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December 2006 Newsletter
Friday, December 01, 2006
CANADIAN ADVANTAGE FUND
The Van Arbor Canadian Advantage Fund advanced 4.80% for the month of November and recorded a 9.33% gain 2006 year to date. The S&P TSX Equity Index ended the month up 5.06% and recorded a new Index high of 13,156. Since its pullback earlier this summer, the Index, buoyed by rising energy and metal prices, has rallied over the past five months. Nine of the ten main industry groups in the TSX ended the month in positives, led by strong growth in information technology and materials. Cooler weather patterns and a tighter supply of gasoline inventories were the leading causes of higher energy prices this month, which in turn drove higher the returns of energy related companies. The average return of the Fund's energy holdings was 8.2%, versus the S&P TSX Energy Index which concluded the month up 7.1%.
Strongest performers for the month were Laperriere & Verreault Group (GLV/A:TSX) and Trican Well Services (TCW:TSX), two holdings we added to the Fund earlier in the month. GLV, a growing designer and manufacturer of proprietary equipment for commercial services, ended the month up 12% on strong second quarter performance and solid order backlogs. Similarly, shares of TCW, a well service company servicing the oil and gas industry in western Canada, soared 15% this month on favourable industry rig utilization rates and cooler temperatures in Alberta, which had frozen the soggy ground and have enabled drilling activity to resume. As mentioned above, shares of GLV and TCW were acquired earlier in the month, while the Fund sold its holdings of Home Capital Group and Fortis Inc.
Fund Performance Summary (Benchmark is S&P TSX Index)
US ADVANTAGE FUND
The Van Arbor US Advantage Fund advanced 1.05% for the month of November to close at $12.88, while the S&P 500 Index advanced 1.65% for the month to close at 1400, just 6 points shy of this year's high, set at 1406 earlier in the month. The Fund's five month rally led to a new high as a result of the solid performance of our portfolio's holdings. Economists seem to be divided on the direction of the economy. While some are using the inversion of the yield curve and the slowdown in housing, to predict a recession, others are more optimistic and point to positive income trends. Personal spending rebounded in the U.S. last month, suggesting consumers may keep the economy growing in the face of downturns in housing and manufacturing. The figures reinforce the message that policy makers are unlikely to change interest rates until well into 2007.
Top performers for the Fund were energy related holdings which advanced on oil prices hitting a two month high. Shares of Constellation Energy (CEG:NYSE), a marketer and distributor of electricity and gas, ended the month up 10%, while holdings of Entergy Inc (ETR:NYSE), a diversified marketer, trader and producer of electric power, advanced 6% for the month. Earlier in the month the Fund sold its holdings of Alberto Culver and acquired an interest in First Data Corp, a provider of electronic commerce solutions.
Fund Performance Summary (Benchmark is S&P 500 Index)
EURO ADVANTAGE FUND
The Van Arbor Euro Advantage Fund advanced 6.64% for the month, while the S&P Euro ended the month up 5.56%. Year to date, the Fund is up 28.27%, a remarkable difference over the low double digit growth rates recorded by the two North American markets. Buoyed by strong economics growth, moderate inflation, falling unemployment rate and strong currency, the Euro equity market, in Canadian dollars, has returned over 25% since mid summer of 2006. However, investors have been predicting that the European Central Bank will have to keep raising interest rates in 2007 to ensure that stronger growth doesn't fan inflationary pressures. The increase in German sales tax this January is not expected to dampen the country's growth prospects as rising consumer confidence and solid employment statistics are expected to outweigh the negative effects of the former. The upbeat growth forecasts and the recent stock market momentum point to a strong finish this year, not just for the European capital markets, but also the Euro currency, which has appreciated over 5% against the Canadian dollar and almost 4% against the US dollar this past month.
The top performer for the month was Arcadis NV (ARCAD NA), a Dutch engineering company, which ended the month up 12% on a 70% jump in third quarter profits. Aracadis raised profit estimates for next year and commented on next year's gains from increased government spending on infrastructure to prevent flooding due to climate change. Mid month, the Fund sold its holdings of YIT OYJ and with proceeds bought shares of Ramirent Oyj (RMR1V FH), a Finland based distributor of construction machinery and equipment.
Fund Performance Summary (Benchmark is S&P Euro Index)
MANAGER'S NOTE
As the 2006 year winds down, we want to wish our clients and families Happy Holidays. As in the previous year, we will not send out Christmas cards; instead we will be making a donation to the Empty Stocking Fund. Now in its 86th year, the Empty Stocking Fund is a fundraising initiative of The Province newspaper that is designed to increase awareness and to raise money for the thousands of children and families in need each year at Christmas time.
We are fast approaching our third year-end and the start of the RRSP season and we are starting to organize one-on-one meetings with unit holders and investment dealers to discuss the three Funds on offer and Portfolio strategies. If you have not been contacted and would like to set up a meeting, or if you wish to refer someone that you feel we should contact please contact John Bear at 604.895.7138 or Steve Hanson at 604.895.7126.
Best wishes for health, happiness and continued financial success in the New Year.
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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