April 2009 CI Investments Harbour Fund Manager’s 1st Quartern Review
Below are some highlights from one of our top Canadian fund managers from CI Investments, Harbour Advisors, who manages the CI Harbour Fund (Currently a 5 Star Cdn Equity fund from Globefund) , CI Harbour Growth & Income Fund (Cdn Balanced fund):
At the end of March, Harbour Fund was 91.7% invested in common stocks (Canadian stocks 48.7%, foreign stocks 43.0%), while the fund’s cash and equivalent position stood at 8.3%. Harbour Growth & Income, in contrast, was 72.8% invested in common stocks (Canadian stocks 43.1%, foreign stocks 29.7%), with an unchanged bond position from the previous quarter of 5.7% and a cash reserve position of 21.5%.
During the first quarter, we were reasonably active in both portfolios with virtually all our efforts concentrated on the purchase side of the ledger. Notable examples of where we added to existing positions include Cameco, Canadian Oil Sands, General Electric, Manulife Financial, and Microsoft. We are pleased to report that we also established two new Canadian holdings, as well as three new foreign holdings during the quarter. The new Canadian holdings were ING Canada and a familiar name from the recent past –Royal Bank of Canada, which was eliminated from the two portfolios in September 2008. The new foreign names that were added to the portfolio were Caterpillar Inc., Cummins Inc. and Procter & Gamble. All five new holdings presently represent small marker positions. It has yet to be determined whether after further research we will be comfortable expanding these holdings to larger weightings. In the case of Royal Bank, we fortuitously liquidated our previous holding around September 2008 when the shares were trading around $48-49. We began to re-establish our holding in Royal Bank in the latter part of February 2009, when the shares were trading in the $26 price range. The only notable sale activity was the elimination of our small holding in the Class B shares of AGF Management.
A thumbnail sketch of each new holding follows:
Caterpillar Inc., headquartered in Peoria, Illinois, is the world’s largest manufacturer of earth-moving equipment. Major markets are road building, mining, petroleum, agriculture, logging, and general construction. Its products include tractors, graders, scrapers, loaders, compactors and off-highway truck engines. Foreign sales account for roughly 60% of the total.
- Cummins Inc., headquartered in Columbus, Indiana, designs, manufactures, distributes, and services diesel engines for the heavy-duty, medium-duty and light-duty truck, bus, auto, and industrial markets, electric-power generation systems, and engine-related components. Cummins is also a true multinational company, serving customers in over 150 countries around the world. Foreign sales comprise over 50% of the total.
- ING Canada, headquartered in Toronto, is the leading property casualty insurer in Canada. Its focus is chiefly on personal lines and small-to-mid sized businesses with the bulk of products distributed through its broker channel and the remainder through direct distribution.
- Procter & Gamble, headquartered in Cincinnati, Ohio, is a powerhouse multinational manufacturer of detergents, soaps, toiletries, foods, paper and industrial products. Well-known brands include Olay, Head & Shoulders, Pantene, Downy, Tide, Bounty, Pampers, Pringles, Gillette, Braun, and Duracell.
- Royal Bank of Canada, headquartered in Montreal, is Canada’s largest chartered bank. Royal has over 1,700 branches, 5000 ATMs, and some 400 offices in over 30 foreign countries. Total assets currently exceed $700 billion.
In summary, two of the new holdings, ING Canada and Royal Bank of Canada, fall in the currently controversial financial category, Caterpillar and Cummins are bread-and-butter infrastructure companies, while Procter & Gamble is a best of breed consumer products company.
While the stock market has rallied sharply in recent weeks, the relative attractiveness of stocks versus bonds remains in favour of stocks, in our view. Bond yields remained near historically low levels during the past quarter; however, benchmark 10-year Government of Canada yields did rise from 2.21% to 2.67%, while benchmark 30-year term Government of Canada bonds saw their yields rise from 2.68% to 3.54%. At this time, price inflation is certainly not an issue for the economy, or the bond market; nonetheless, we expect higher rates of inflation in two to three years time, as world economies recover, which will result in higher future yields.
It now appears that the stock market lows experienced in March 2009 will likely hold. We remain pleased with the significant buying we did in final quarter of 2008, when we significantly boosted our equity holdings, drawing down our then large cash reserve positions of some 22% in Harbour Fund and 33% in Harbour Growth & Income.
In closing, we continue to feel that world economies will begin to demonstrate signs of recovery in the coming months and believe that investors are perhaps underestimating the coming positive effects of the massive monetary and fiscal stimulus being applied by governments around the world. As always, at Harbour, we endeavour to populate our portfolios with best of breed companies and discipline ourselves to get involved only when such are trading at attractive valuations. We feel good about the way the portfolios are currently structured and look forward to reporting to you again at mid-year.
Gerry Coleman
Portfolio Manager
What are the effects of the US Bailout package not going thru…
The bailout has many mixed opinions but here could be some examples if it does not pass:
- Interest rates on unsecured loans like credit cards would go up, and there may even be a seizing of goods bought in some cases for the banks to get some of their money back.
- Anyone with an open mortgage with floating interest rates will see rates increase.
- New mortgages and loans will be at higher rates.
- Fewer home loans would be granted to mainly to the rich and reliable customers and at higher rates.
- House prices would collapse significantly.
- Companies would have to pay higher interest rates to borrow and will have to cut spending elsewhere to stay profitable.
- Much more layoffs resulting in higher unemployment.
- With higher unemployment the government would have to pay more benefits and would see its tax revenues reduced at the same time.
With higher interest rates and economic contraction could mean a prolonged depression
September 2008 Market Update Notes
Short-Term Outlook
- There is currently a stock sell-off especially in the oil, gold and commodity stocks. Many hedge funds have had large stock positions in oil and gold stocks and currently there are numerous hedge funds currently selling these stocks because they are closing down or because of de-leveraging. We believe that the selling of the energy stocks is overdone.
- The US housing market currently has 11 months of housing inventory where the normal inventory is supposed to be about 2-3 months. So we believe the US housing market will continue to drop more.
- The markets may still be rocky for the next 6-12 months as some developing countries growth has slowed and there are still financial problems with some of the worldwide banks with all the mortgage problems.
Long-Term Outlook
- There is a reversal in the worldwide urbanization trend where historically (since 1950) there was always a bigger population of people who lived outside the city and now for the first time in 58 years its equal. More and more people are moving into bigger cities as the pay and lifestyle is better, in developing countries such as China and India.
- Demand for hard assets such as oil, steel and other commodities with the developing countries will continue to increase.
- In the long term we feel that the BRICC countries (Brazil Russia India China Canada) will still produce some of the best returns even though it’s not currently.
- We like the Canadian financials right now as we see many of them attractively priced so
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Welcome to our New and Revamped Website!!
Welcome to our New and Revamped Website! A lot of thought and work has gone into the design and the kind of content you see here. There are already numerous financial websites that give current information whether its good or bad. We wanted to give our perspective based on some of opinions from some of the the top fund managers that we use. We also wanted a website that was easy to navigate around along with good insurance and financial resources. We will be adding newsletters in the future along with other new ideas and services. We have a special section called “My Yellow Pages” which will introduce our friends and clients services to you. We appreciate having you as our client and we look forward to helping you again very soon.
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