Market Commentary In the third quarter of 2015, concerns that the collapse in commodity prices and the slowdown in emerging markets would spread to the United States were fed by several weak jobs reports and other economic data indicating that the US economy was slowing. Economists began to worry about the possibility of a US recession. These concerns, combined with relatively high valuations present in most asset classes, resulted in a market correction where high yield led and equities followed. In Canada, the TSX was down 7.9 percent for the quarter. Sectors leading the market were Consumer Staples (up 8 percent), Information Technology (up 2.8 percent) and Telecom Services (up 2.6 percent). Equity markets were weighed down by the Materials (down 24.5 percent), Energy (down 17.2 per-cent) and Healthcare (down 15.6 percent) sectors. Valeant Pharmaceuticals was down 14 percent and was the biggest influence on the downside for the index (it contributed -0.8 percent to the TSX). Partly as a result of global events and partly due to local circumstances the Canadian dollar declined 6 percent to about US$0.75 in the quarter.

Market breadth is still a concern with a few “darling” stocks providing the bulk of returns for the TSX and the sub-indices (for example: Couche-Tard and Dollarama for Consumer Staples, Constellation Software for Information Technology and Transcontinental for Telecom Services).

Portfolio Commentary The Monthly Pay Fund outperformed the TSX in Q3. The Fund’s position in Transcontinental boosted performance. Thomson Reuters, Pulte Group and CN Railways were also strong performers. The Fund was underweight Ma-terials, Energy and Healthcare. We note that holdings in West Fraser Timber, Canadian Natural Resources, Enbridge and Teck Resources held back the per-formance of the Fund in Q3. In the week ending October 9th the stock prices of these companies were up 18%, 23%, 8% and 43%, respectively. Measuring performance at a particular point in time can be inconclusive. Feature Holding In our previous quarterly review we noted our holding in the “classic value stock,” Transcontinental (TCL.a). Transcontinental is one of the largest com-mercial printing companies and one of the largest community newpaper publishers in Canada. The stock price had underperformed in the quarter but we kept the holding because of our value investment strategy. It was trading at 6.6x earnings. In September, Transcontinental announced the acquisition of Ultra Flex Packaging. This increased leverage to only 1.0x debt/EBITDA and diversified its earnings with 10% of pro forma EBITDA now coming from flex-ible packaging. As well, its Q3 results were above consensus expectations. Transcontinental’s shares appreciated 24.8 percent in the quarter. It is now trading at about 7.6x earnings.

Portfolio Managers ROBERT CASSELSPresident & Chief Investment Officer, Cassels Investment Management Inc. LIIS PALMERVice President & Portfolio Manager, Cassels Investment Management Inc.

www.casselsinvestment.com

Marquest Monthly Pay Fund

Third Quarter 2015 Review

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