Earnings so far….
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 around the same time each quarter. This is colloquially called “earnings season”. A central component of our investment process is following company-reported financials and management commentary to assess operational progress and future expectations. Internally, we informally declare the “end-of-earnings season” when the results of the Canadian banks are published, and the last bank (Royal Bank of Canada RY:CN) reported yesterday. In the Canadian banking sector, as expected, we saw increased provisions in the banks’ loan portfolios as they prepare for the possibility of worsening credit in a high tariff environment and slowing in demand to borrow given the uncertainty.
Regular readers will recognize the aggregate sales data for North American companies noted in Figure 1. We prefer to study aggregate sales data as it is harder to manipulate than earnings. We also focus on “all listed companies” in North America, rather than a widely used index, like the S&P 5oo, because we find the large global companies that dominate those types of indices can skew a significant portion of what would be considered “Main Street”.
- So far, 2,889 firms or 92.9 % of North American companies have reported. Results were strong accelerating 4.6%. This is good from an absolute perspective and better than last quarter but slightly lower than last year. It will be very interesting to see how the tariffs impact these numbers over the next two quarters.
- Basically, no sector had negative growth this past quarter and most were quite strong, with only the cyclical industrials (Materials and Industrials) essentially unchanged. It’s nice to see this data. Geopolitical concerns notwithstanding, I would normally be quite excited about such a strong result.
“This means that” we previously had a constructive view on the US economy but with the recent tariff issues (starting to heat up again with Europe and even now with Apple on its own), this clearly is no longer a given. We remain laser-focused on this and have cash in the mandates to take advantage of any opportunities.
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 Conviction Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.
For more information, please follow the links above to review the fund term sheets.
*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.