A Brand New Year of Earnings

Michael Rudd, CFA | President, CEO & Portfolio Manager

As regular readers of the Investment Outlook know, our writing follows the calendar of quarterly earnings reports. The companies that we invest in report financial data and management commentary on a regular basis. This is colloquially called “earnings season”. It is an important part of our investment process because we can check-in on the progress of the companies that we own, as well as management’s expectations for the future of their business operations. Readers will recognize the aggregate sales data for North American companies noted in Figure 1 below. We have mentioned before that we prefer to review aggregate sales data as it is harder to manipulate than earnings. For a large group of companies, we feel this is a better way to take the temperature of how the North American economy is performing. We also focus on “all listed companies” in North America, rather than a widely used index, like the S&P 5oo for example, because we find the large global companies in those types of indices skew a significant portion of what would be known as “Main Street”.


  • So far, 2,940 companies or 95% of North American companies have reported results and sales growth has slowed from last quarter. Previously, we had multiple periods where all sectors were positive. This has now clearly changed and some slowdown in the economy is more obvious in the data. It will be interesting to see if this continues over the coming months.
  • While Real Estate and Financials had somewhat better results, all other segments are lower. Slowing is evident, particularly in the commodities, industrials and technology sectors, which are typically more cyclical by nature.

On a separate note, we want to update readers on the topic we wrote about last week in the Outlook (link). Earlier today, more data that showed inflation continues to remain high and sticky was published. This has caused a significant increase in expectations for further rate increase(s) over the next two FOMC meetings. That was a big change from last week. Before the next meeting, we will receive more employment and consumer price data, everyone will be paying close attention.

“This means that” we believe a combination of higher interest rates and the banking crisis has had the effect of slowing the economy. We can see that in both the data above, and from management commentary that we have noted in previous issues of the Outlook. We will continue to monitor closely to see how this progresses in the coming months.

Pathfinder Asset Management Ltd. | Equally Invested™
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Sources: Pathfinder Asset Management Limited

National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.

Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Real Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.

*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).

Pathfinder Asset Management Limited (PAML) and its affiliates may collectively beneficially own in excess of 10% of one or more classes of the issued and outstanding equity securities mentioned in this newsletter. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor PAML can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your portfolio manager, who can assess all relevant particulars of any proposed investment or transaction. PAML and the author accept no liability of any kind whatsoever or any damages or losses incurred by you as a result of reliance upon or use of this publication.