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October 25, 2022

Commentary: NCM Core Global and NCM Core International

On October 25, 2022, Portfolio Manager Phil D’Iorio shared key information about how he manages the funds and what he's seeing in the market today.


Good afternoon! My name is Phil D’Iorio and I'm the lead Portfolio Manager for the NCM Core Global and NCM Core International Fund. Today is October 25th, 2022. What I'm going to talk about today is the performance of our two funds, the changes that we've made, and why we feel better about these funds looking ahead.

Starting off with performance, global equity markets have had a tough year so far and the same can be said for our two funds. They have not met our expectations and I'd like to talk about some of the reasons for this.

First and foremost, there has been underperformance in the quality factor. Our investment philosophy is founded on quality investing and these companies have underperformed the market this year, as the 10-year yield more than doubled from 1% all the way up to 4% recently. And quality companies, because of their cash-generative nature, their high returns on capital, and high returns on equity - trade at higher multiples. In typical drawdown periods, quality usually outperforms, but this year it has not. And that's because when interest rates rise as fast as they have, valuations get reset and it's the stocks with the highest valuations that get hit the hardest, and that is what happened in a nutshell in 2022.

On top of the valuation reset, we have been hit by forced selling in Europe; given what's going on with the conflict between Russia and Ukraine. And furthermore, there has been a hit on the currencies that we have.

Here's just an illustration of the outflows [video at 1:48]. We've actually seen the highest level of outflows from Europe since 2016, during the Brexit period. On a year-to-date basis, there have been outflows of more than €35 billion, which has led to some forced selling on top of what's happened with quality stocks.

And then, as I mentioned, there's been an impact on currencies. The US dollar has helped, as you can see here in the green bubble [video at 2:15]. The US dollar has appreciated relative to the Canadian dollar. So, that's helped but it hasn't been able to withstand hits from the other currencies including the euro, the British pound, and the Japanese yen. Which you can see here, fallen by 6%, 11%, and 15%, respectively.

Next, I want to talk about some of the changes that we've made starting back in February, when it became apparent to us that inflation was not getting better. We started making changes, and then the outbreak of the war happened with Russia and Ukraine. And that prompted us to start changing the portfolio composition. We wanted to detune the portfolio, lower the beta and the volatility. So, what we started doing was selling companies in more cyclical areas of the market including technology, communication services and financials. As you can see here, some of the banks that we sold, JPMorgan, Silicon Valley Bank. Facebook and Comcast in the Communication Services, Taiwan Semiconductor in Technology, and finally, Adidas in Consumer Discretionary.

And what we did in terms of redeploy that cash, we redeployed back into sectors that are more stable with less volatility, lower data - basically companies that have lower probability of earnings downgrades risk. And so Consumer Staples and Healthcare are two of the areas that we redeployed into. Diageo is a long-standing holding, we increased our weight in that name and we also introduced a number of new holdings to the portfolio. Nestlé which is a global food and beverage powerhouse. In the spirits industry, we added Pernod Ricard, which is the number two player in spirits after Diageo, Heineken (another name that we added, which is the number two Global Brewing Company). And finally, AstraZeneca, which is one of the big pharma companies based in the UK.

So, I want to finish off talking about why we feel better about our portfolio going forward. It has been a rough year, but the valuations for our holdings have come down to a level that we feel really good about the returns that we're going to be generating in the years ahead. We've also repositioned the portfolio to be more resilient and have reduced the cyclicality by selling companies out of some of the more cyclical sectors and repositioning back into more stable sectors. We also believe that sentiment measures have gotten really washed out. Some of the sentiment measures reached levels not seen since the great financial crisis or the height of the COVID pandemic, and could explain why we've seen a rally in the last few days or so.

And then finally, with the market having sold off approximately 25% for the S&P 500 and getting close to starting to price in a recession, we want to look to the other side and if you look throughout history at other periods of time where the stock market has fallen because of a recession, the three and the five-year returns exiting that recession have typically been very strong.

And for all of these reasons, we feel better about our strategies as we look ahead to next year. Thank you very much for your time.


Phil D’Iorio is a Portfolio Manager, with Cumberland Investment Counsel Inc.(CIC). CIC is the sub-advisor to its affiliate, NCM Asset Management Ltd. The information in this video is current as of October 25, 2022 but is subject to change. The contents of this video (including facts, opinions, descriptions of or references to, products or securities) are for informational purposes only and are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. The communication may contain forward-looking statements which are not guarantees of future performance. Forward-looking statements involved inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. All opinions in forward-looking statements are subject to change without notice and are provided in good faith. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.



Phil D'Iorio, MBA, CFA

I search around the globe for best-of-breed companies trading at attractive valuations. And I spend a significant amount of time thinking about portfolio construction to ensure that the portfolio is optimized to reflect where we are in the cycle.