The Lato Letter: Volume 5, Issue 1

The Lato Letter: Volume 5, Issue 1

North American equity markets posted negative nominal returns in 2015 with S&P/TSX Index dropping 11.1% and the S&P 500 Index declining 0.7% (it was slightly positive on a total return basis).

In managing a portfolio, it is always interesting to look back and see where the absolute and relative returns evolved from during the year.  The following scorecard shows the nominal returns(not including dividends) for the holdings that form the basis of Padlock’s North American Growth portfolios and which significantly outperformed the two indices above that make up its benchmark:

2015 Padlock Scorecard 2015
New Flyer 110.0%
CCL Industries “B” 78.3%
Alphabet 46.6%
Alphabet “C” 44.2%
Parex Resources 38.0%
Dollarama 34.6%
Jarden 19.3%
Visa 18.3%
Sleep Country Canada* 14.1%
Walgreen Boots Alliance 11.8%
Gilead Sciences 7.4%
Sun Life* 5.9%
Rogers Comm. “B” 5.6%
Tricon Capital 3.9%
S&P 500 Index -0.7%
Toronto Dominion -2.3%
Equitable Group* -2.6%
Apple -5.0%
S&P/TSX Index -11.1%
Corning* -12.2%
Cdn Natural Resources -15.9%
NCR -16.1%
Peyto Exploration -25.7%
Paccar -30.3%
Kohlberg Kravis Roberts -32.8%
Performance Sports Group -36.9%
Tourmaline Oil -42.2%
Canyon Services Group -54.7%
Hi Crush Partners -80.9%

Returns are in the currency of the holding.
Holdings introduced to the portfolio in 2015 with returns since purchase *

It should be no surprise that the majority of the holdings at the bottom of the list were in the energy sector, with the two worst holdings being service companies that face the harshest impact of reduced exploration budgets and very competitive environment.  With perfect hindsight, Canyon and Hi Crush should have been sold over a year ago but at this point, unless conditions should drastically worsen from this point, then Canyon and Hi Crush should be able to take advantage of a less competitive environment as they should be survivors.
What was surprising was to see Parex near the top of the list.  The company did an outstanding job of operating in an extremely difficult environment and this accomplishment was recognized by the market.
Every portfolio is going to have winners and losers with the obvious trick being to have more winners than losers (which we did) but also to be weighted heavier in those winners.
There will be changes made during the year but the potential for positive returns remains among both the 2015 winners and losers.   However, it would certainly not be a surprise when doing this exercise next year to see some of this year’s biggest losers near the top of the list.

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change without notice.

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