Download JARISLOWSKY FRASER LIMITED INTERNATIONAL EQUITY FUND

JARISLOWSKY FRASER LIMITED
INTERNATIONAL EQUITY FUND REPORT
3rd QUARTER 2014
The portfolio outperformed the MSCI EAFE Net Index during the
third quarter generating a return of -0.2% vs. -1.3%, mainly thanks
to strong performance from individual holdings in the Consumer
Discretionary and Consumer Staples sectors. Within Consumer
Staples, Unicharm, a relatively recent addition to the portfolio,
generated a return of +21.7% this quarter.
Details of the Fund
Inception Date
Net Asset Value per Unit
Distribution (06/30/2014)
Fund Size ($ Million)
April 1, 1995 C$ 28.20 US$ 25.23 C$ 0.47 C$ 1,482.7 JF International Equity Fund ‐ Regional Weightings
September 30th, 2014
Non‐EAFE
Japan
16%
3%
UK
24%
World Stock Market Returns (%) in U.S.$ ‐ Q3 2014
5
0
‐5
‐10
‐15
‐20
Asia‐Pacific
6%
Israel 1%
India
Europe
50%
After an encouraging start to the beginning of the year, the Eurozone
economy is again showing signs of shortness of breath. Growth slowed
in the third quarter and recent economic indicators point to, at best, a
stagnant economy burdened with high unemployment. The ECB has
launched a series of measures to boost lending and move inflation
towards its goal of 2%. As investors anticipate further easing of
monetary policy, the euro has tumbled to around 1.25 against the U.S.
dollar. This is definitely a positive development for European
inflation, but further fiscal stimulus may be needed to bring Europe
back to sustainable economic growth. Japan, in a similar fashion, is
also facing the challenge of a stalling economy, and economic growth
forecasts of 1% for 2014 will have to be revised down. After the deep
GDP contraction of 7% in the second quarter due to the increase in
VAT in April 2014, the economy has not experienced the rebound in
the third quarter that was previously hoped for. The effect of the yen
depreciation coupled with the higher tax levy is not encouraging for
Japanese domestic consumption. Meanwhile, the Bank of Japan
continues its aggressive monetary policy, buying around $60 billion of
government bonds every month, and further easing measures will be
considered if the economy does not pick up. China, the world’s second
largest economy, continues to experience a slowdown despite the mini
stimulus measures taken by Chinese authorities. Other emerging
economies such as Brazil and Russia, relying on export of
commodities, are also experiencing a slowdown, while the Indian
economy is faring well after the election of Mr. Modi, the pro-business
Prime Minister.
Performance Review
3 mths YTD 1 Yr 3 Yrs 5 Yrs 7 Yrs 10 Yrs 15 Yrs Sept. 30th, 2014
(%) (%) (%)
(%)
(%)
(%)
(%)
(%)
JFIEF*
‐0.2
3.3
14.5
17.8
10.6
4.6
5.8
4.0
MSCI EAFE Net*
‐1.2
3.7
13.3
16.3
7.5
1.7
5.3
2.3
JFIEF (U$)
‐4.8
‐1.8
5.3
15.1
9.8
2.9
7.1
5.9
MSCI EAFE U$ Net
‐5.9
‐1.4
4.3
13.6
6.6
‐0.2
6.3
3.9
S&P/TSX
‐0.6
12.2
20.4
12.1
8.7
3.9
8.5
7.7
S&P 500
6.1
14.0
30.2
25.9
16.6
7.8
6.8
3.0
MSCI World
2.8
9.7
22.6
21.4
12.4
5.1
6.4
2.8
Compounded Annualized Returns: September 30th, 2014 (C$ unless otherwise indicated) *JFIEF: JF International Equity Fund. C$ returns have been
calculated using the London 4PM FX rates. Performance is gross of management fees. * Prior to Dec. 31, 2010 the index is the MSCI EAFE Index.
China
U.S.
Japan
Emg. Canada MSCI Pac ex. Europe
Mkts
EAFE Japan
Index
Brazil
Russia
We initiated two new positions in the portfolio, Japanese Staple Kao
Corp and multinational Pharmaceutical Roche and exited Tesco plc.
JF International Equity Fund ‐ Sector Allocations
September 30th, 2014
Utilities, 1%
Telecom, 5%
Materials, 7%
Cons. Disc., 11%
Cons. Staples, 17%
Info. Tech., 4%
Industrials, 9%
Energy, 8%
Health Care, 16%
Financials, 22%
Strategy
The relative calm of the summer months was replaced by volatility in
September. Developments with ISIS in the Middle East, Ukraine,
diverging central bank policies and the Ebola outbreak in West Africa
all contributing to market malaise. From an economic standpoint, we
remain in the expansionary phase of the business cycle. Leading
indicators are still not pointing to an imminent recession, although it
is clear that North America and the U.K. are on a better path than
continental Europe. Where economic stimulus has been removed (or
at least markedly reduced) the debate rages over when it will be time
to raise short-term rates. While there are no signs of above-target
inflation, this decision is likely to be pushed further into the future.
As we get closer to rate increases we will see more volatility than
usual. It is in times of uncertainty that a focus on quality often
generates the strongest returns. Strength of franchise, sustainability
of competitive position, stability of cash flow, depth of management
and a fortress balance sheet, amongst other things, will be what the
markets reward. We believe the companies we buy possess the
majority of these attributes, which is how we manage risk in our
portfolios.
Representative Holdings
Holdings
Banco Santander
Bayer AG
HSBC
Nestle
Sanofi
Country
Spain
Germany
UK
Switzerland
France
Sector
Financials
Health Care
Financials
Consumer Staples
Health Care
This document is provided for information purposes only to clients of Jarislowsky, Fraser Limited (JFL). All opinions and estimates contained in this report constitute JFLʹs judgement as of the time of writing and are provided in good faith. All data, facts and opinions presented in this document may change without notification. This is not a solicitation for business. Past performance is not a guide to future performance. Future returns are not guaranteed. No use of the Jarislowsky, Fraser Limited name or any information contained in this report may be copied or redistributed without the prior written approval of JFL. Sources: Jarislowsky, Fraser Limited, MSCI Inc., S&P Financial Services LLC., TSX Inc., PC Bond Analytics, Global Industry Classification Standard (GICS) by MSCI and Standard and Poor's ,Wilshire Atlas Analytics, Bloomberg.