Manulife Financial

Manulife GIF CAP A Div Inc (clsd)

Manager Commentary

(As at September 30, 2009)

Market Review
Equity markets generated strong returns over the quarter. The S&P/TSX Composite Index returned 10.6% on a total return basis. Markets advanced on an improving outlook for the Canadian and global economies with the recession believed to have ended between June and August this past summer. Economic growth in Canada was up 0.1% month-over-month in June and flat in July. More impressively, in July the manufacturing sector grew for the first time in nine months.

Within equities, the financials sector continued to outperform most other sectors gaining 16.1%. While the Canadian banks had much less exposure to subprime related assets than their US peers, they had nonetheless suffered sharp declines in stock values on fears of collapse, reaching their lows in March. Since then, the credit crisis that also triggered the global recession has largely abated. For example, LIBOR rates have returned to normalized levels; with the 3-month rate at 29 basis points vs. over 4% a year ago. Additionally, whereas six months ago there were still fears that the banks may cut their dividends, the risk here as well, has largely diminished. As such, investor confidence has returned and the banks have recovered strongly.

Portfolio Review
The fund performed in-line with the S&P/TSX Composite Index. Key performance came from the industrials, technology and consumer discretionary sectors. Key contributors to performance during the quarter include National Bank of Canada, Power Financial Corp., RONA Inc., and Gildan Activewear Inc. Towards the end of the period we were adding to our US stocks, specifically Johnson and Johnson as well as Coca Cola Co. At the end of the period the fund had 10% in US equities.

Economic data are starting to support the argument that we are in a synchronized global recovery. Markets, being a forward-looking mechanism started to price this in to valuations back in March. Since then, we have witnessed a rally off of a bear market low that has been stronger and faster than any in the past 50 years. As such, we remain mindful that there is a strong possibility for a near-term correction in equities and trusts. Over the longer-term the outlook remains favourable. Equity market valuations are attractive, company earnings are expected to rebound strongly over the next few quarters and there is still a significant amount of cash on investors' and corporations' balance sheets that may yet find its way back into equities.
The statements of fact in this report have been obtained from and are based upon sources Investment Management Services believes to be reliable, the information contained herein is neither all-inclusive nor guaranteed by Investment Management Services and is subject to change as market and other conditions warrant. This report is for information purposes only and is not intended to convey specific investment advice or as an offer or solicitation with respect to the purchase or sale of any individual investment.