PIM: Diversified Income Portfolio

Paul Borisoff - Feb 02, 2018

PIM: Diversified Income Portfolio – February 2nd, 2018

 

The Diversified Income Portfolio* was down slightly in January (0.2%) – which was a significant outperformance compared to our benchmark which was down 1.5%.  Over the most recent twelve months the Diversified Income Portfolio is up 8.8% - significantly outperforming our benchmark which is up 3.0%.

* These returns are reported as a composite, time-weighted, rate-of-return (gross of fees, net of transaction charges) for all accounts in this mandate.  Long-Term Returns/Benchmark Numbers will be reported in our Quarterly Updates.

 

The Canadian bond market (FTSE/TMX Canada Universe Bond Index) was down 0.8% in January – leaving it now up 1.8% over the last year.  Canadian high dividend paying stocks (S&P/TSX Composite High Dividend Index - 40% of our benchmark) were down 2.7% in January – and are now up 4.7% in the twelve months.

 

Note, the Canadian dollar move higher again in January - from $0.7948 CAD/USD at year-end to $0.8119 - which once again put pressure on our U.S. dollar positions – which were more significantly impacted over the last twelve months (a year ago the Canadian dollar was at $0.7673 CAD/USD).

 

Recent Portfolio Changes:

On January 3rd, Mainstreet Health Investments received shareholder approval to change its name to “Invesque Inc.” – in case you are wondering where the Invesque 5.00% 31JUN22 USD convertible debenture came from.  We added this position to the portfolio at par value (100) in August 2013 – and it closed the month at 99.75.

On January 9th Pure Industrial REIT (an approximate 2.7% position at year-end) announced an all-cash takeover deal for the company at $8.10 per unit from a Blackstone Group affiliate (an approximate 20% premium to where it closed at for year-end 2017).  This was a ~ 3.2% at the end of January – which we are now treating as a “cash equivalent” asset.  This investment has performed very well with many clients having cost bases in the low $4 range or below.

 

Also, our Exchange Income Corp. 5.50% 30SEP19 convertible debenture was redeemed early by the company on January 11th at par value (100).  Our cost was 102.00 on this position purchased last August– and the small loss was offset by the interest received.

 

On the buy side we increased our exposure to Slate Office REIT from 1.5% to 2.2% in January via a financing transaction at $8.10 via a subscription receipt – associated with the acquisition of $191 million of properties on an accretive basis to the company. Slate Office REIT closed January at $8.10 per unit (~9.3% yield) – and the average consensus 12-month price target is $8.77 per unit as of February 2nd, 2018.

 

Also, in late January we bought back a 1.0% position in Enbridge at $45.03 per share – which we increase to 2.0% yesterday at $44.27 and then to 3.0% today at $43.69 per share.  If you recall, we sold our 2.0% position last October at $45.10 per share – and we have been waiting for an opportunity to buy it back.   Enbridge closed December 31st, 2017 at $49.16 per share – and it has been hit by selling related to the recent bond market correction and related weak market for most dividend companies – not to mention concerns related to the NAFTA negotiations.   We now have a 3.0% position at $44.31 per share (6.1% yield) – and the average consensus 12-month price target is now $57.64 of February 2nd, 2018.

 

Summary:

At month-end the portfolio’s cash position was sitting at ~7.9% and our convertible debenture exposure was approximately 33.1%.  Total Cash and Fixed Income exposure including our four 3rd party specialty fixed income manager positions was ~67.3% at month-end.   Note, taking into consideration our increase in Enbridge, and our pending exit of Pure Industrial REIT our Total Cash and Fixed Income exposure is now closer to 68.5%.

We continue to strongly believe that the portfolio’s composition and flexibility offers a substantially improved risk/reward trade-off compared to an “income portfolio” relying only on government bonds and pure stock market exposure to drive returns and income. 

Please do not hesitate to contact me if you have any questions or concerns.

 

Sincerely,

 

Paul J. Borisoff

Senior Vice President

Portfolio Manager, Senior Investment Advisor