July - Summer Edition - CI Investments

Commentary
Cambridge Advisors
Alan Radlo
Senior Vice-President,
Portfolio Management and
Chief Investment Officer
Investors’ growth expectations were excessive following a strong
second half of 2010. However, the economy began to slow
during the first part of 2011, due to sharply higher oil prices and
the ripple effect of the Japan earthquake. The latter created an
inventory scare, prompting many manufacturers and suppliers
to increase their parts inventories to guard against possible
shortages. Meanwhile, China and Brazil were attempting to
slow down their over-heating markets, which removed the
momentum behind emerging markets’ economic growth.
Those events caused commodity prices – and values of stocks
related to commodities – to adjust to the economic reality as
the period progressed. This translated into a rough quarter for
equity markets worldwide. The bloom came off the Canadian
market, which fell 5.2% during the quarter, while markets
elsewhere struggled to earn flat returns.
We believe the economy is in mid-cycle slowdown, not
approaching recession. Equity market liquidity is ample and
corporate balance sheets are in good shape, translating into
solid market fundamentals.
Cambridge Canadian Equity Corporate Class suffered a
small loss during the quarter, although it outperformed its
benchmark. Performance was largely driven by overweight
positions in industrials and consumer staples, and offset by an
overweight position in information technology. The portfolio
was underweight the declining energy and financials sectors,
although the portfolio holds large positions in both. The
fund’s largest position was in energy, where we reduced
holdings in integrated oil and gas producers in favour of oil
services stocks, which are less sensitive to energy prices. In
financials, we continue to favour non-bank firms, adding
real estate companies with financial elements, as well as
insurance providers. We added to consumer staples through
Shoppers Drug Mart, which became the fund’s largest
individual holding. Tourmaline, Keyera and Onex made the
biggest contributions to performance, while Interprovincial
Pipelines was the biggest detractor.
Cambridge Canadian Asset Allocation Corporate Class
matched its benchmark during the quarter. Many of the
fund’s equity holdings are similar to that of Cambridge
Canadian Equity. We continued to avoid bonds and other
fixed-income securities in favour of equity securities with
excellent yields and growth potential. We increased the real
estate investment trust holdings toward the end of the period.
We believe that these, along with energy-related trusts, should
out-distance corporate and government bonds over the next
few years. Keyera, Tourmaline and Pembina made the
biggest contributions to performance, while Interprovincial
Pipelines was the biggest detractor.
Cambridge American Equity Fund underperformed its
benchmark for the three months. Cambridge Advisors was
appointed portfolio manager of this fund on June 6 and we
have significantly changed its holding to reflect our
approach. Its focus has been shifted to industrials, information
technology and health care, away from consumer
discretionary, financials and consumer staples. The fund is
underweight energy and financials. Baxter, HanesBrands and
Sprint Nextel made the biggest contributions to performance,
while JPMorgan Chase was the biggest detractor.
CI Cambridge Global Equity Corporate Class
outperformed its benchmark, due in part to the strength
of overweight positions in health care and an underweight
position in financials. Our focus was on major global
technology and industrial-related companies, particularly
in the laser, automotive and aerospace-related industries.
Tourmaline, Volkswagen and Leoni made the biggest
contributions to performance, while OGX – which we sold
during the period – detracted from performance.
Analysts: Greg Dean, Stephen Groff, Emi Winterer
34 SUMMER 2011 PERSPECTIVE AS AT JUNE 30, 2011