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November 2005 Newsletter
Tuesday, November 01, 2005
CANADIAN ADVANTAGE FUND
After an extremely strong first three quarters in 2005, the month of October proved to be difficult for Canadian Equity Fund managers as most gave back some of their gains. Led by a 13% decline in the energy sector, the broad S&P TSX Index shed 5.7% of its market value to close at 10,383. While 12 of our 20 portfolio holdings fared better than the market, the Van Arbor Canadian Advantage Fund followed suit and gave back 9.45% for the month. Even with this correction, GlobeFund (www.globefund.com) ranked the Van Arbor CDN Advantage Fund as the top-performing fund in its asset class year-to-date. Since its inception the Fund has delivered positive returns for 15 out of the 18 months, and over the last year alone the Fund posted a total gain of 33.47% while the Index was up 17.05%. Notwithstanding the lackluster performance of the Canadian market, our equity selection, driven by strong fundamentals, remains bullish on our current holdings and as a result our portfolio has not undergone any trades this past month. We continue to accumulate shares of our current holdings allowing us to average down the cost of our portfolio holdings. In market news the Bank of Canada has raised its trend-setting overnight rate twice in the last two months, most recently in October to 3 percent, and has suggested it would continue tightening to stave off inflation. In economic news, Statistics Canada reported economic growth of 0.5% in August, after a 0.2% gain in July. Led by heightened activity in the manufacturing, mining and oil and gas, the year-over-year growth was recorded at 2.7%.
US ADVANTAGE FUND
The month of October proved to be less volatile for the US equity markets as the benchmark index, S&P 500 ended down 1.77% to close at 1,207. Led by financials and holdings of consumer non-cyclicals, the Van Arbor US Advantage Fund closed down 3.35% for the month. Top Fund performers for the month were Brown Forman (BF/A:NYSE) and Aflac (AFL:NYSE), as the two were up 6.1% and 4.8% respectively. The US equity market has spent the majority of its time this year trading in a narrow sideways band and has made little effort to break that trend, closing down 0.41% year-to-date. While majority of the gains have come from the energy and housing sectors, the lackluster performance of retailers and automotive manufacturers has kept a lid on any attempts at breaking away from that sideways trend. In economic news the U.S. shook off headwinds from hurricanes Katrina and Rita to grow at a faster-than-expected 3.8% annual rate in the third quarter. Strong spending by consumers and by the government helped power the expansion forward as growth in gross domestic product - the measure of all goods and services produced within U.S. borders - accelerated from the second quarter's 3.3% rate. Fed policy-makers have pushed U.S. short-term interest rates up 11 times since mid-2004 to keep a rein on prices. There were no portfolio trades this month.
EURO ADVANTAGE FUND
The Van Arbor Euro Advantage Fund ended the month of October down 5.14% while the benchmark European index, S&P Euro, was down 1.73%. All ten industry groups in the benchmark finished the month in negative territory with the Energy Index and the Consumer Discretionary Index recording biggest losses. The S&P Euro Energy Index lost 8.29% of its market value compared to a loss of 4.36% for Consumer Discretionary Index. The average loss for Van Arbor holdings of energy related stocks was 6.72%, while consumer discretionary stocks fell 2.36% respectfully. Since inception the portfolio has been able to weather the declining market, which in Canadian dollars has drifted 4.18% lower. The Eurozone is suffering from similar effects witnessed in the North American markets this past month. High oil prices and creeping inflation rates have contributed to probable rate hikes in Europe sooner than originally expected. Rising growth for loan demands to the private and housing sectors have contributed to growing money supply and have provided additional data in the favor of raising rates. There is a general consensus amongst economists that growth in the second half of 2006 could improve, while higher oil and gas prices will continue to dampen consumer demand and confidence. There were no portfolio trades this past 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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