Keeping You Informed: Munro Update

Speaker
Nick Griffin, Founding Partner and CIO, Munro Partners, and Lead Manager of CI Munro Alternative Global Growth Fund

Liquid alternatives: A non-traditional strategy

  • Liquid alternative funds have been available to Canadian investors since 2018. The funds offer access to investment strategies that have been traditionally associated with hedge funds, such as leverage, derivatives and short selling, along with the convenient access and daily liquidity that comes with investing in a mutual fund or ETF.
  • Because they utilize investment strategies may be uncorrelated to traditional equity and bond markets, liquid alternatives can provide portfolio stability in volatile market conditions and have the potential to enhance portfolio outcomes.
  • CI Munro Alternative Global Growth Fund (“the fund”) seeks to achieve an average absolute return of 10% per year on a rolling three-year basis, with a capital preservation mindset. The manager’s goal is to avoid big market downturns.
  • Since its inception November 7, 2018, the fund’s return of 8.1% outperformed the 0.1% return (in Canadian dollars) for its benchmark, the MSCI ACWI Index.

First-quarter 2020 overview

  • The volatile first quarter of 2020 was a good period to demonstrate just how well the fund can protect investments during market downturns.
  • “These downturns always catch you by surprise.” Thus, there is a need to always keep a healthy level of cash and uses call options effectively, as liquidity helps in difficult conditions.
  • Despite the COVID-19 crisis, the Class F version of the fund was up 4.6% during the first quarter, outperforming its benchmark, which had a negative return (-13.7%).
  • The return for the fund’s long equities was negative (-12.1%), but that was offset by positive returns of 7% from short equities, 6% from option hedging and 3.8% from currency exchange.
  • The fund’s top five short contributors added 422 basis points (bps) to performance. By contrast, the top five long contributors – Amazon.com, Tesla, Nvidia, Crown Castle International and Nestlé – added 76 bps.

Outlook: Where do we go from here?

  • The current downturn in the markets and global economy is, “not a financial crisis, it’s a health/solvency crisis for many businesses.”
  • Fiscal stimulus programs being offered in most developed economies (approximately 6% of GDP in Canada, as at April 3, 2020) “is really about building a bridge” to get to the other side of the COVID-19 crisis. The problem for markets is not liquidity but insolvency; who will and won’t survive after the bridge period ends.
  • What will the world look like in the near future? To some extent, you can get a peek by observing what is happening in China right now. Companies like Nike, Starbucks and FedEx in China are all reporting near recovery in operations.
  • Eventually, the markets will recover to pre-recession levels and then go beyond those levels, as they did after the global financial crisis of 2008–09. Our goal is to maintain capital preservation and, as the path clears, there will be opportunities ahead.
  • We expect that e-commerce, software, health care and semiconductors are areas that will prosper in this new environment. These are areas we were invested in prior to this crisis and continue to have strong conviction in. Our main areas of interest for fund investments include:
    • Digital enterprise (six holdings, including Microsoft)
    • E-commerce (two holdings, one being Amazon.com)
    • Digital payments (five holdings, including PayPal Holdings)
    • Internet disruption (four holdings, including Alphabet, parent of Google)
    • High-performance computing (four holdings, including ASML Holding of the Netherlands)
    • Innovative health care (four holdings, including Abbott Laboratories)
    • Big data (two holdings, including CME Group)

What we are avoiding

  • If we enter a global economic recession, it will be important to be focussed. As at March 31, 2020, 76% of the assets in CI Munro Alternative Global Growth Fund were either in cash or invested in the information technology sector.
  • We have reduced the number of short positions in the portfolio. We closed out our positions in media, tourism and leisure, and energy.
  • There are tough times ahead for financials, restaurants and the auto industry, and we are avoiding those industries.

Standard Performance:

1 Year 3 Year 5 Year 10 Years Since Common Inception
CI Munro Alternative Global Growth Fund Class F 9.7 - - - 8.1
MSCI ACWI GR CAD Index -5.5 4.3 5.9 10.1 0.1

Source: Morningstar Research Inc. as at March 31, 2020.

IMPORTANT DISCLAIMERS

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns net of fees and expenses payable by the fund (except for figures of one year or less, which are simple total returns) including changes in security value and reinvestment of all dividends/distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

This mutual fund is an alternative fund. It has the ability to invest in asset classes or use investment strategies that are not permitted for conventional mutual funds. The specific strategies that differentiate this fund from conventional mutual funds include: increased use of derivatives for hedging and non-hedging purposes; increased ability to sell securities short; and the ability to borrow cash to use for investment purposes. While these strategies will be used in accordance with the fund’s investment objectives and strategies, during certain market conditions they may accelerate the pace at which your investment decreases in value.

This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or an offer or a solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication. Market conditions may change which may impact the information contained in this document. All charts and illustrations in this document are for illustrative purposes only. They are not intended to predict or project investment results. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies.

The opinions expressed in the communication are solely those of the author and are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed. The author and/or a member of their immediate family may hold specific holdings/securities discussed in this document. Any opinion or information provided are solely those of the author and does not constitute investment advice or an endorsement or recommendation of any entity or security discussed or provided by CI Investments Inc.

Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what CI Investments Inc. and the portfolio manager believe to be reasonable assumptions, neither CI Investments Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Investments Inc. has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.

© 2020 Morningstar Research Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

The comparison presented is intended to illustrate the mutual fund’s historical performance as compared with the historical performance of widely quoted market indices or a weighted blend of widely quoted market indices or another investment fund. There are various important differences that may exist between the mutual fund and the stated indices or investment fund, that may affect the performance of each. The objectives and strategies of the mutual fund result in holdings that do not necessarily reflect the constituents of and their weights within the comparable indices or investment fund. Indices are unmanaged and their returns do not include any sales charges or fees. It is not possible to invest directly in market indices.

Munro Partners is a portfolio sub-advisors to CI Munro Alternative Global Growth Fund offered and managed by CI Investments Inc.

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Published April 20, 2020.