May 2018 Investment Performance

May 2018 Investment Performance

Equity markets continued to rebound in May. As we mentioned in our last monthly update, valuations had improved since the market hit its highs in January. Corporate earnings have been stronger-than-expected and the lower prices from the market correction created more attractive valuations. We expect the rebound to continue, with value stocks and defensive sectors (health care, consumer) to outperform, however, we must recognize that we are in the late stages of the US economic expansion and bull market. Our top performers in May were Gluskin Sheff (GS), Biogen (BIIB) and Waddell & Reed (WDR).

The strength has continued into June. One of our core positions Signet Jewelers (SIG), which is the world’s largest retailer of diamond jewelry operating under such brands as Kay Jewelers, Zales in the US and Peoples Jewellers in Canada, reported solid earnings. Notably free-cash-flow in the trailing twelve months ended April 30, 2018 hit a record US$1.7 billion despite the stock trading at 52-week lows and down 73% from its September 2015 highs. While the market had ignored Signet due to the discounting of mall-based retailers, we began accumulating a position in late 2017. The market is no longer ignoring Signet followings its earnings results, with the stock up more than 20% since the earnings results a few days ago. Notably, Signet’s online sales contributed to 10% of its total sales in the quarter compared to just 5.8% a year ago.

An overview of the performance of our actively-managed products is as follows:

  • The AFINA Optima10 was up +0.9 in May. The Optima10 has a 14.5% cash weighting and a 2.8% dividend yield.
  • The AFINA Affinity was up +1.5% in May. The Affinity has a 14% cash weighting and a 2.4% dividend yield.

 

As of May 31, 2018. All figures are net of fees and other expenses. Past performance is not indicative of future results. Refer to https://www.afinacapital.com/legal/ for full details and disclosures.
(1) The benchmark represents a 50% weighting of the S&P 500 Total Return Index in Canadian dollars and a 50% weighting of the S&P/TSX Composite Total Return Index in Canadian dollars.