Dividend Growth Class

Dividend Growth 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 firm up its grip, having a positive effect on stock markets worldwide. Sound familiar? It should, as this was the introductory sentence to our March 31, 2011 issue! The fear of going through another downturn following a bullish first quarter, as we saw in 2011, is not unfounded. The European sovereign debt crisis continues to pose a significant risk to the world economy. Though it's true that a Greek default was narrowly avoided, we cannot say that everything is "back to normal." Greek authorities kept us holding our breath until the very last minute as to whether they would reach an agreement with their creditors on restructuring their debt.

On the other hand, the start of 2012 also presents a few major differences from 2011. While U.S. economic data is showing a recovery still in its embryonic stages, the data is much stronger than one year ago. The first quarter of the year offered economic data that was better than expected, especially in terms of employment. In addition, demand for oil is decreasing (in part) as Americans renew their automobile fleet by replacing old cars with more energy-efficient models. The threat of high prices at the pump will certainly have an impact on economic growth south of the border, but this threat was much greater one year ago.

The Fund invests in mostly large, well-known Canadian companies that offer regular and rising dividends. The Fund had a positive first quarter. Being underweight Materials was the primary reason for this as this sector was a main detractor. Good stock picking in Financials also contributed positively for the Fund in the first quarter. Notable names were National Bank, RBC, Great-West and Sun Life.

During the quarter, the Portfolio Advisor completed the addition of Crescent Point Energy to the Fund. This was funded by selling the Imperial Oil position. This transaction maintains the same exposure in Energy, however, the Portfolio Advisor picked up almost 5% in yield versus the Imperial Oil dividend.

The market volatility experienced through much of last year continues with a fast positive start to the year and a rapid turnaround before the end of the quarter. The Portfolio Advisor's strategy is to keep trading cautiously.