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September 2004 Newsletter
Wednesday, September 01, 2004
"The vast majority of our imports come from outside the country"
- George W. Bush (POTUS)
Dear Investor,
We don't mean to pick on George W. Bush, the President of the United States, but some of his quotes are priceless. The quote used here is apropos of the US trade deficit widening to a record US $55.8 billion in June. The gap with China widened by US $2.1 billion, to US $14.2 billion for the period. Canada, in contrast, had a record trade surplus in June of C $8.63 billion.
The US budget deficit is continuing to grow and is expected to reach an all time high of US$ 422 billion for the fiscal year ending September 30th. With investors' focus on the war in Iraq, volatile oil prices and the looming US election, the ballooning budget deficit has moved to the back of the queue. We wonder for how long?
During September, the Bank of Canada (Sept 8th) and the US Federal Reserve (Sept 21st) will make the decision whether to raise interest rates. Canada is expected to start tightening by raising rates a 1/4 point to 2.25%. Meanwhile, in spite of very weak June job data south of the border, the Fed is expected to raise rates a third time by 1/4 point to 2%. The US increase may be forestalled if the job data reported Friday, Sept. 3rd is weak again.
The NorthAmerican stock markets weakened duringAugust on light volumes. The S&P TSX was down 1.44% and the Dow was lower by 0.34%.
US PORTFOLIO HIGHLIGHTS
Net Asset Value $ 10.024
The Van Arbor US Advantage Fund (US Fund) has gained 1.67% over the last 30 days. During the last four months, Pulte Homes (PHM:NYSE) has continued to provide positive and substantial returns, currently in excess of 27%. Harley Davidson (HDI:NYSE) is the second biggest gainer having generated an 11.5% return over the time period. The US Fund's biggest underperformer, Sysco Corp (SYY:NYSE), is currently down 14.5% having reported quarterly earnings from continuing operations that were 4% shy of analysts' expectations. Over the last month, the Fund's biggest gainers have been United Health Group Inc (UNH:NYSE) and Citigroup (C:NYSE), posting returns in excess of 5% each, while Pulte Home Inc recorded a positive 7.9% return. The month of August's biggest underperformers have been McCormick & Co Inc. (MKC:NYSE) and Sysco Corp (SYY:NYSE), both stocks posted declines in excess of 6%. We feel confident and bullish in the long term performance of the 20 equities included in the portfolio and we did not make any changes to the US Fund's holdings in the month of August.
CANADIAN PORTFOLIO HIGHLIGHTS
Net Asset Value $ 10.339
To date, the Van Arbor Canadian Advantage Fund (Canadian Fund) has generated a 3.4 % return. While the Canadian Fund retreated from the substantial gains reported in the month of July, mostly attributable to sharp gains in energy stocks, we feel that the performance of the fund solely rests on the expected long term growth in earnings of the large cap equities in the portfolio. Since the Canadian Fund's inception, CHC Helicopter Corp (FLY/A: TSX) has posted a price return in excess of 16%, while Power Corp of Canada (POW:TSX) and Power Financial (PWF:TSX) have both posted returns in excess of 9 %. The Canadian Fund's biggest underperformer has been Jean Coutu Group Inc (PJC/A:TSX). Having reported that quarterly earnings from continuing operations have fallen short of analysts' expectations by 1.5%, the stock has experienced a price drop of 11.5% during the month. Finning International Inc (FTT:TSX), a Vancouver based marketer and financier of Caterpillar equipment, has also underperformed this month by 5%, having reported that operating earnings were 11% lower than expectations. Terasen Inc (TER:TSX) has been this month's biggest advancer, posting a gain in excess of 5%. There were no trades in the Canadian Fund during August.
Van Arbor Asset Management is an independent Asset Management company dedicated to creating wealth using a disciplined, proprietary investment strategy with an emphasis on preserving capital while generating superior long-term returns.
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