Inhance Conservative SRI Portfolio Commentary
Portfolio Advisor: Vancity Investment Management Ltd.
Fund Commentary - March 31, 2012
During the quarter, activity was directed towards culling
underperforming issues and replacing them with prospective superior
selections. In Materials, two gold issues were sold, Agnico-Eagle
and Kinross Gold after major operational difficulties were
reported. They were replaced with the single holding of Yamana
Gold. Yamana was selected due to its attractive medium-term
organic growth profile and modest relative undervaluation. In
Energy, the Portfolio Sub-Advisor sold Talisman Energy and
Petrominerales and consistent with their lower risk strategy,
replacing them with the more stable and higher-yielding
Crescent Point Energy, Keyera Corp. and Pembina Pipeline. The
latter two are pipeline and processing infrastructure plays.
Pembina's recent acquisition of Provident Energy's gas-focused
midstream assets will enhance the overall sustainability and growth
prospects of the combined entity's energy transport and processing
businesses. Finally, they trimmed a portion of the CP position for
valuation reasons after its strong rise in response to initiatives
of an activist shareholder.
Over the quarter, the Portfolio Sub-Advisor engaged a number of
companies on diversity, human rights and climate change.
Specifically, they met with Teck Resources and Agrium on actions
and policies to promote gender diversification in the workplace,
with Teck providing an overview of its initiatives and committing
to greater reporting on diversity. Agrium agreed to increase
reporting on progress on diversity, including success stories and
new initiatives. They also met with IAMGold to discuss human rights
policies, practices and reporting, with the company outlining its
development of a stand-alone policy. Finally, they filed a joint
shareholder resolution calling on the Enbridge Board of Directors
to assess the risks associated with First Nations' opposition to
the Northern Gateway Pipeline project, and detail how the company
intends to mitigate the operational, reputational, and legal risks
of such opposition.
After months of squabbling and confusion, the absence of any
negative surprises out of Europe and the success of the ECB
liquidity initiatives were a welcome reprieve to markets starved
for some confidence-boosting news. With central banks unwavering on
maintaining ample liquidity and a low interest rate environment,
solid reported earnings gains, and attractive comparative yields
and outlooks, it was no surprise that stocks suddenly regained
favour among underinvested institutions. However, the Portfolio
Sub-Advisor believes that liquidity measures merely mask the
deeper, on-going solvency, deleveraging and austerity issues still
facing much of Europe. While they find modest growth in the US is
encouraging, global growth remains far from booming with China
potentially teetering on a "hard landing" scenario. Sky-high profit
margins suggest to them the potential for disappointing upcoming
quarterly earnings in a slow-growth environment. Finally, they
believe developments surrounding Iran, Spain, oil prices, European
elections and expectation shifts on any of the aforementioned "big
picture" variables suggest current complacency could be rudely
shattered, inducing downside volatility typical of the long
work-out phase post a major financial crisis. Accordingly, while
they recognize financial risks are slowly diminishing, no "all
clear" has been sounded yet and they remain wary of potential
volatility, which is manifested in their strategy of being more
conservatively positioned and focusing on predictability and income
as the optimal way to maximize returns while offsetting the
emotional volatility characteristic of this unusual
environment.