DFS: On March 31, 2011, your fund was posting good three-month and year-to-date results. How did your stock selection contribute to this performance?
Eric Bushell: Hi. It's Eric Bushell, from Signature Global Advisors, providing a report on the performance of the Signature Canadian Balanced fund for the first quarter of 2011.
The fund had a strong performance in the first quarter, driven in large part by the asset allocation. We ran with a roughly 72% equity exposure and the fund was fully invested throughout that period. The first quarter saw some fireworks in the technology sector, driven largely by optical companies, which were seeing order flow begin again, as congestion and the growth of new 3G and 4G wireless devices put a great strain on the backbone of the telecommunication networks. They're having to step up their infrastructure because of capacity outages, so there's a spend-again that's coming from the telecom companies and this is flowing through to their supplier bases. JDS Uniphase was one of the investments in the fund that performed well. Having seen the volatility in these sorts of sectors last year, we weren't interested in overstaying our welcome, but that was an area that contributed to the fund's performance, in which we were invested in the first quarter.
Tiffany and branded goods, or global luxury products, have been an overweight area and remain so. Tiffany was a particular driver through the first quarter. I think investors are beginning to see that it's no longer a US retailer. It's becoming a global-branded good company, and it’s seeing a commensurate change in its valuation as it comes to be valued as a global brand. Global brands are hard to build, it takes a lot of time, and they’re a scarce and highly-valued asset, and so that's beginning to be reflected.
Lastly, I should say a word about healthcare because we see it as one of the least-favoured sectors next to, I suppose, financials, but healthcare companies have been abandoned by the market. There’s not a lot of confidence in their ability to bring new drugs to market, and there are concerns about patent expiries on existing branded drugs.
We think that that's all priced in now. Stocks that a decade ago traded at 25 times P/E multiples today are trading at 7 and 8 times, with 5% dividend yields, and they do in fact have new drugs in their pipelines. Looking at companies like Eli Lilly, like Baxter, we are very positive about the global healthcare opportunity.
That concludes our current positioning. We're not outright pessimistic by any means. We feel that equity valuations are quite interesting and we're just biding our time before redeploying some of the cash. The core positions remain at work and the fund is in good condition.
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