As we expected, the Canadian stock market (in US dollar terms) has been the best performing major stock market year-to-date ending June 30th. As we have discussed previously, Canadian companies remain an attractive investment for investors as a global economic recovery play.
A combination of lower relative valuations, strong balance sheets, resource and commodity exposure, high dividend yields, and being seen as an edge against potential future inflation have driven global investors back into Canadian stocks. Despite investor concerns about headline inflation, we still believe that we are in the early stage of the economic cycle and that market corrections or pullback will be a buying opportunity for long-term investors. The combination of low interest rates and increased federal government spending due to the upcoming election will continue to boost the Canadian economy despite uneven economic growth across the country. The underlying fundamentals of the global economy remain strong with low-interest rates, credit growth, pent-up consumer demand, high savings rates, and a global inventory re-stocking cycle underway. We believe that the Matco Canadian Equity Income Fund is well-positioned to benefit from the global recovery trade. The Fund’s underlying investment characteristics remain very appealing. As of June 30th, the Fund had an attractive dividend yield at 3.2% a high return on equity of 23% and a low trailing price to earnings of 13.6 times.