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October 2004 Newsletter
Friday, October 01, 2004
"October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February."
- Mark Twain, American Humorist (1835-1910)
Dear Investor,
We agree, whether said by Mark or Shania, speculating in stocks is a chancy and dangerous business. At Van Arbor Asset Management we don't speculate, we invest, and then only after extensive research and analysis.
North American interest rates rose as expected in September and will likely continue to do so, albeit slightly slower in Canada for fear of a rising Canadian dollar choking off exports. Even with the recent rate increases, both central banks have still, historically, very low interest rates, and the North American economies are not in danger of hitting a wall. As an example in the US, both housing starts and new home sales rose for the month and August Durable Goods Orders, less transportation, rose 2.3%, marking the biggest increase since March. Durable Goods Orders are the leading indicator to the health of a nation's economy. The counterpoint was in the transportation sector where there was a 42% drop in civilian aircraft orders for the month. Boeing only booked 20 new orders in August compared with 75 in July.
Just as investors were getting used to US $45 a barrel of oil, the futures market traded over US $50 a barrel near the month end and certainly refocused investors' attention. The North American markets were mixed and the DJIA ended the month down 0.91% and in Toronto, the S&P TSX posted a gain of 3.47%.
US PORTFOLIO HIGHLIGHTS
Net Asset Value $ 10.2187
For the month of September, the Van Arbor US Advantage Fund outperformed the DJIA and showed an increase of 1.94% for the period. While a number of stocks in the US Fund were negatively affected by the recent surge in crude oil prices, developers of healthcare products including, Wellpoint Health Networks (WLP:NYSE) and United Health Group (UNH:NYSE), resisted the market's bearish sentiment and posted positive returns of 7.9% and 13.2% respectively. These two were closely followed by Washington Post (WPO:NYSE) and SLM Corp (SLM:NYSE), delivering 30 day returns in the magnitude of 5.7% and 13.4% respectively. The US Fund's largest gainer for September, not surprisingly, was an oil and gas producer. The stock of Murphy Oil (MUR:NYSE) appreciated 19.5% during the month. The weakest performing stock for September was Alberto Culver (ACV:NYSE), a manufacturer and distributor of beauty and personal care products. Shares of Alberto Culver slipped more than 9% in value over the period. There were no trades during the month in the portfolio.
CANADIAN PORTFOLIO HIGHLIGHTS
Net Asset Value $ 10.8170
September was a solid month for us. The Van Arbor Canadian Advantage Fund gained 4.62%. Oil and gas related companies currently compose 25% of the Canadian portfolio, and as a result, the performance of the Fund has been positively affected by the recent upswing in oil prices. The top 30 day performers in the Fund have been Suncor Energy (SU:TSX), up 10%, Talisman Energy (TLM:TSX), up 12.2%, Petro-Canada (PCA:TSX), up 8.25%, and CHC Helicopter (FLY/A:TSX), up 12.9% . The Fund's weakest performer for the month was Transcontinental (TCL/A:TSX). Transcontinental reported that 3rd quarter net income has increased 24% over a year earlier, however management also stated that it expects to be at the lower end of the year end EPS target. Shares of Transcontinental ended the month down 5.6%. For the second month in a row there were no changes in the holdings of the Canadian Fund.
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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