Global Value Fund Commentary
Portfolio Advisor: Industrial Alliance Investment Management
Inc.
Fund Commentary - September 30, 2012
The third quarter ended in a tense atmosphere for global
affairs, marked by protests in several European countries. Concerns
surrounding Europe persisted and the U.S. economy continued to
display signs of weakness. Despite the backdrop, stock markets
around the world rebounded considerably over the period. For
several quarters now, the world economy has been operating with
considerable risks: a Great Recession, the European debt crisis, a
risk of a Greek default, the U.S. fiscal cliff (end of tax relief
measures coupled with major spending cuts) and China's economic
slowdown being some of the highlights.
The U.S. Federal Reserve has committed to buying
$40 billion worth of mortgage-backed securities (MBS) each
month until the job market shows substantial improvement, in
addition to maintaining its key interest rate at nearly zero until
2015. With these measures, the goal is to lower mortgage rates in
order to stimulate the real estate and stock markets, and to
bolster consumer and business confidence. The real estate market is
already performing well compared to the last two interventions;
another important difference with the current intervention.
Despite the difficult economic environment, the equity markets
posted strong gains in the third quarter, propelled by the
anticipated interventions of central banks around the world. The
Federal Reserve finally confirmed a third round of quantitative
easing, while in Europe, ECB president Mario Draghi set up a bond
purchasing program to help financially troubled countries.
On a geographic basis, the Fund was underweight in Canadian and
international securities and overweight in U.S. securities. Stock
selection across a number of sectors produced strong results during
the quarter, including Barclays PLC, Newcrest Mining, Valero
Energy, Gap, Google and CGG Veritas. Stocks resulting in
performance detraction included Canon, Amada and Komatsu.
Fiat Industrial, CNH and GlaxoSmithKline were sold after they
reached their target price. Stocks which were added to the
portfolio this quarter included Vale, Norsk Hydro, Wolseley, and
BNP Paribas. Freeport McMoran and Deere & Co., was reintroduced
to the portfolio after profits were taken during the first half of
the year. In addition to having attractive valuations, the
portfolio manager believes this company is well-positioned within
its industry.
After having been more defensively positioned during the first
two quarters of 2012, the portfolio has been gradually shifted in
favor of cyclical positioning. The cash position within the Fund
was reduced along with portfolio weights in the Healthcare and
Consumer Staple sectors. The portfolio manager continues to monitor
the potential for a soft landing in China. The ongoing European
sovereign debt crisis, specifically the concerns with Spain,
remains an issue of concern as well.