Year End Earnings Season

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 are able to check-in on the progress of the companies that we own, as well as management’s expectations for the future of their business operations. Internally, we informally declare the “end-of-earnings season” when the results of the Canadian banks are published. The 4th quarter of 2023 “ended” this week. As a generalization, Canadian banks continued to see the effects of higher rates on the consumer, setting aside more provisions for expected losses. Results in capital markets were better driving earnings and improving liquidity in the midst of tighter regulation. Regular readers will recognize the aggregate sales data for North American companies noted in Figure 1. 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 can skew a significant portion of what would be “Main Street”. This could cause us to draw incorrect conclusions from the data.

  • So far, 2,526 companies or 81% of North American companies have reported somewhat mixed results. In the last few quarters, most sectors have had positive sales growth, so this quarter is somewhat “more normal”.
  • We find it interesting that commodities, utilities, and real estate all had a tough quarter. This would imply potential difficulty for the Canadian economy and provides further confirmation that our allocation to non-Canadian investments across multiple mandates was the correct decision.

“This means that” we continue to have a positive view on the US economy. The data looks constructive (aggregate sales and default rates) and we continue to see numerous positive comments from company managements (anecdotal). We will remain laser-focused on this. We could possibly see some market volatility, but in our opinion, that would provide a great opportunity to add more world class businesses to our funds and portfolios.

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

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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.

*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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