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So now what . . .
The second quarter built on what was an already good start to the year with Canadian markets outperforming most global markets. The Special Equity Fund was up 20.4% in the second quarter and is up 32.9% in 2016.
|
April |
May |
June |
YTD |
|
| JZA Special Equity Fund |
+17.95% |
-1.37% |
+3.45% |
+32.85% |
| S&P TSX |
-3.68% |
+1.00% |
+0.34% |
+9.84% |
| S&P TSX Small Cap |
+12.35% |
-0.30% |
+5.28% |
+27.98% |
The outperformance was largely led by a continued resurgence of risk assets. Commodity prices continued their 2016 recovery, gaining another 3.4% in June and are up 9.7% this year. Oil prices have been the biggest source of the gains, jumping over 30% so far in 2016 as supply outages in Nigeria and Canada have tightened markets. Metal prices were also strong despite the recovery in the U.S. dollar. Gold prices are up over 24%, and silver is up 35% in 2016 (+17% in June alone).
The sector allocations of the portfolio can be seen below.
| Sector | Portfolio | Benchmark | +/- |
| Materials |
49.2% |
13.7% |
35.5% |
| Information Technology |
10.4% |
2.7% |
7.7% |
| Health Care |
4.4% |
1.0% |
3.4% |
| Energy |
21.2% |
20.1% |
1.1% |
| Consumer Discretionary |
5.4% |
6.0% |
-0.6% |
| Cash |
-0.7% |
0.0% |
-0.7% |
| Consumer Staples |
3.0% |
4.1% |
-1.1% |
| Utilities |
0.0% |
2.7% |
-2.7% |
| Industrials |
3.3% |
8.4% |
-5.1% |
| Telecom |
0.0% |
5.5% |
-5.5% |
| Financials |
3.8% |
35.8% |
-32.0% |
| Total |
100.0% |
100.0% |
Given the commodity back drop, it should not be surprising that the top contributors to the portfolio were mining stocks. Endeavor Mining, NexGen Energy and Asanko Gold added over +5% to the portfolio’s quarterly performance.
Endeavour located in Cote d’Ivoire and Asanko located in Ghana, are both gold mining stocks. Endeavour started the year as a high cost producer, struggling with high debt, poor mine sequencing at older mines and the ramp up of new low cost mines. Through the course of the year, Endeavour has repaired their balance sheet, optimized operations and demonstrated to investors that they have a good assets with a strong pipeline of projects for future growth. The stock has reacted very well (up 98% in Q2) and we have reduced the position as the stock has appreciated.
Asanko is in the process of building its mill and is starting to mine from the Nkran Mine, as well as four other satellite pits. The construction was recently completed within budget and ahead of schedule. Phase II the Esaase deposit, is currently in the process of permitting and will provide further growth for the company. While the stock is up 79% in the last 3 months, recently the stock has come under pressure by a hedge fund which published a report recommending investors “short” the stock due to questions regarding the grade reconciliation in the Nkran deposit. We are confident that the report’s analysis is flawed, as Asanko is still in the early stages of the ramp up and are not yet mining the heart of the deposit. Due to this report, the stock has recently been under some pressure, providing a good opportunity for the fund to add to its position.
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