Marquest Global Balanced Fund

Second Quarter 2015 Review

Market Commentary

Firmer growth in the U.S. helped push the yield on U.S. Treasury rates higher while geopolitical

uncertainty provided an unsettled backdrop for financial markets in the second quarter of 2015. As a

result, the Chicago Board Options Exchange Volatility Index (VIX) spiked at the end of June, reflecting

general investor nervousness. Growing concerns over Greece included a potential sovereign debt

default, capital controls and bank closings. Toward the end of the quarter, equity markets in China

declined sharply, following bubble-like behavior earlier in year. Global equity markets were generally

negative in the second quarter.

Going forward, the US and Europe are showing signs of economic growth. The well expected rate

increase by the US Federal Reserve would be a sign that central bankers see some positive economic

momentum and sustainability in the US recovery. Central banks have been very supportive of the

markets and we are comfortable that rate increases will be cautiously implemented only if economies

show strength.

Portfolio Commentary

Healthcare and consumer discretionary stocks led the market in the quarter. These sectors are the

biggest weights in the Marquest Global Balanced Fund. We have emphasized healthcare and consumer

brand names in the global equities portion of the portfolio since its initiation. The Fund has focused

investments on the businesses whose competitive advantages such as brand names, scale and market

growth should allow them to survive stock market volatility and economic downturns. Healthcare

stocks and Media stocks fit this investment theme. United Health and Disney are two of our biggest

positions.

Although we are not restricted, in the Marquest Global Balanced we have had broad goal posts for

geographical allocation of the global equities portion of the portfolio of 33 percent Canada, 33 percent

US and 34 percent Rest of World. Over the last few years, as we sought to avoid resource investments

in Canada and saw opportunities arise in the US, our allocation to Canada shrunk to about 17 percent,

our allocation to the US rose to about 56 percent and Rest of World was about 27 percent. US stock

price valuations have begun to reflect much of the improving economic environment and are quite full.

In response, we initiated positions in UBS and Mitsubishi UFJ in the quarter. UBS is a Swiss bank centred

on global wealth management businesses. UBS had gone through upheavals due to litigation overhang

and adaptation to new regulatory capital requirements. Its capital ratios are relatively strong now. UBS

trades at about 14x 2015 and 12x 2016 earnings and shows good growth. Sell side analysts have

recently increased their earnings forecasts for UBS.

Mitsubishi UFJ is the largest financial conglomerate in Japan. It is a good way to invest in “Japan Inc.”

MTU has the best capital strength of the Japanese major banks and consequently is able to buy back

shares to increase capital returns. They target 15 percent EPS growth over the next three years. MTU

trades at about 12x 2016 and 1x book value.

Feature Holding

In Healthcare one of our best performers in the quarter was Aetna Inc. Aetna is one of the largest

managed care organizations in the US with 22 million members. It offers health insurance products in

three business segments: Health Care (pharmacy benefits management, dental, behavioural health and

vision plans), Group Insurance (life, disability and long-term care insurance) and Large Case Pensions (a

legacy run off business). Its customers are employers, individuals, health care providers, governmental

units and others. When we added Aetna to the portfolio in September 2014, sell side analysts were

generally neutral on it, seeing more upside elsewhere. Energy markets were extremely volatile,

valuations were stretched in non energy names and we were looking for stability. Aetna had just bought

Coventry Health which was expected to add $0.40 synergies in 2015. Scale is very important in the

managed care industry and its peers are vying for larger market share. Aetna’s stock traded at

US$81.80, about 11.5x 2015 and 10.8x 2016 estimated earnings. In June 2015 Aetna announced the

proposed acquisition of Humana. Currently, the stock trades at around $113 and the P/Es are 15x 2015

and 14x 2016 estimated earnings and sell side analysts are positive on the stock. We sold down some of

our position because we felt that there was M&A froth in the stock price. There is risk with acquisitions.

We would add back to Aetna with more visibility on the Humana acquisition.