Inhance Monthly Income SRI Fund Commentary
Portfolio Advisor: Vancity Investment Management Ltd.
Fund Commentary - March 31, 2012
As a result of continuing unitholder in-flows, the Portfolio
Sub-Advisor actively added to positions across a broad spectrum of
the high-yield common equities. A new preferred issue of Veresen
yielding 4.4% was also added to maintain the preferreds' share of
the Fund at 10%. Similarly, the fixed income portfolio was boosted
back to 25% of the Fund with significant additions to three
mid-term corporate bond positions. Despite the low interest rate
environment, which is depressing bond yields, the remaining
securities purchases were done at relatively handsome yields which
will help maintain a high internal yield for the Fund.
During the quarter, the Portfolio Sub-Advisor jointly filed a
shareholder resolution, with two other major shareholders, calling
on the Enbridge Board of Directors to assess the risks associated
with First Nations' opposition to their proposed Northern Gateway
Pipeline project, and to detail how the company intends to mitigate
the operational, reputational, and legal risks of such opposition.
The resolution will be presented for voting at the upcoming annual
meeting of shareholders. The Portfolio Sub-Advisor also
engaged with Valener on the need to disclose information on the
company's approach to addressing climate risks. The company agreed
to provide more disclosure through reporting by Gaz Metro, the
primary asset held by Valener.
The Portfolio Sub-Advisor believes that capital markets will
continue to be subject to bouts of volatility both up and down as
the expected lengthy deleveraging process facing Europe and North
America evolves in the quarters ahead. As the latest quarter's
strength illustrates, after months of squabbling and confusion, the
absence of any negative surprises out of Europe and the success of
the ECB liquidity initiatives offered 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, was it any wonder that stocks
suddenly regained favour among underinvested institutions. However,
the Portfolio Sub-Advisor believes these liquidity measures, while
positive, merely mask the deeper, on-going solvency, deleveraging
and austerity issues still facing much of Europe. While they find
the modest pace of growth in the US encouraging, global growth
remains far from booming, with China's mandated economic slowing
posing risks of a "hard landing" scenario. Furthermore, 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. Hence, they continue
to extol the merits of the Fund for this environment: its balanced,
income focus providing a high yield; its less volatile nature; its
broad diversification across mostly non-resource businesses; and
the strategy of assigning relatively low, equal weights to all
securities encourages ample yield and that risk of loss will be
minimized from excessive emphasis on any one company or sector.
They believe this is a most appropriate and attractive strategy for
both maximizing returns while insuring against the inherent
volatility in the present slow growth and less predictable world
environment.