Inhance Monthly Income SRI Fund Commentary
Portfolio Advisor: Vancity Investment Management Ltd.
Fund Commentary - September 30, 2011
The Fund achieved a modest negative return in the quarter as all
equity classes declined along with overall stock markets due to
frightened investor worries over the Euro sovereign debt crisis and
slowdowns in world economies. However, the downturn in equities was
mitigated by a positive return from the Fund holdings of corporate
bonds. The most significant detractors to performance were among
Energy and other cyclical holdings within the dominant high yield
equity component. Income Trust and Preferred holdings also declined
but considerably less than stocks within the high yield common
component. As a result of continuing unitholder purchases, the
Portfolio Sub-Advisor was active in adding to a broad cross-section
of high yield holdings in periods of market weakness, capturing
attractive prices and yield levels. These purchases, at
advantageous prices, will continue to insure a high yield for the
Fund. One higher yielding common stock holding was sold, Yellow
Media, as it no longer met their financial and fundamental criteria
given unexpectedly poor earnings results and the anticipated
suspension of its dividend.
Over the third quarter the Portfolio Sub-Advisor began an
engagement process on human rights policies by requesting meetings
with Enbridge Inc. and CIBC. They are seeking a dialogue with the
companies on the recently adopted UN Guidelines on business and
Human Rights. In addition, they continued engagement on diversity
policies, focusing on Bank of Nova Scotia and BCE.
At the start of the fourth quarter, the Portfolio Sub-Advisor sees
equity markets still very much in the grip of significant "macro"
concerns, primarily surrounding how the Euro debt crisis will play
out and the negative implications of the fall of confidence on
global growth prospects. On the former, they believe lack of
coordination and differing politically inspired responses from
various European officials make discerning real progress on the
pressing issues of the solvency of the peripheral countries and
funding stresses amongst banks almost impossible. On the positive
side, despite political fiddling, recent data clearly point to
economies that are progressing slowly, mitigating fears of a
renewed or "double dip" recession in their view. Nonetheless, they
believe that with elevated financial risks and opaque policy
responses, the crisis-prone environment remains, which, combined
with protracted slow growth, will constrain equity markets pending
substantive action.
Given a higher level of uncertainty, the Portfolio Sub-Advisor will
continue to add cautiously to high yield equities, while
maintaining level exposure to bonds. They continue to extol the
merits of the Fund for this environment: its balanced nature,
income focus, its broad diversification across many businesses, and
the strategy of assigning relatively low, equal weights to all
securities assures ample yield, and that volatility will be
minimized from excessive emphasis on any one company or sector.
They believe this is the most appropriate and attractive strategy
for both maximizing return while insuring against the inherent
volatility in the present slow growth, unstable world environment
in which policy-makers are increasingly constrained.