Portfolio Update

June 2023


Markets were volatile during the past month as investors weighed the risks of the U.S. breaching its debt ceiling and the possibility of further interest rate hikes. Year-to-date, the S&P 500 is up 10% (total return in C$), while the S&P/TSX rose 2.3%, MSCI Europe 9.4%, MSCI ACWI 8.0% and MSCI Emerging Markets 1.4%. Although inflation has come down notably from its peak in 2022, recent data suggests more action may be required by central banks. Nevertheless, wage growth and savings accumulated during the pandemic continue to provide support to consumers in Canada and the U.S. when dealing with higher costs. Overall, we expect global growth to slow as monetary policy and credit conditions continue to tighten. Our upcoming Economic and Capital Markets Outlook report, to be released in July, will provide a detailed update of our forecasts for global economies.

In this month’s note, we highlight an issue – other than financial markets – that has been on our clients’ minds: how the “E” in “ESG” (environmental, social and governance) is factored into our investment analysis and decision-making.

The Importance of ESG Engagement to Long-Term Results

Since the firm’s inception in 1987, ESG factors were always embedded in our investment approach, and examined when it comes to the companies, and industries we invest in. We believe it is important to identify and evaluate the risks and opportunities arising from ESG considerations as, in our view, these issues should not be ignored in the financial analysis of a company. Companies with sound business practices, including strong corporate governance and responsible management of material, environmental and social issues, are more likely to succeed and deliver stronger financial performance over time.

We have, on occasion, voiced our views publicly on “G” (governance) issues; for example, objecting to a company’s acceptance of a buyout offer that is not in the best interest of its shareholders. However, much of our engagement with investee companies occurs behind the scenes, covering “E” and “S” factors as well, and therefore is less visible. This entails meeting with management regularly, reviewing and discussing strategic initiatives and supporting those we view as favourable to shareholders and other stakeholders. Our engagement with Capital Power (CPX), a company held in our portfolios, is one of many examples that highlight our application of a long-term perspective and working together as a partner to the company to implement the energy transition.

Capital Power is a North American power producer delivering electricity to communities across Canada and the U.S. Based in Edmonton, it operates 29 power generation facilities utilizing a variety of energy sources, predominantly natural gas, wind and solar. Letko Brosseau has been active in its engagement with the company, meeting with management quarterly and speaking to the board of directors annually. We were very encouraging and supportive when the company announced its plans to replace its coal plants with natural gas-fired ones. This initiative will materially reduce its carbon emissions and be value accretive by extending asset life and giving the company the most flexible and lowest-cost power plants in Alberta. As such, Capital Power is on track to becoming coal-free by 2024, which is an incredible achievement for a firm that had 80% of its capacity in coal-fired plants in 2009. As investors in Capital Power for over a decade, we have generated over $341 million in net gains for our clients.[1]

Our ESG analysis includes monitoring our companies’ greenhouse gas (GHG) emissions and evaluating whether their reduction efforts are in line with the Paris Agreement – to pursue efforts to limit global warming to 1.5°C above pre-industrial levels. The Paris Agreement also calls on organizations worldwide to set ambitious targets to reach net-zero emissions by 2050. From our perspective, firms ignoring their emission levels today face greater exposure to both financial risk and the impairment of shareholder value in the future. An analysis of our equity portfolios indicates that 86% of the companies held in our equity portfolios (or 92% of the total portfolio weight) have reported a commitment to net-zero or interim carbon reduction targets. Among the portfolio companies that have announced a net-zero target year, the average net-zero target date is 2045. We continue to encourage portfolio companies that have not set meaningful carbon reduction targets to do so and provide reporting on their carbon reduction targets. These disclosures encourage not only greater transparency and responsible governance, but better outcomes for shareholders, and all stakeholders, over the long-term.


In our view, a prudent portfolio manager needs to weigh all risks, and environmental, social and governance issues cannot be neglected in the financial analysis of a company. This approach entails meaningful due diligence of a firm’s management team, ensuring they are responsibly addressing risks, allocating capital appropriately and working to achieve their set targets. We believe our investments in companies with a sustainable long-term strategy trading at a reasonable multiple of earnings will continue to benefit our portfolios. Our equity holdings are currently valued at only 10.8 times 2023 earnings, offer an average 3.5% dividend yield and include defensive stocks such as telecommunications, utilities and healthcare companies. Our fixed income portfolio is structured defensively for a potential rise in interest rates: duration is short and credit quality is high. We are confident your capital is well positioned to navigate the current environment.

[1] Represents the net gains on our investment in Capital Power for all mandates under management from May 1, 2001 to April 30, 2023.

Legal notes

The information and opinions expressed herein are provided for informational purposes only, are subject to change and are not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. Any companies mentioned herein are for illustrative purposes only and are not considered to be a recommendation to buy or sell. It should not be assumed that an investment in these companies was or would be profitable. Unless otherwise indicated, information included herein is presented as of the dates indicated. While the information presented herein is believed to be accurate at the time it is prepared, Letko, Brosseau & Associates Inc. cannot give any assurance that it is accurate, complete and current at all times.

Where the information contained in this presentation has been obtained or derived from third-party sources, the information is from sources believed to be reliable, but the firm has not independently verified such information. No representation or warranty is provided in relation to the accuracy, correctness, completeness or reliability of such information. Any opinions or estimates contained herein constitute our judgment as of this date and are subject to change without notice.

Past performance is not a guarantee of future returns. All investments pose the risk of loss and there is no guarantee that any of the benefits expressed herein will be achieved or realized.

The information provided herein does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.

This presentation may contain certain forward-looking statements which reflect our current expectations or forecasts of future events concerning the economy, market changes and trends. Forward-looking statements are inherently subject to, among other things, risks, uncertainties and assumptions regarding currencies, economic growth, current and expected conditions, and other factors that are believed to be appropriate in the circumstances which could cause actual events, results, performance or prospects to differ materially from those expressed in, or implied by, these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.

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