Inhance Global Equity SRI Class

Inhance Global Equity SRI Class Commentary

Portfolio Advisor: Vancity Investment Management Ltd.

Fund Commentary - March 31, 2012

The Portfolio Sub-Advisor increased exposure to US equities given the relative attractiveness of the region. During the quarter, positions were initiated in VF Corp, Home Depot and EOG Resources. International apparel firm VF Corp's strong brand portfolio, including The North Face and Timberland, is well positioned for domestic and international growth. Home improvement retailer, Home Depot has laid the foundation to gain upside exposure to a recovery in the US housing cycle and capture deferred home renovation and maintenance spending. We expect EOG Resources to be a key participant in the burgeoning trend towards North American energy independence, with an early mover advantage in unconventional energy plays. These additions were funded from the sales of Amazon.com, Man Group, Talisman Energy and United Continental.

In terms of ESG strategy, the Portfolio Sub-Advisor met with Teck Resources to discuss actions and policies to promote gender diversification in the workplace. Teck provided an overview of initiatives at company operations, demonstrating in-depth knowledge on the benefits of diversity and committed to provide increased reporting in the annual sustainability report.  

The absence of major negative surprises out of Europe, along with the relative success of the ECB liquidity initiatives were welcomed by equity markets during the first quarter. With central banks unwavering on maintaining ample liquidity, a low interest rate environment, generally solid corporate earnings reports, and attractive comparative yields to bonds, it was unsurprising that equities regained favour among underinvested institutions. However, the Portfolio Sub-Advisor's remains concerned that liquidity measures merely mask the deeper, on-going solvency, deleveraging and austerity issues still facing much of Europe. While modest growth in the US is encouraging, global growth is far from booming. Peaking corporate profit margins could suggest the potential for disappointing upcoming quarterly earnings in a slow growth environment. Finally, developments surrounding Iran, oil prices and expectation shifts on previously noted liquidity, interest rates and corporate profitability could instigate further market volatility typical of the long work-out phase post a major financial crisis. Accordingly, while recognizing financial risks are slowly diminishing, no "All Clear" has been sounded yet.

In this context, the Portfolio Sub-Advisor believes stock selection offers ample opportunity and will be the primary source of risk minimization and  value-add the Portfolio strategy of the Fund. As concluded in the Portfolio Sub-Advisor's commentary, they believe the attractiveness of non-resource stocks will rise relative to resource stocks and that the breadth of investment available in other more diverse markets, particularly the US, offers superior medium-term investment opportunity. Hence they believe a Canadian investor may benefit from increased exposure to the Global Fund within their overall equity portfolio.