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July 2005 Newsletter
Friday, July 01, 2005
CANADIAN ADVANTAGE FUND
Over the month the Canadian equity markets continued to climb higher and even reached new five year highs. The 25% weighting of the oil and gas sub-index in the S&P TSX Composite proved to be the catalyst as the sector appreciated 12% over the month and 38% year to date. With oil futures pushing $60 a barrel, companies involved in exploration and distribution of the underlying commodity are reaping the benefits of ever so high profit margins. The broad Canadian market index topped 10,000 and finished at 9,902 this month, its highest closing level since October 2000. The broad-based rally was led by surging energy, financial and information technology shares. Over the month the Van Arbor Canadian Advantage Fund outperformed the TSX composite by 2.34% pushing the excess performance of the Fund to 8.4% for 2005 year to date. The performance of the portfolio was largely impacted by the energy holdings as shares of Petro-Canada (PCA:TSX), Talisman Energy (TLM:TSX), Suncor Energy (SU:TSX) and Shell Canada (SHC:TSX) advanced an average of 18% over the month. One portfolio trade was triggered this month. Shares of Power Corp of Canada (POW.SV:TSX) were sold and proceeds were used to purchase shares of Encana Corp (ECA:TSX), a Canadian leader in oil and gas exploration and marketing.
US ADVANTAGE FUND
The US markets continue to struggle this year in attempts to break the neutral mark as of year to date. Not being a natural resource based economy has clearly been a detriment to the American equity markets. Over the last year, higher input costs mostly due to higher oil and gas prices, have burdened corporate profits and have created a tighter squeeze on margins. This along with the continuous rate hikes by the Federal Reserve and the ballooning budget deficits have all stirred the pot in such a way as to prevent any sustainable growth in the equity markets. Over the month the broad markets faced numerous trading days during which investors and market professionals realized heavy losses. While the US Advantage Fund was not immune to the general downturn of the broad markets, the Fund, with the aid of a few exceptional performers, ended the month on a slightly positive note. For the month, the Fund was able to create an excess returns above the S&P 500 Index of 3.18% and a 2.76% excess return since the beginning of 2005. Weak performance of consumer stocks was offset by the Fund's holdings of oil and gas related stocks and Legg Mason (LM:NYSE). As an average, energy related stocks appreciated 6.25% for the month, while shares of Legg Mason were driven up 20% for the month as a result of a favorable $3.8 billion asset swap with Citigroup Inc. There were no portfolio trades this month.
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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