Year-end distributions

by Scott Ronalds

The year-end distributions for all our funds (with the exception of the Savings Fund) will be declared on Friday, December 16th and paid on Monday, December 19th. The Savings Fund will pay its regularly scheduled monthly distribution on Friday, December 30th.

As a reminder, distributions represent the mechanism whereby mutual funds transfer to unitholders any interest income, dividend income and realized capital gains that have accrued over the course of the year. Most investors choose to re-invest distributions into additional fund units, but clients can also opt to receive them in cash.

Remember that immediately following a distribution, the price of a fund drops by an amount equivalent to the payment. However, you will receive additional units in the fund which are equal in value to the amount of the distribution. The result is that the value of your investment doesn’t change, you just own more units in the fund at a lower unit price.

For example, assume you own 100 units in a fund that is valued at $10.00/unit (your investment is worth $1,000). If the fund pays a distribution of $0.10/unit, its price will drop to $9.90 following the distribution. However, if you follow the common practice of re-investing your distributions, you will receive an additional 1.01 units in the fund ($10.00/$9.90), so the value of your investment remains unchanged (101.01 units x $9.90/unit = $1,000).

The estimated distributions for our funds (to be declared on December 16th) are as follows:

• Income Fund: $0.15/unit (bringing the year-to-date total to $0.30/unit)
  
• Founders Fund: $0.13/unit (bringing the year-to-date total to $0.27/unit)
  
• Equity Fund: $0.75/unit
  
• Global Equity Fund: $0.00/unit
  
• Small-Cap Equity Fund: $1.20/unit
  
• Global Small-Cap Equity Fund: $0.01/unit
  
• Builders Fund: $0.22/unit

Please note that these are only estimates and are subject to change.

An important note:

Investors considering purchasing units in the funds in non-registered (taxable) accounts may wish to defer any purchases until after the distributions have been declared. Fund units purchased on December 19th or later will not receive distributions.

If you have any questions about distributions, feel free to give us a call at 1-888-888-3147.

It takes two to tango, so investors should figure out what the other side is thinking

This article was first published in the National Post on November 26, 2022. It is being republished with permission.

by Tom Bradley

There’s an expression in our household that’s used a lot. When there are deeply held views on opposite sides of an issue, my wife or I invariably say, “That’s what makes a market.” The origin of the reference is, of course, the stock market. For every optimistic buyer, there is a seller with a different opinion. If this wasn’t the case, there wouldn’t be any transactions.

Investors currently have a long list of concerns, and most of the urgency in the market debate resides on the negative side.

The economy is expected to weaken or even slip into recession. This will cause corporate profits to fall in absolute terms, and even more relative to expectations (at this point, estimates are for S&P 500 earnings to increase in 2023). To date, sales have been robust enough to offset higher labour and input costs, but if they weaken, losses will be common.

If the economy takes a dip, loan defaults will accelerate for both consumer and commercial borrowers, and corporate bond yields are likely to increase relative to risk-free government bonds. This spread, as it’s referred to, has already widened, but doesn’t appear to be discounting a meaningful recession.

Similarly, private-market assets aren’t yet reflecting the weakness in public markets. Unless there’s a dramatic recovery in stock prices, further markdowns are coming in venture-capital and private-equity funds.

But this is all well known. The current dialogue is centred around these risks, and indicators of investor sentiment are overwhelmingly bearish. But what about the forces on the other side that are helping to make a market?

First off, there’s a positive take on many of the concerns mentioned above. For example, the sooner the recession is declared, the better. Markets can then do what they always do, which is look ahead to the other side of the valley.

In this respect, weak earnings this year will set up the next period of growth. An economic slowdown will reset supply chains, loosen up the labour market and shake out weak competitors.

And when management is forced to report disappointing results, they will throw in everything, including the kitchen sink. Anything of questionable value on the balance sheet will get written off, and any unrealistic expectations for profit margins disavowed. In other words, the decks will be cleared for favourable comparisons in the coming years.

Companies based in the United States have been feeling the negative impact of a strong U.S. dollar. Revenues and earnings from foreign operations translate into fewer U.S. dollars, which weighs on overall profitability. If the greenback stops going up, or even weakens, reported earnings will get a boost.

High inflation has been a cloud over everything this year, but if economic weakness takes the steam out of the consumer price index, investors will breathe an enormous sigh of relief. We’ve already seen signs of this happening on days when the market significantly rallied not because of good news, but because of less bad news.

Private-asset firms are struggling to manage their existing portfolio of companies, but most still have significant capital to deploy in the next year or two. Some of the money will be used to bid for public companies. More broadly, strong companies with access to capital will take advantage of weak asset prices to further consolidate their industries.

There are three ongoing trends at buyers’ backs that partially offset the weight of higher inflation and interest rates. One is that the middle class in the world’s two largest countries, China and India, is rapidly growing, which creates additional demand for all kinds of goods and services.

It’s also early days in a surge of technology adoption. Companies and governments are harnessing mature technologies such as cloud computing, the internet of things, data analytics, sensors, drones, machine learning and artificial intelligence to streamline how they operate.

And, despite the noise around residential real estate, there is a structural shortage of housing units in North America. The current building drought is likely to be followed by a powerful surge of activity.

By pointing out these market complexities and contradictions, I’m not trying to discourage you from acting on your convictions. That’s what makes a market after all. But before you enthusiastically buy or grudgingly sell, you might pause to understand what the investor you’re transacting with is thinking.