s downgrade of U.S. Government debt and concerns about a potential sovereign default by Greece, equity markets found some footing and rallied into year-end. Although the S&P/TSX 60 Index underperformed the S&P 500 Index in the U.S. which rose 11.8% during the fourth quarter, it still managed to increase 2.8% during the period. Canadian Financials on the other hand were relatively flat during the period as the S&P/TSX Capped Financials Total Return Index increased slightly to 245.18 from 242.94.

The ten Financial stocks within the portfolio had mixed returns over the period with the banks considerably outperforming the insurers again. The S&P/TSX Diversified Banks Total Return Index was up 2.5% while the S&P/TSX Life and Health Insurance Total Return Index declined 8.6%. The portfolio was led by the Royal Bank of Canada up 9.4% on the back of better than expected fourth quarter earnings. Meanwhile, Sun Life Financial Inc. (“SLF”) dragged the life insurance group down with a negative return of 23.1%. This was due to the $500 million charge to fourth quarter income they pre-announced on October 17th due to lower equity markets and lower interest rates.

Canadian banks proved their resilience by reporting better than expected fourth quarter earnings, with the exception of the Bank of Montreal, due to better than expected net interest margins and commercial loan growth. The only stock within the portfolio to increase its dividend in the quarter was the National Bank of Canada, which raised its dividend for the third time in 2011 with a 5.6% annualized increase.

The Canadian life insurance companies reported mixed third quarter earnings due to weak equity markets and continued low interest rates. Due to the tough operating environment for life insurers, SLF announced in mid-December that they will no longer sell individual life insurance or variable annuities in the U.S.

Volatility for the fourth quarter remained high until December as economic statistics in the U.S. gradually improved and concerns about European sovereign default slowly subsided. The Fund was active in its call writing during the quarter and ended the year with 11.0% of the portfolio subject to covered calls.

The Fund also opportunistically purchased some put protection on certain individual holdings within the portfolio in the quarter due to continued concerns of European sovereign default risk increasing as well as the potential for slower than expected global growth.

The Fund maintained a high investment position during the period and ended 2011 with a cash position of 2.3% vs. 3.3% at the end of the third quarter 2011.

The Canadian banks and life insurance companies profitability is likely to grow at a slower pace in 2012 due to decelerating consumer loan growth, volatile capital markets and a low interest rate environment. In the context of record low Global interest rates, the valuations of companies in the portfolio remain at attractive levels when measured by price to earnings ratios and current dividend yields.

 

Portfolio Manager Updates for 2011-09-30

As of September 30, 2011, the Net Asset Value (“NAV”) of TCT.UN was $9.17 versus $10.46 on June 30, 2011. In addition, Unitholders received a distribution of $0.177 during the quarter which represents a distribution policy of 7.5% per annum on the NAV of the unit.

The unit’s last trading price on September 30, 2011 was $9.08, which represents a discount of 0.98% to its underlying net asset value.

The stock market correction, which began in early March, continued with a vengeance through the third quarter as the S&P/TSX 60 Index was down more than 12% during the period. The S&P/TSX Capped Financials Total Return Index did not escape the broad market decline and decreased to 242.94 from 270.28. All ten Financial stocks within the universe were down over the period with the banks considerably outperforming the insurers. The portfolio was led by the Canadian Imperial Bank of Commerce (“CM”) and the Bank of Montreal (“BMO”) with both stocks down 2.44% and 3.26% respectively. Meanwhile, Manulife Financial Corp. (“MFC”) and Industrial Alliance Insurance and Financial Services Inc. (“IAG”) dragged the life insurance group down with negative returns of 29.36% and 22.27% respectively.

After posting weaker than expected second quarter earnings, the Canadian banks, with the exception of the Royal Bank of Canada (”RY”), proved their resilience by reporting better than expected third quarter earnings due to better than expected loan growth and capital markets revenue. Both CM and The Toronto-Dominion Bank increased their dividends during the quarter by 3.4% and 3.0% respectively.

The Canadian life insurance companies reported better than expected second quarter earnings during the period although net of one-time items, the numbers were in-line on a normalized basis. Stronger than expected group and individual life sales were offset by weak global equity markets and low long-term interest rates

Volatility levels picked up in the quarter after being relatively tame during the first half of the year. Volatility levels started to pick up in late July as the deadline for the U.S. Congress vote on the debt ceiling limit on August 2nd was approaching and has remained high since as Standard & Poor’s downgraded the rating of U.S. Government debt and the potential of Greece defaulting on their debt increased. The Fund increased the level of call writing over the quarter and ended September 30, 2011 with 22.38 percent of the portfolio subject to covered calls.

The Fund also opportunistically purchased some put protection on the iShares S&P/TSX Capped Financial Index Fund (“XFN”) as well as some individual holdings within the portfolio during the period due to continued concerns of European sovereign default risk increasing as well as the potential for slower than expected global growth .

The Fund maintained a high investment position during the period and ended the third quarter with a cash position of 3.3% vs. 1.2% at the end of the second quarter 2011.

The Canadian banks and life insurance companies profitability is likely to grow at a slower pace than was originally expected at the beginning of 2011 due to decelerating loan growth, weaker equity and capital markets along with lower interest rates and net interest margin compression. In the context of record low Global interest rates, the valuations of companies in the portfolio remain at attractive levels when measured by price to earnings ratios and current dividend yields and this should continue to act as support for the share prices.

 

Portfolio Manager Updates for 2011-06-30

As of June 30, 2011, the NAV of TCT.UN was $10.46 versus $11.11 on March 31, 2011. In addition, Unitholders received a distribution of $0.204 during the quarter which represents a distribution policy of 7.5% per annum on the NAV of the unit.

The unit’s last trading price on June 30, 2011 was $9.95, which represents a discount of -4.88% to its underlying net asset value.

During the period The S&P/TSX Financials Total Return Index decreased to 2,447.55 from 2,514.27. The financial stocks within the universe had varying returns over the period with the insurers outperforming the banks on average. The portfolio was led by the National Bank of Canada (“NA) and Manulife Financial Corp. (“MFC”) with both stocks relatively flat over the quarter up 0.19% and 0.17% respectively. Meanwhile, the Canadian Imperial Bank of Commerce (“CM”) and the Royal Bank of Canada (“RY”) dragged the bank group down with negative returns of 7.87% and 7.34% respectively.

After posting strong earnings growth in the first quarter of 2011, Canadian banks reported weaker than expected second quarter earnings due to weak trading revenues and lower net interest margins. Capital ratios continued to increase on a year over year basis and both RY and NA increased their dividends during the quarter by 8.0% and 7.6% respectively.

The Canadian life insurance companies demonstrated improving fundamentals and profitability in the first quarter of 2011 benefitting from higher global equity markets and rising ten year bond yields in both Canada and the United States. However, second quarter results are likely to be weaker due to the headwinds of weaker equity markets and lower bond yields.

Due to the low level of volatility in the Canadian financials for the majority of the period, the covered call writing activity was opportunistic as the lower volatility did not compensate the fund enough to justify a passive call writing approach. The fund ended June 30, 2011 with approximately 12 percent of the portfolio subject to covered calls.

The fund also opportunistically purchased some put protection on the iShares S&P/TSX Capped Financials Index Fund (“XFN”) during the period due to concerns of European sovereign default risk increasing as well as the U.S. debt ceiling controversy impacting Canadian financials.

The fund maintained a high investment position during the period and ended the second quarter with a cash position of 1.2% vs. 1.4% at the end of the first quarter 2011.

The Canadian banks and life insurance companies are expected to improve their profitability and capital ratios in 2011 due to improving credit, good expense control and leverage to a slowly improving economy. In the context of record low Global interest rates, the valuations of companies in the portfolio remain at attractive levels when measured by price to earnings ratios and current dividend yields and this should continue to act as major support for the share prices.

 

 

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