Kraken Robotics is a marine technology company operating out of Nova Scotia. The company is engaged in the design development and marketing of advanced sensors software and underwater robotics’ for unmanned Maritime Vehicles used in military and commercial applications. The stock has had a tremendous move based on significant commercial and military wins that are providing a record backlog for this company. Further orders are expected, and revenue expectations continue to accelerate. The portfolio continues to hold the position, but we are monitoring the company closely as they execute on their backlog.


Our current outlook is very similar to the beginning of the fourth quarter in 2018. We believe the fourth quarter and recent market volatility was an overreaction to slower growth prospects and the expectation of further interest hikes. The sharp reversal of Fed policy from raising rates to a “wait and see” approach (along with the other central bankers) will allow global markets to pick up. In that vein, China’s easing policy in the fourth quarter should meaningfully add to a strong late cycle commodity rally.

Furthermore, with the down draft of Q4 2018, earnings estimates decreased substantially to the point that estimates for 2019 are quite conservative and therefore easier to beat on the upside.<!–nextpage–>


Going back to the belief that a late cycle rally is in the cards; we look back at the tightness in the commodity complex. Base Metals show the tightest supply and demand conditions from years of under investment in the sector. We feel the best positioned commodity is copper both short to long term. With nickel and zinc having a favourable shorter term set up.

On the energy side, the oil price collapse in the fourth quarter appears to have sufficiently cut off capital spending and rebalanced the market. In Canada, differentials continue to be tight in the $9 – 12 range after Alberta’s forced production curtailment. The Canadian small cap energy stocks have lagged the recovery in the oil price, and we feel that we will see stocks begin to outperform the commodity. We have taken our energy position from a small underweight at the end of the first quarter, to a small overweight.

Gold had helped in the fourth quarter as it acted as protection against uncertainty. While we believe the “risk-off” trade has run its course, we expect gold to hold its current value as the markets maintains its moderate outlook for interest rates and we anticipate a weaker US dollar. We have recently reduced the portfolio’s gold weight but continue to hold a meaningful position.

With the portfolio well positioned for the late cycle rally, we anticipate and look forward to strong returns in 2019.

1 2 3 4