Commentary

31 Mar 2017
Market Overview: Equities

The S&P remains near record highs despite a modest pull back most recently. The only period when stocks were more expensive was during the days of the dotcom bubble.

On a historical basis, it is hard to argue that equities are anything other than expensive. However given the fact we see no systematic risk factors today, we believe they will remain expensive and likely get more expensive based on traditional methods.

31 Mar 2017

For the first quarter of 2017, master limited partnerships (MLPs), as measured by the Alerian MLP Index (AMZ), were up 2.2% on a price basis and up 3.9% on a total return basis, or including the impact of distributions. As measured by the Alerian MLP Infrastructure Index (AMZI), a more concentrated measure of midstream MLPs, the sector gained 2.4% on a price basis and 4.1% on a total return basis. For context, the broader market, as measured by the S&P 500, gained 5.5% on a price basis and 6.1% on a total return basis.

31 Mar 2017
Market Overview

If we had to put a title on this quarter’s energy commentary, it would be: “Canada the Unloved!” The CDN S&P/TSX energy sub index was down 6.2% for the quarter. Digging deeper into the numbers however, the weakness was much worse. Excluding the pipelines and midstream companies from the energy sub index, the remaining 36 oil and gas producer and energy services providers dropped an average of 14 percent. It gets worse! The bottom 18 companies of the 36 dropped anywhere between 15-34%!

31 Mar 2017

For the quarter the fund generated a return of 1.25% and while it slightly trailed the TSX (+1.70%) overall we are reasonably happy with this return given the weakness of the energy sector. During the quarter the energy sector was down 6.29%; in fact when one looks at medium cap and small cap energy names they underperformed the group. Names such as Crew (- 34%), Seven Generations -22.4%, Torque – 17.4%, Whitecap – 14.9% etc. were just a few names that underperformed. Even the pipeline stocks were down in the quarter.

31 Mar 2017
Market Overview

If we had to put a title on this quarter’s energy commentary, it would be: “Canada the Unloved!” The CDN S&P/TSX energy sub index was down 6.2% for the quarter. Digging deeper into the numbers however, the weakness was much worse. Excluding the pipelines and midstream companies from the energy sub index, the remaining 36 oil and gas producer and energy services providers dropped an average of 14 percent. It gets worse! The bottom 18 companies of the 36 dropped anywhere between 15-34%!

31 Mar 2017
Market Overview

Canadian markets advanced in Q1 2017. The S&P/TSX index rose 1.7% for the three month with the Info Tech sector ( + 6.9%), Consumer (+ 6.5%) and Utilities sector (+ 6.1%) leading the advance , while the Health Care ( -10.3%) and Energy (- 6.2%) underperforming.

Our energy exposure weighed on the Special Opportunities Fund for the quarter.

15 Oct 2016

Market Overview

Equities climbed during the third quarter of 2016, despite the U.K’s vote to exit the European Union, weak global economic data and uncertainty from the Federal Reserve.

15 Oct 2016

Market Overview

Equities climbed during the third quarter of 2016, despite the U.K’s vote to exit the European Union, weak global economic data and uncertainty from the Federal Reserve.

14 Oct 2016

Market Overview

For the quarter ending September 30, 2016, the S&P/TSX Composite Index was up +4.7%, led by the consumer staples, consumer discretionary, industrials and energy sectors (IT strong as well, but it is a small group). It was perhaps a surprising result given the U.K.’s vote to exit the European Union, weak global economic data and uncertainty from the U.S. Federal Reserve. A long-awaited interest rate hike was previously proposed in September and now appears to be pushed out to December.

2 Oct 2016

Energy Overview

Stocks continued to climb during the third quarter of 2016, posting solid results. The U.K. vote to exit the European Union (“Brexit”), weak global economic data, a tightening in the U.S. presidential race along with growing tensions between Russian-American relations reinforced the likelihood that interest rates would stay “lower for longer”. The low ( to negative) interest rates globally continue to provide fuel for asset prices.

1 Oct 2016

Market Overview

Strong capital markets took most investors by surprise in the third quarter with both the U.S. markets (S&P 500 +3.85%) and Canadian (S&P/TSX +5.45%) powering higher. Given the events at the end of June (BREXIT), ongoing global macro risks, and the Fed beginning to signal higher rates, one would have expected a negative reaction with increasing volatility. In fact, the opposite has occurred as markets moved higher in relative uniformity while volatility probed new lows.

1 Oct 2016

Market Overview

For the third quarter of 2016, master limited partnerships (MLPs), as measured by the Alerian MLP Index (AMZ), were down 0.8% on a price basis but up 1.1% on a total return basis, or including the impact of distributions. As measured by the Alerian MLP Infrastructure Index (AMZI), a more concentrated measure of midstream MLPs, the sector increased 0.0% on a price basis and 1.9% on a total return basis. For context, the broader market, as measured by the S&P 500, gained 3.3% on a price basis and 3.9% on a total return basis.

1 Oct 2016

Market Overview

The third quarter of 2016 started with markets attempting to digest the impact of the U.K.’s vote to exit the European Union (“Brexit”). Despite uncertainty around the vote’s implications, it quickly became clear that the exit will involve prolonged negotiations. Because the U.K. did not immediately trigger Article 50 to begin the exit process—coupled with low yields—expectations for further stimulus and supportive economic data helped alleviate investor concerns. This, in turn, paved the way for a rally in risk assets, with most asset classes performing reasonably well.

1 Jul 2016

Market Overview

For the second quarter of 2016, master limited partnerships (MLPs), as measured by the Alerian MLP Index (AMZ), were up 17.4% on a price basis and 19.7% on a total return basis, or including the impact of distributions. As measured by the Alerian MLP Infrastructure Index (AMZI), a more concentrated measure of midstream MLPs, the sector increased 18.2% on a price basis and 20.6% on a total return basis. For context, the broader market, as measured by the S&P 500, gained 1.9% on a price basis or 2.5% from a total return perspective.

1 Jul 2016

Energy Overview

Just when you thought that the investing world could not get any more interesting, along came “Brexit”, the U.K.’s vote to exit the European Union. “Unusual”, “unorthodox”, “confusing” and “unconventional” are just a few of the words used to describe the current state of capital markets – and this by the long-time, seasoned veterans of the game. It's a capital market where approximately one-third of global government bonds are trading at negative interest rates (that's right: where the investor pays the government to own their bonds!). Will the U.S. Federal Reserve raise or lower interest rates?

1 Jul 2016

Market Overview

The S&P 500 has rebounded from the uncertainty caused by the U.K.’s vote to exit the European Union (“Brexit”), reinstating stocks as the more attractive risk/reward value over bonds. With central bank supported rotation into risk assets—likely due to continued stimulative actions and expectations of better growth in later 2016/17—we have overcome some of the concern that plagued market sentiment over the third quarter.

1 Jul 2016

About Brexit

Welcome to the summer of 2016. The violently flat paradigm that the U.S. and, to a lesser degree, global markets have been stuck in for the past two years, continues following the U.K.’s vote to exit the European Union (“Brexit”). Brexit perplexity, an enigmatic U.S. Federal Reserve Board and U.S. presidential theatrics are scaring investors away from the facts once again. Yet, with all this uncertainty, we are very close to new highs. To be sure, these are confusing times, with many negatives including Brexit, negative interest rates, Trump uncertainties, protectionism, immigration, U.K. recession risk, ISIS, employment rates, Middle East instability, central banks out of ammunition, high frequency trading, ETF’s and China risks, etc.

1 Jul 2016

Market Overview

The shift in sentiment that occurred in in the second half of the first quarter of 2016 continued to drive the market recovery from the lows we saw in mid-February. However, as we progressed through the second quarter, markets increasingly focused on the upcoming U.K. referendum vote on its membership in the European Union (also known as “Brexit”), which became one of the main drivers of daily market movements. Overall, the market priced in much greater odds of a “remain” vote than those reflected in the polls or on the various betting sites. In the evening of June 23, as polls started to come in, this optimism quickly shifted toward concern and uncertainty as it became clear that the U.K. had voted to exit the EU.

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Disclaimer:

The opinions expressed herein reflect those of the individual portfolio manager. These opinions are subject to change at any time based on market or other conditions, and Front Street Capital disclaims any responsibility to update such views. These opinions may differ from those of other portfolio managers or of Front Street Capital as a whole.

These views are for informational purposes only and are not intended to be a forecast of future events, a guarantee of future results or investment advice. All data referenced herein are from sources deemed to be reliable but cannot be guaranteed.

These views may not be relied upon as investment advice and, because investment decisions are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of Front Street Capital. Any discussion of any of the funds’ holdings are as of the podcast interview date, and are subject to change.

If specific securities are referenced, they have been selected by the portfolio manager on an objective basis to illustrate the views expressed herein. Such references do not include all material information about such securities, including risks, and are not intended to be recommendations to take any action with respect to such securities. Referenced securities may not be representative of the portfolio manager's current or future investments and are subject to change at any time.