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S Split Corp.

 

SBN.PR.A
SBN

Portfolio Manager Updates

 

Portfolio Manager Updates for 2017-03-31

The Net Asset Value ("NAV") of the Fund at March 31, 2017 was $19.17 compared to $18.64 per unit on December 31, 2016. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on March 31, 2017 at $7.24 and $10.99 respectively which, when combined, represent a $0.94 discount (4.9%) to the actual NAV.

A distribution of $0.1342 was paid to Class A shareholders and $0.13125 was paid to Preferred shareholders during the quarter. The value of BNS shares at March 31, 2017 was $77.80 compared to $74.76 on December 30, 2016.

Scotiabank reported earnings in line with expectations this quarter. The dividend held steady at $0.74 per share; however a $0.02 increase was announced for next quarter. Price performance was in the middle of pack of big five banks, all of which delivered low single-digit price returns. The total return for BNS this quarter was 5.08%.

Implied volatility started to inch higher this quarter after putting in year-lows in December. With the share price trending higher for much of the period, the Fund chose to stay un-written for this quarter.

 

Portfolio Manager Updates for 2016-12-31

The Net Asset Value of the Fund at December 30, 2016 was $18.64 compared to $17.50 per unit on September 30, 2016. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on December 30, 2016 at $6.88 and $10.37 respectively which, when combined, represent a $1.39 discount (7.46%) to the actual net asset value.

A distribution of $0.11915 was paid to Class A shareholders and $0.13125 was paid to Preferred shareholders during the quarter. The value of BNS shares at December 30, 2016 was $74.76 compared to $69.52 on September 30, 2016.

Scotiabank (BNS) had a decent quarter slightly beating analyst estimates as it has done for several consecutive quarters. The dividend was held steady at $0.74 per share. Share price performance lagged the rest of the Big Five this quarter; however, even this weakness did not prevent BNS from delivering the best performance over the whole year among its large competitors. The total return for BNS this quarter was 8.6%.
Implied volatility drifted lower during this quarter and set a multi-year low in December at just over 10%. Given the price uptrend and low volatility, the Fund did very little overwriting this quarter with only 1.1% written on average.

 

Portfolio Manager Updates for 2016-09-30

The Net Asset Value (“NAV”) of the Fund at September 30, 2016 was $17.50 compared to $16.35 per unit on June 30, 2016. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on September 30, 2016 at $6.05 and $10.56 respectively which, when combined, represent a $0.89 discount (5.1%) to the actual NAV.

A distribution of $0.0728 was paid to Class A unitholders and $0.13125 was paid to Preferred unitholders during the quarter. The value of BNS shares at September 30, 2016 was $69.52 compared to $63.31 on June 30, 2016.

Once again, BNS beat consensus estimates with Q3 earnings per share of $1.55. The bank was able to report a slight improvement in its energy portfolio exposure which is likely a reason for the relatively good share price performance.

Scotiabank was the best performing bank of the big five in this quarter with a total return of 10.1 per cent. Implied volatility in BNS options remains low making overwriting less attractive; however, the average level of overwriting was 13.2 per cent this quarter up slightly from Q2.

The BNS dividend remained at $0.72 for this quarter, with a $0.02 increase (to $0.74) announced for next quarter.

 

Portfolio Manager Updates for 2016-06-30

The net asset value of the Fund at June 30, 2016 was $16.35 compared to $16.41 per unit on March 31, 2016. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on June 30, 2016 at $5.51 and $10.31 respectively which, when combined, represent a $0.53 discount (3.2%) to the actual net asset value.

A distribution of $0.06885 was paid to Class A shareholders and $0.13125 was paid to Preferred shareholders during the quarter. The value of BNS shares at June 30, 2016 was $63.31 compared to $63.47 on March 31, 2016.

Scotiabank slightly beat analyst’s expectations for the second quarter in a row. A charge was taken in the second quarter to cover some strategic changes to the banking network that, as the CEO assures, will be more than self-funding in cost savings.

BNS share price performance was more muted this quarter delivering a total return of 2.02% this period. Volatility remains relatively low and, as such, overwriting activity was reduced from the previous quarter. The average for this quarter was 12.8%.

The BNS common dividend was $0.72 for this quarter which is a $0.02 increase compared to previously announced.

 

Portfolio Manager Updates for 2016-03-31

The Net Asset Value of the Fund at March 31, 2016 was $16.41 compared to $15.34 per unit on December 31, 2015. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on March 31, 2016 at $5.96 and $10.15 respectively which, when combined, represent a $0.30 discount (1.83%) to the actual net asset value.

Distributions were suspended to Class A shareholders based on the terms of the prospectus and $0.13125 was paid to Preferred shareholders during the quarter. The value of BNS shares at March 31, 2016 was $63.47 compared to $55.97 on December 31, 2015.

Scotiabank beat analyst’s expectations in Q1 after a week previous quarter. Investors were favorable on these results which resulted in BNS shares delivering the best performance of the big five banks in Canada. Total return for BNS in this quarter was 13.4 percent.

This price rebound followed a multi-year low hit during January. This price weakness led to heightened volatility levels, both realized and implied. The Fund took advantage of this higher volatility to increase overwriting. The average for this quarter was 25.3 percent.

The BNS dividend was held at $0.70 for this quarter but a $0.02 increase has been announced for next quarter.

 

Portfolio Manager Updates for 2015-12-31

The Net Asset Value of the Fund at December 31, 2015 was $15.34 compared to $16.22 per unit on September 30, 2015. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on December 31, 2015 at $4.55 and $10.15 respectively which, when combined, represent a $0.64 discount (4.17 per cent) to the net asset value.

Distributions totaling $0.0671 were paid to Class A shareholders and $0.13125 was paid to Preferred shareholders during the quarter. The value of BNS shares at December 31, 2015 was $55.97 compared to $58.83 on September 30, 2015.

After two quarters of upside earnings surprises, Scotiabank missed the consensus on adjusted quarterly earnings this quarter. Once again, BNS was the worst performing bank of the big five tied this quarter with CIBC on a price basis but slightly better on a total return basis at negative 2.5 per cent.

The fundamental picture for the bank still looks relatively good with strong capital ratios and improving margins albeit below management target levels. The only question mark leaving a dark cloud over the stock price is a suit filed against The Bank of Scotia and other banks in December that alleges gold price fixing. The results of this suit may not be known until late in 2016.

Scotia paid a $0.70 divided this quarter, up $0.02 from the previous quarter as previously announced.

After the spike in volatility in August the share price started to move higher so our overwriting activity was reduced. Our average overwritten level for this quarter was 4.6 per cent.

 

Portfolio Manager Updates for 2015-09-30

The Net Asset Value (“NAV”) of the Fund at September 30, 2015 was $16.22 compared to $17.90 per unit on June 30, 2015. The fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on September 30, 2015 at $5.99 and $10.25 respectively which, when combined, represent a $0.02 premium (0.12%) to the actual NAV.

Distributions totaling $0.1126 were paid to Class A and $0.13125 was paid to Preferred shareholders during the quarter. The value of BNS shares at September 30, 2015 was $58.83 compared to $64.47 on June 30, 2015.

Once again, Scotiabank delivered a slight beat over the consensus with its quarterly earnings; however, investors were concerned about the weakness in the capital markets portion and the stock price suffered as a result. BNS was the worst performing bank of the Big Five in Canada this quarter with a total return of negative 7.7%.

Investors and management had anticipated that the year-to-date global growth picture would be better and that the bank’s international positioning would benefit, but, as was established later, Canadian operations were offsetting the overseas weakness.

The CEO announced that the bank has agreed to purchase some of Citibank’s retail banking operations in Panama and Costa Rica in a deal consistent with its global expansion strategy. The deal, if approved, would cost $360 million.

Scotiabank paid a $0.68 divided this quarter, unchanged from the previous quarter, but announced a two cent increase for the next dividend.

The volatility of BNS shares started to move higher with the rest of market into the August but settled back down to close the quarter only moderately higher. We did take advantage of the higher volatility to increase our overwriting activity which averaged 12.6% for the quarter.

 

Portfolio Manager Updates for 2015-06-30

The Net Asset Value (“NAV”) of the Fund at June 30, 2015 was $17.90 compared to 17.80 per unit on March 31, 2015. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on June 30, 2015 at $7.78 and $10.40 respectively which, when combined, represent a $0.28 premium (1.56%) to the actual NAV.

Distributions totaling $0.12375 were paid to Class A and $0.13125 was paid to Preferred shareholders during the quarter. The value of BNS shares at June 30, 2015 was $64.47 compared to $63.54 on March 31, 2015.

Scotiabank reported numbers that were slightly better than expected for the second quarter of 2015. The dividend was increased by $0.02 to $0.68 as previously announced. Overall returns were not great for any of the big banks this quarter; however, BNS was on top with a total return of 2.53%.

The bank continues to set itself up for future growth in Latin America and is already well-established in the Caribbean. Despite general weakness in these economies so far this year, recent acquisitions have already increased international interest income by 7% year-over-year. There is pressure on foreign net-interest-margin; however, the international operations are still twice as profitable and Canadian operations.

The volatility of BNS shares continued to drift lower in this quarter along with the overall market, and closed out the quarter near the lows. Our model indicated an opportunity to capture some of this volatility through option premium, so we increased our overwriting activity which added to the return of the Fund. We ended the quarter with 25.2% of the portfolio overwritten and averaged 5.4% over the period.

 

Portfolio Manager Updates for 2015-03-31

As of March 31, 2015, the Net Asset Value of a combined unit (SBN.PR.A + SBN) was $17.80 versus $18.78 on December 31, 2014.

Preferred shareholder’s received a distribution of $0.13125 per share, while Class A shareholders’ received distributions of $0.125 per share during the quarter.

On March 31, 2015 the closing market price of the Preferred shares and the Class A shares was $10.25 and $7.90 respectively which, when combined, represent a 2.0% premium to the NAV.

Shares of The Bank of Nova Scotia declined by 4.2% from $66.31 on December 31, 2014 to $63.54 on March 31, 2015 and paid a dividend of $0.66 per share during the quarter, unchanged from the previous period.

Scotiabank reported quarterly results roughly in line with the prior quarter and showed slight improvements across many metrics year over year. A dividend increase of $0.02 per share was announced for next quarter and performance though weak, was middle of the pack for the Canadian banks.

The CEO reiterated an interest in Mexico and will be opportunistic regarding possible acquisitions and recently returned from an exploratory trip to Cuba.

Though volatility ran up at year end with the market selling-off, peaking at 25% in January, volatility has drifted lower during the quarter and no call writing was warranted.

 

Portfolio Manager Updates for 2014-12-31

The net asset value of the Fund at December 31, 2014 was $18.78 compared to $20.00 per unit on September 30, 2014. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on December 31, 2014 at $8.95 and $10.06 respectively which, when combined, represent a $0.22 premium (1.2%) to the actual net asset value.

Distributions totaling $0.15115 were paid to Class A shareholders and $0.13125 was paid to Preferred shareholders during the quarter. The value of BNS shares at December 31, 2014 was $66.31 compared to $69.27 on September 30, 2014. BNS paid a dividend of $0.66 during the quarter, an increase of $0.02 from the previous quarter.

Scotiabank slightly missed the consensus estimates in their fourth quarter, however, the earnings story for the year was reasonable. Investors took the stock lower by more than 4% or negative 3.3% including dividends. Once again, BNS was the worst performing bank of the big five for the second consecutive quarter and the year overall.

Management took a charge for Latin American and Caribbean operations which weighed heavily on earnings and led to the negative investor reaction. However, operations remain solid overall and shares should regain investor confidence in the coming quarters.

Implied volatility bottomed in the middle of 2014 and began to rally in the third and fourth quarters when the share price began to correct. The share price was weak into the end of the year but still above the lows set early in the 2014. Despite the higher volatility, our model did not indicate that it was appropriate to overwrite BNS this quarter so there was no option activity.

 

Portfolio Manager Updates for 2014-09-30

The Net Asset Value of the Fund at September 30, 2014 was $20.00 compared to $20.97 per unit on June 30, 2014. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on September 30, 2014 at $9.51 and $10.03 respectively which, when combined, represent a $0.46 discount (2.3%) to the actual net asset value.

Distributions totaling $0.16815 were paid to Class A shareholders and $0.13125 was paid to Preferred shareholders during the quarter. The value of BNS shares at September 30, 2014 was $69.27 compared to $71.14 on June 30, 2014. BNS paid a dividend of $0.64 during the quarter, unchanged from the previous quarter.

Scotia reported decent earnings this quarter, net income was $1.74 billion. The adjusted earnings per share of $1.41 was roughly in-line with consensus expectations. The market wasn’t overly pleased, however, with the results and took the BNS share price lower. In fact, BNS was the worst performer of the big five banks this quarter with a total return of negative 1.7 per cent.

Management expects to stay the course in the coming quarter and meet any earnings challenges through cost cutting. While no acquisitions have been announced recently, the level of excess capital would suggest that some may be in the offing.

The level of volatility, both actual and implied, remained in the single digits for much of the quarter until earnings were reported. The stock price peaked for the year and volatility rose close to 15 per cent by the end of September. After several months of no overwriting, the level was increased when the stock pulled back. The average for the quarter was 5.5 percent although we ended the period with no calls outstanding.

 

Portfolio Manager Updates for 2014-06-30

The Net Asset Value (“NAV”) of the Fund at June 30, 2014 was $20.97 compared to $19.14 per unit on March 31, 2014. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on June 30, 2014 at $9.91 and $10.11 respectively which, when combined, represent a discount of $0.95 (4.5%) to the NAV.

Distributions totaling $0.1468 were paid to Class A and $0.13125 was paid to Preferred shareholders during the quarter. The value of BNS shares at June 30, 2014 was $71.14 compared to $64.03 on March 31, 2014. BNS paid a dividend of $0.64 during the quarter, unchanged from the previous quarter.

The Bank reported a solid second quarter with profit of $1.6 billion, up 5% over the same period last year. The growth in dividends has been slow but steady. It was unchanged in this quarter but set to increase a few cents per share in the third quarter.

BNS Management suggests that continued earnings growth will be sought through organic growth and international acquisition as opposed to share repurchases. Investors responded favorably to the good earnings and solid prospects and took the share price to new all time highs in the second quarter, this, following a comparably weak performance in the first quarter.

With the stock trending higher for most of the quarter, share price volatility continued to sag with implied volatility reaching a low of just over 8% in May. In the face of the price uptrend and single-digit volatility, we reduced our overwriting further and ended the period with no written calls outstanding.

 

Portfolio Manager Updates for 2014-03-31

The Net Asset Value (“NAV”) of the Fund at March 31, 2014 was $19.14 compared to $19.86 per unit on December 31, 2013. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on March 31, 2014 at $8.40 and $10.13 respectively which, when combined, represent a $0.61 discount or 3.2 percent to the actual NAV.

Distributions totaling $0.1353 were paid to Class A and $0.13125 was paid to Preferred unitholders during the quarter. The value of Scotiabank (BNS) shares at March 31, 2014 was $64.03 compared to $66.43 on December 31, 2013. BNS paid a common dividend of $0.64 during the quarter, an increase of $0.02 from the previous quarter.

Scotiabank reported a reasonably good first quarter with net earnings up 6.7 percent over the same period last year. However, this is a significant drop from the previous quarter but only because the ING acquisition closed last quarter which provided an immediate one-time bump to earnings. Loan growth is on par with the other major banks.

Notable in this quarter was the action in the stock price. The high price of the quarter occurred on January 1, 2014 and was down 7.7 percent within a month. The share price rose quietly thereafter to finish down about 3.6 percent versus last quarter. The total return was negative 1.7 percent. This was the worst share price performance of the big five banks this quarter.

The negative impact was not driven by fundamentals which were on par with the other banks, but rather by the perceived impact of its exposure to emerging markets. It’s true that BNS has the most international exposure of the major banks contributing about 26 percent of overall earnings; however, this exposure contributed positively earnings.

Emerging markets in general have begun to weaken over the past year due to the expectation of capital outflows resulting from the reduction of quantitative easing, or so called ‘tapering’. With Scotiabank’s overall exposure to emerging markets and the fact that it is focused on the more secure and stable countries, the impact to fundamentals is less than the market would suggest given the share price performance. Concern over emerging markets will likely continue throughout the year; however, we think BNS could see some price recovery when investors appreciate the relative quality of Scotiabank’s emerging market exposure.

The volatility of BNS share price traded within its range of the past few years during the quarter except for a spike in early February to over 17 percent. This followed the price sell-off referred to above. After several months of no option writing, the Fund was able to capture some volatility premium in this quarter and ended the quarter with 23.5 percent of the Fund overwritten.

 

Portfolio Manager Updates for 2013-12-31

The Net Asset Value (“NAV”) of the Fund at December 31, 2013 was $19.86 compared to $18.00 per unit on September 30, 2013. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on December 31, 2013 at $8.47 and $10.35 respectively which, when combined, represent a $1.04 discount (5.2%) to the actual NAV.

Distributions totaling $0.13440 were paid to Class A and $0.13125 was paid to Preferred unitholders during the quarter. The value of Scotiabank (BNS) shares at December 31, 2013 was $66.43 compared to $59.00 on September 30, 2013. BNS paid a dividend of $0.62 during the quarter, an increase of $0.02 from the previous quarter.

The fourth quarter brought to an end a reasonably good year for BNSalthough Earnings per Share were down slightly over 2012. BNS was the best performing bank of the Big Five Canadian banks in this quarter delivering a total return of 12.6% despite a mid-month correction in December.

Volatility in BNS peaked at over 20% in mid-2012 then headed lower to below 6% in early 2013. It traded in the range of 10% to 15% for the rest of 2013, though lower than the past few years, which is around its long-term range.

Our overwriting had decreased to zero over the third quarter and no options were written in the fourth quarter in order to maximize the Fund’s participation in the upside stock movement.

BNS shares continue to be a favoured investment among the Big Five Canadian banks because of its diversity of earnings. Each of its five main divisions contributes roughly equal amounts to corporate earnings. One of these divisions is its International Deposit and Lending business which distinguishes itself from the other banks. Net interest margins were weaker in 2013 and may remain subdued in 2014 if the Federal Reserve starts to taper its asset purchases; however, its international exposure will likely bode well for BNS in 2015 and beyond.

 

Portfolio Manager Updates for 2013-09-30

The Net Asset Value (NAV) of the Fund at September 30, 2013 was $18.00 compared to $17.47 per unit on June 30, 2013. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. The market price of the shares closed at $6.99 and $10.21 respectively on September 30, 2013 which, when combined, represents a $0.80 discount (4.4%) to the actual NAV.

Distributions totaling $0.1171 were paid to Class A shareholders and $0.13125 was paid to Preferred shareholders during the quarter. The value of Scotiabank (BNS) shares at September 30, 2013 was $59.00 compared to $56.22 on June 28, 2013. BNS paid a dividend of $0.60 during this quarter, unchanged from the previous quarter.

Like many Canadian stocks, BNS made new 2013 lows near the end of June. However, consistent with other financials, BNS spent much of the third quarter moving higher. Its total return during this quarter was 6.05%.

Our overwriting activity had increased during the second quarter with the increased volatility and weaker BNS share price. With the third quarter rally underway, our overwriting activity diminished and the Fund had no short call positions as at September 30th.

Scotiabank has delivered high single-digit loan growth in its international operations which continue to be a key driver of earnings. With economic prospects continuing to improve both internationally and domestically, the CFO has stated that Scotiabank will pursue organic growth and acquisitions before considering share repurchases. It also plans to keep dividend growth in line with earnings.

The Canadian economy and global economy in general continue to show moderate improvement which will ultimately benefit Scotiabank. Meanwhile, the Bank of Canada continues to maintain its key lending rate at 1%.

 

Portfolio Manager Updates for 2013-06-30

The Net Asset Value (NAV) of the Fund at June 30, 2013 was $17.47 compared to $18.50 per unit on March 31, 2013. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on June 28, 2013 at $6.47 and $10.27 respectively which, when combined, represent a $0.73 discount (4.2%) to the actual NAV.

Class A distributions totaling $0.12425 and Preferred distributions totaling $0.13125 were paid to the respective classes of shareholders during the quarter. The value of Scotiabank (BNS) shares at June 28, 2013 was $56.22 compared to $59.11 on March 28, 2012. BNS paid a dividend of $0.60 during the quarter, an increase of $0.03 per share from the previous quarter.

Towards the end of the first quarter, BNS share was off its highs; however, the uptrend appeared to be still intact. This proved not to be the case. The gains of the first quarter were erased by the end of April. A relief rally followed but failed to test the previous highs. The correction continued for the remainder of the second quarter and closed the month near the lows for the year.

The Fund had reduced overwriting in the previous quarter to more fully participate in the apparent uptrend. When it was clear this trend was broken, we resumed overwriting, thus increasing the average level from 5.2% in the previous quarter to 13.1% in the 2nd quarter. The aggregate overwritten percentage at the end of June was 50%. With the shares not over-valued, no protective puts were purchased in this quarter.

The Canadian economy is still showing signs of slight improvement which will ultimately benefit BNS shares. Meanwhile, the Bank of Canada continues to maintain its key lending rate at 1.00%.

The persistently low interest rate environment is challenging for all the banks, however, Scotiabank maintained its net interest margins quarter over quarter. The results of the last quarter were generally good, led by loan growth which was the best of the big five banks. Growth in international loans should continue to contribute to BNS earnings in the coming year. On the other hand, trading revenues continue to be weak and were down 11% this quarter.

 

Portfolio Manager Updates for 2013-03-31

The net asset value (“NAV”) of the Fund at March 31, 2013 was $18.50 compared to $18.23 per unit on December 31, 2012. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on March 28, 2013 at $7.55 and $10.23 respectively which, when combined, represent a $0.72 discount (3.89%) to the actual NAV.

Distributions totaling $0.12915 were paid to Class A shareholders and distributions totaling $0.13125 were paid to Preferred shareholders during the quarter. The value of Bank of Nova Scotia (“BNS”) shares at March 28, 2013 was $59.11 compared to $57.46 on December 28, 2012. BNS paid a dividend of $0.57 during the quarter, unchanged from the previous quarter.

BNS looked poised to continue the rally from Q4 of 2012; however, it started the current year flat. The rally did resume in February and peaked in early March. With the share price trending higher, we chose to reduce the call writing activity to participate more fully in the upside. Our average written position for Q1 of 2013 was 5.2% compared to 29.4% for Q4 of 2012. With BNS rallying, we chose not to purchase protective puts this quarter.

The quiet start to the year followed by further up move sent implied volatility lower. Volatility implied by BNS option prices was well below 10% in January which is a multi-year low. The total compound return for the Fund in Q1 of 2013 was 2.9% compared to 3.9% for BNS shares.

The Canadian economy shows some slight improvement over the previous quarter; however, growth is still frustratingly slow. Overall economic activity is flat to slightly better and inflation remains low. Given these conditions, the Bank of Canada chose to maintain the key lending rate at 1.0%, the same level since late 2010. We expect these conditions to persist for the next quarter and perhaps some improvement into the second half of 2013.

BNS, and all the Canadian banks, have been focused on reducing costs to improve efficiency and have been generally successful in this regard. BNS is arguably the most efficient the big five banks.

Generating profits is challenging in the low interest rate environment which continues to persist. Net interest margins at BNS were negatively impacted this quarter following the acquisition of ING Canada which closed at the end of last quarter.

Traditional business lines such as lending are improving and BNS’s exposure to higher-margin international loan markets should bode well if the recovery continues as expected.

 

Portfolio Manager Updates for 2012-12-31

The Net Asset Value (“NAV”) of the Fund at December 31, 2012 was $18.23 compared to $17.96 per unit on September 30, 2012. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on December 29, 2012 at $6.66 and $10.52 respectively which, when combined, represent a $1.05 discount (5.76%) to the actual NAV.

Distributions totaling $0.11875 were paid to Class A shareholders and distributions totaling $0.13125 were paid to Preferred shareholders during the quarter.

The value of Bank of Nova Scotia (BNS) shares at December 29, 2012 was $57.46 compared to $53.92 on September 28, 2012. BNS paid a dividend of $0.57 in Q4, unchanged from the previous quarter.

The uptrend in BNS shares that started in the third quarter stalled in October and corrected into November. After breaking down below the 100-day average in mid-November in a technically bearish move, the price surged through December making near highs for the year and then pulled back slightly in the last few trading sessions of the year.

Excluding the peak in volatility during the mid-November correction, implied volatility on BNS had been in a gradual downtrend for the last few quarters. By the end of this quarter, it was heading for single digit levels.

It was another challenging quarter for covered call overwriting. Volatility trended downward which reduced the option premiums available. A strong and rapid increase in the price of BNS shares after mid-November was somewhat offset by losses on call writing.

The Fund was less overwritten on average this quarter at 29.4% versus 48.1% last quarter. However, the Fund was fully written for part of the quarter which limited its ability to participate in the upsurge.

The total compound return for the Fund in Q4 was 2.9% compared to 7.6% for BNS stock.

The Fund continues to be fully invested in BNS shares. Protective puts were not utilized this quarter.

We had anticipated that volatility would begin its reversion to historic mean levels in Q4; however, that did not materialize. We continue to believe historically low levels are unlikely to persist for an extended period.

We are positive on BNS shares going into 2013 but will look for opportunities to purchase low-cost put protection.

 

Portfolio Manager Updates for 2012-09-30

The Net Asset Value of the Fund at September 30, 2012 was $17.96 compared to $17.71 per unit on June 30, 2012. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on September 28, 2012 at $6.36 and $10.28 respectively which, when combined, represent a $1.32 discount or 7.35% to the actual NAV.

Distributions totaling $0.1124 were paid to Class A and $0.13125 were paid to Preferred shareholders during the quarter.

The value of the Bank of Nova Scotia (BNS) shares at September 28, 2012 was $53.92 compared to $52.74 on June 29, 2012. BNS paid a dividend of $0.57 during the quarter, up two cents from the previous quarter.

By June of 2012, BNS had started to retrace the large correction endured during the second quarter. This recovery stalled in July and the price penetrated the lows of the previous quarter before resuming a modest up-trend which persisted throughout the quarter ending September 30, 2012.

Despite this period of monthly corrections and retracements, the volatility of BNS as implied by the listed options fell dramatically from a high of over 24% to a low of 10.7% at the end of September.

The combination of choppy price action and falling implied volatility made it a challenging period for overwriting. The Fund had expected an increase in volatility and price weakness in this quarter; however, neither of which came to pass.

The Fund attempted to capture the price correction early in the quarter and increased its overwriting levels temporarily. And by the end of the quarter, the Fund held no covered calls as the stock was in an uptrend and call premiums were deemed too low. The average overwritten level for Q3 was 48.1%.

The Fund continues to be fully invested in BNS shares. To protect against a decline in the price of BNS shares, protective puts were purchased on approximately 16% of the Fund on average over the quarter.

Volatility is now at a historically low level. In our opinion, volatility cannot go much lower, nor will it persist at these low levels for an extended period, and it is likely to return to more normal levels over the next several months.

The Canadian economy and other markets to which BNS is exposed continue to demonstrate sluggish growth. We continue to anticipate low single-digit growth in the next quarter.

 

Portfolio Manager Updates for 2012-06-30

The Net Asset Value (“NAV”) of the Fund at June 30, 2012 was $17.71 compared to $18.99 per unit on March 31, 2012. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. The closing prices for the second quarter of 2012 were $6.25 and $10.13 respectively and, when combined, represent a $1.33 discount or 7.51% to the actual NAV.

Distributions totaling $0.12665 were paid to Class A and $0.13125 were paid to Preferred shareholders during the quarter.

The price of the Bank of Nova Scotia (“BNS”) shares at June 29, 2012 was $52.74 compared to $55.88 on March 30th. BNS paid a dividend of $0.55 during this quarter, unchanged from the first quarter.

After drifting lower for several months, implied volatility for BNS turned at the end of the first quarter and reached a high in May at 24.2%. The higher implied volatility levels have helped generate higher call option premiums for the Fund, yet realized volatility in the shares itself has been greater than the implied making a challenging environment for overwriting.

We continued to selectively write call options during this quarter with an average overwritten level of 20.7% and ended the quarter with 50% of BNS shares overwritten.

The total return of the Fund for the second quarter was negative 5.4% compared to negative 4.6% for the BNS stock.

The Fund continues to be fully invested in BNS shares. To protect against a decline in the price of BNS shares, protective puts were purchased on approximately 10% of the Fund on average over the quarter.

We expect the third quarter of 2012 to be similar to the same period last year. Negative headlines will likely increase volatility to above normal levels and produce further weakness in share prices.

We also expect that the high-margin international footprint of BNS will continue to bode well for the stock, on a relative basis, as the economy continues to improve.

 

Portfolio Manager Updates for 2012-03-31

The net asset value (“NAV”) of the Fund at March 31, 2012 was $18.99 per Unit compared to $17.83 on December 31, 2011. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on March 30, 2012 at $7.76 and $10.31 respectively which, when combined, represent a $0.92 discount (or 4.84%) to the actual NAV.

Distributions totaling $0.12085 were paid to Class A and $0.13125 were paid to Preferred shareholders during the quarter.

The value of the Bank of Nova Scotia (BNS) shares at March 30, 2012 was $55.88 compared to $50.83 on December 30, 2011. BNS paid a dividend of $0.52 during the quarter, unchanged from the fourth quarter of 2011.

Volatility for the broad index, as well as BNS, continued to drift lower into the first quarter of 2012. Implied volatility for BNS hit a low of 11.6% on March 26, 2012 after previously peaking close to 40% in August last year. This dramatic drop in volatility has greatly impacted our ability to generate option premium through our covered writing strategies.

Nevertheless, we continued to selectively write BNS during this quarter with an average overwritten level of 19.2% but ended the quarter with no option positions. The Fund started the quarter outperforming BNS shares, however, this outperformance was eroded as call positions moved against the Fund after a couple of strong weekly surges in the price of BNS. The total compound return for the Fund in the first quarter was up 8.0% compared to 11.0% for BNS stock.

The Fund continues to be fully invested in BNS shares and no protective puts were purchased during this quarter.

First quarter earnings for BNS were slightly better than consensus expectations and the stock was able to deliver positive quarterly returns for the first time since the second quarter of 2011 and beat the average return of the big five banks, but remains firmly in the middle of pack.

Volatility is likely to increase over the balance of the year driven by headline news in much the same way it was in the third quarter of 2011.

It is also expected that the high-margin international footprint of BNS will bode well for the stock as the economy continues to improve.

 

Portfolio Manager Updates for 2011-12-31

The Net Asset Value (“NAV”) per Unit at December 31, 2011 was $17.83 compared to $18.68 on September 30, 2011. The closing prices of the Class A share and the Preferred shares on December 29, 2011 were $6.00 and $10.35 respectively which, when combined, represent a $1.48 discount (-8.3%) to the NAV per Unit.

Distributions totaling $0.12015 were paid to Class A and $0.13125 were paid to Preferred unitholders during the quarter.

The value of the Bank of Nova Scotia (“BNS”) shares declined by 3.6% closing on December 29, 2011 at $50.83 compared to $52.72 on September 30th, 2011. BNS paid a dividend of $0.52 during the quarter, unchanged from Q3.

Volatility for the year peaked this quarter with the S&P/TSC 60 VIX (“VIXC”) reaching just below 40% in early October. The implied volatility on BNS went from 13% in late July to 38% in the first week of August. It worked its way lower for the remainder of the year returning to pre-crisis levels. Investor uncertainty, as measured by volatility, spiked due to the European sovereign debt crisis. While some progress has been made, very little was resolved in 2011 yet volatility continued to soften. The Manager of the Fund expects volatility to increase again in 2012 driven by headlines in much the same way it was in Q3 of 2011.

The Fund attempted to monetize as much volatility as possible during the quarter, with average overwriting levels over 40% during the three months. The Fund ended the quarter with 16.3% of the Fund overwritten. With volatility falling throughout most of the quarter, options premiums were not enough to offset the limited upside sold away with our overwriting activity. The Fund remained fully invested for most of the quarter but purchased puts when the view on BNS turned negative. Unfortunately, the BNS share price declined immediately after the expiration of the puts. The Fund delivered a total compound return for the quarter of negative 3.2% compared to negative 2.6% for the BNS shares.

Reported earnings this quarter were basically in line with expectations once again; however, share price performance was second worst (next to Bank of Montreal) of the big five banks for the second consecutive quarter.

Strength in international operations was a bright spot for BNS in 2011. BNS continues to be the Canadian bank with the largest international exposure. More than one quarter of its loans are made outside of North America. While growth remains sluggish, BNS will benefit more than its competitors when activity levels do improve due to its higher-margin international footprint.

 

Portfolio Manager Updates for 2011-09-30

The net asset value of the Fund at September 30, 2011 was $18.68 compared to $20.76 per unit on June 30, 2011. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on September 30, 2011 at $6.91 and $10.30 respectively which, when combined, represent a $1.47 discount (7.87%) to the actual net asset value.

Distributions totaling $0.1387 were paid to Class A and $0.13125 were paid to Preferred unitholders during the quarter.

The value of BNS shares at September 30, 2011 was $52.72 compared to $58.10 on June 30, 2011. BNS paid a dividend of $0.52 during the quarter, unchanged from the second quarter.

Volatility, which had been relatively mild for the first half of 2011 virtually doubled in mid-summer. Uncertainly over the European debt crisis and policy gridlock in the U.S. left investors perplexed and divided as to how to properly position.

It was a difficult quarter for trading with unusually large share-price swings both intraday and day over day. The Fund was able to monetize much of this volatility to offset the overall negative price action and continues to maintain an overwritten position over 25% going into the fourth quarter in anticipation of continued volatility.

BNS continues to improve its profitability and capital ratios as expected. Reported earnings this quarter were basically in line with expectations; however, share price performance was second worst (next to Royal Bank) of the big five banks at negative 8.4% total return.

The bank fared relatively well compared to its peers in M&A revenues, however, other capital market activity was weak.

The international banking business continues to grow organically and the newly expanded wealth business may provide opportunity to leverage this growth in the coming year.

 

Portfolio Manager Updates for 2011-06-30

The net asset value of the Fund at June 30, 2011 was $20.76 compared to $21.23 per unit on March 31, 2011. The Fund’s two share classes are listed on the Toronto Stock Exchange as SBN and SBN.PR.A. They closed on June 30, 2011 at $8.70 and $10.25 respectively which, when combined, represent a $1.81 discount -8.7% to the actual net asset value.

Distributions totaling $0.16545 were paid to Class A and $0.13125 were paid to Preferred unitholders during the quarter.

The value of BNS shares at June 30, 2011 was $58.10 compared to $59.49 on March 31, 2010. BNS paid a dividend of $0.52 during the quarter, unchanged from Q1. BNS raised the dividend in Q1 to $0.52 from $0.49 in the previous quarter.

While volatility drifted lower during most of the quarter, the fund was able to generate sufficient option premium to outperform BNS shares during the quarter.

BNS reported Q2 earnings slightly better than consensus estimates and was the best performer of the big five banks in this quarter. BNS is the most internationally diversified Canadian bank and this help drive better profits this quarter.

The recent acquisition of Dundee Wealth also contributed to improved year over year earnings.

Capital ratios continued to increase on a year over year basis. BNS is expected to improve its profitability and capital ratios in 2011 due to improving credit, good expense control and leverage to a slowly improving economy.

 

 

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