Canadian Leaders Class

Canadian Leaders Class Commentary

Portfolio Advisor: Industrial Alliance Investment Management Inc.

Fund Commentary - April, 2012

During the first quarter of 2012, the world economic recovery continued to have a positive effect on stock markets worldwide.  However, fears of another market downturn are not unfounded. The European sovereign debt crisis continues to pose a significant risk to the world economy. While a Greek default was avoided, we are clearly not "back to normal."

The start of 2012 presents some major differences from 2011. U.S. economic data is much stronger than a year ago. Better than expected results in employment data and Americans renewing their automobile fleet by replacing old cars with more energy-efficient models.

Major stock market indices had a positive start to the year whereas Canada lagged behind foreign indices. The underperformance of the S&P/TSX Composite Index is primarily due to the fear of an economic slowdown in China which impacts the performance of the Materials and Energy sectors, which account for more than a 46% weighting in the Canadian stock market.

The Fund had a positive quarter. The Fund remained underweight the Financials and Consumer Discretionary Sectors and the portfolio manager's stock selection contributed positively in the quarter including   Agrium Inc.,  Suncor Energy Inc.,  Gildan ActiveWear Inc.,  Magna International Inc.,  Nexen Inc., Valeant Pharmaceuticals Inc.,  and Apple Inc..Our low exposure in natural gas producers contributed to the Fund as the commodity declined 34% during the quarter.

During the period, after the rise in the cyclical sectors, we reduced our weight in some positions in the Materials and Energy sectors (EnCana Corp., Canadian Natural Ressources Inc., Suncor Energy Inc., Talisman Energy Inc. and Nexen Inc.). As for Freeport, Alcoa Inc., Quadra FNX Mining Ltd., and Osisko Mining Corp., they were sold. We established positions in Goldcorp Inc. and Kirkland Lake Gold Inc.   The Fund currently maintains a neutral weight in Materials sector and underweight the Energy sector.  The current situation in China results in a cautious approach towards the cyclical sector. Combined with the on-going problems in the Europe, volatility in the equity markets is expected to remain present for some time.