JARISLOWSKY FRASER LIMITED U.S. EQUITY FUND REPORT 4th QUARTER 2009 Details of the Fund U.S. Equity Fund Industry Weightings Inception Date November 1, 1998 December 31, 2009 Petroleum Utilities & Net Asset Value per Unit $ 6.6158 15% Pipelines Materials Income Distribution $ 0.0387 Financial 1% 2% Consumer 31% Fund Size ($ Million) $ 118.7 Services 13% Over the past year, the global economy has gone from recession to a mild recovery. Despite continued government funding, growth prospects for 2010 remain muted across developed economies. Much of any enduring strength and staying power of the current Cash recovery still rests on the shoulders of North American consumers 1% Industrials Drugs / 7% who must spend in order to compensate for lower government Technology Healthcare stimulus expected in the latter part of 2010. This will be a difficult 11% 19% task given high household indebtedness and stubborn levels of Integrated Oil company Exxon Mobil Corporation was the unemployment. worst performing holding in the portfolio, declining by 25.8% during the year. After years of strong refining margins, the In the coming year, policymakers will be torn between downstream business was weaker in 2009. Moreover, investor maintaining some economic growth versus raising both taxes to scepticism about the proposed US$41 billion all stock acquisition replenish coffers and interest rates in the face of monetary of XTO, a natural gas producer with attractive assets has also inflation. In that environment, 2010 promises to be a challenging pushed down the stock price. year for both bond and stock markets. Convincing earnings growth will be required to maintain positive returns in 2010, as Early in the quarter, we opportunistically trimmed Apple Inc. on equities rallied well ahead of the current recovery. Investors, valuation. The proceeds were used to add to agricultural seed and egged on by a low interest rate environment, continued their chemical manufacturer Monsanto Company and to life insurer search for yield during the final quarter. U.S. equity returns MetLife Inc. We also exited medical device company, continue to be held back by the rising value of the Canadian Medtronic Inc., due to the company’s maturing growth profile. dollar. We reinvested the proceeds into two existing holdings: Performance Review seasonings producer McCormick & Company, Incorporated 3 mths 1 Year 3 Years 5 Years 10 Years and medical device company Becton Dickinson, and Company. To Dec. 31, 2009 In late December, Time Warner Inc. spun out its slow growing (%) (%) (%) (%) (%) JF US Equity and volatile AOL Inc. division to existing shareholders. The 2.7 7.2 -7.2 -1.2 -1.3 small position was sold and proceeds were redeployed into Time Fund (C$) Warner Cable Inc. We also initiated a position in payroll S&P 500 (C$) 3.6 7.4 -8.9 -2.2 -4.1 Canadian dollar index returns and NAV values have been calculated using the London 4PM closing FX rates. processing company Automatic Data Processing, Inc. The S&P 500 index appreciated by 7.4% in Canadian dollar terms Strategy and 26.5% in U.S. dollars for 2009, led by cyclical sectors. The While the economy has stabilized, we do not anticipate a portfolio performance was close to its benchmark, advancing by meaningful rebound in the short term. We anticipate more market 7.2%. Strong performance from our holdings in Consumer Staples, volatility as well as short lived, commodity-based equity rallies Health Care and Industrials was offset by poor sector mix. The last in this middling environment. Furthermore, the proliferation of quarter mirrored the year in terms of direction and relative government debt is inflationary and the rate of inflation, while performance, as the index appreciated by 3.6% while the portfolio still low, is expected to increase next year. Our portfolio is well increased by 2.7%. suited to this environment. Our investments are chosen to build a diversified portfolio able to navigate steadily between the peaks Our holding in hospital management company Community and valleys of the market, always participating, but with much Health Systems Inc. was our top performing stock this past year, reduced volatility. Over the long term, we still favour equities appreciating by 107.4%. The company delivered strong earnings over cash. Stocks are reasonably valued and offer protection during the year and the successful integration of the Triad against rising inflation. The value of the U.S. dollar is also Hospitals, Inc. acquisition helped boost the stock. Investors in expected to stabilize as the Euro and Yen weaken. specialty cable and online shopping provider Scripps Networks Interactive, Inc. saw their investment increase by 61.9% in 2009, Representative Holdings lifted by prospects of higher advertising revenues and of a favourable resolution to year end fee negotiations with cable and Holdings Industry Bank of New York Financials satellite distributors. Higher oil prices and reaffirmed Chevron Corporation Energy commitments for deepwater exploration rig rentals lifted the stock CVS Corporation Consumer price of oilfield services company Transocean Ltd. by 48.8%. Johnson & Johnson Health Care Emerson Electric Industrials 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, Wilshire Atlas Analytics, Bloomberg.
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