Recap & Macro Outlook: Earnings Season & Insurance Companies
We have been busy over the last couple of weeks with earnings season. Every three months, our portfolio companies report financial results to the investment community and this keeps us busy. To recap, we invest in businesses that we think can generate cash flow over the long-term. With each of these investments, we have a thesis that we think will drive the real value of the business. Companies, in turn, report their results and we compare the financial and business results against our investment thesis to see how the company is progressing. Management of the companies, for the most part, have conference calls that the investor community can listen to. Later that afternoon and the next morning, analysts from brokerage firms write reports providing investors with their opinion. If we have further questions, we might reach out to the company ourselves to get more detail or to ask them for clarification on something we don’t understand. Finally, we synthesize our view in an internal Pathfinder report that we present to our investment committee each week. This quarter so far has been very strong in both Canada and the US for sales and earnings growth. Sales growth has been driven by commodity and information technology companies which, year over year, have been very strong. On the earnings side, the US was more robust vs. Canada, but we can attribute that to the well-publicized tax cuts that was put in place by the new US administration. As we previously mentioned in this note, for this type of broad analysis, we like to use the sales growth numbers rather than earnings which can be distorted by companies and now governments alike!
We own a number of insurance companies in our mandates. We think that they are great long-term businesses with tailwinds as interest rates normalize. As a group, they reported this week so we have been busy with that. Fang Zhou (our Large Capitalization analyst) and I sat down with the CFO of Sunlife (SLF CN) at the beginning of the summer and have written an update of that meeting in our spotlight section. Please take a moment to review if you are interested.
“This means that” as we are almost through our quarterly review season and given the changes to valuations recently you should expect some adjustments to the portfolios over the next couple of weeks.
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.
*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).
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