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March 2007 Newsletter
Thursday, March 01, 2007
CANADIAN ADVANTAGE FUND
The Canadian Advantage Fund ended the month marginally down 0.75% to close at $17.95. The overall performance of the Fund was never the less fairly positive considering that the market as a whole retracted almost 3% in the last two days of trading - all this amid the S&P TSX hitting a new historic high of 13885, a day before the market's two-day pullback. Canadian stocks dropped the most in almost three years, after a plunge in the Chinese stock market caused a global selloff in equities. Shares of Chinese companies tumbled the most in ten years after the government approved a special task force to clamp down on illegal share offerings and trading. The Shanghai and Shenzhen 300 Index dropped 9%, erasing over a $100 billion from a stock market that doubled in the past year.
In Canada, raw materials, energy and financial companies including Goldcorp (G:TSX) and TransAlta (TA:TSX), were most affected and saw their shares depreciate roughly 5% for the month. Shares of consumer staples and discretionary companies such as Home Capital Group (HCG:TSX) and Metro (MRU:TSX) were least affected by the late month pullback and ended the month up 10% and 5% respectively. After such a tremendous performance, the market participants have clearly become a little complacent and vulnerable to bad news. The three largest S&P TSX industry groups, materials, energy and financials, which account for 75% of the Index as a whole, declined 5%, 2.2% and 1.9% respectively. The Van Arbor Canadian Advantage Fund was not immune to the pull back, however the Fund was down substantially less than the market over the last couple of trading days due to our overweighting of the consumer sector, a space that is typically less prone to global turmoil due to its diversity and non-cyclical nature. During the late stages of the month, shares of Astral Media were replaced by Telus Corp, a Canadian leader in the telecommunications space.
Fund Performance Summary (Benchmark is S&P TSX Index)
US ADVANTAGE FUND
The Van Arbor US Advantage Fund retracted 1.68% for the month to close at $12.90. The Fund outperformed the S&P 500 Index which ended the month down 2.18%, mostly as a result of the significant pullback in the second to last day of trading for the month. U.S. stocks however, rebounded on the last trading day of the month, from their biggest plunge in four years as market strategists advised investors against selling equities and after the Federal Reserve Chairman Bernanke commented on his positive expectations for the economy. Consumer, telephone and health-care shares led the advance as investors sought companies with earnings less reliant on swings in the economy. European and Asian markets slumped, while emerging markets were set for their worst two-day decline in eight months in the wake of the U.S. selloff.
Advancers for the month included shares of Procter & Gamble, which climbed the most in seven months for the best performance in the Dow Jones Industrial Average. The Van Arbor US Fund was impacted by the month-end selloff less than the broad market, due to the Fund's overwhelming allocation to large capitalization global companies. Their above average exposure to international markets provided an additional layer of safety in terms of risk management and as a result the Fund endured less than market volatility. During the month shares of Oneok Inc were sold and proceeds were used to establish a position in Citigroup Corp (C:NYSE).
Fund Performance Summary (Benchmark is S&P 500 Index)
EURO ADVANTAGE FUND
The Van Arbor Euro Advantage Fund ended the month down 0.69% to close at $11.55. The S&P Euro Index matched the performance of the Fund and closed underwater for the month. Similar to its North American counterparts, European stocks had their biggest two-day drop in 4 1/2 years. The month-end reaction appeared to be more technical than fundamental as the Eurozone economic region is poised for more growth in 2007. Germany's unemployment rate fell in February to a level last seen before September 2001 as economic expansion encouraged companies to invest and hire, while overall confidence in the European economy unexpectedly rose in February for the first time in four months as overall unemployment fell to a record low and inflation slowed.
The Eurozone economy is growing faster than expected this year after recording the strongest pace in six years in 2006. The European Commission this month raised its 2007 growth forecast to 2.4 percent from 2.1 percent, even as former U.S. Federal Reserve Chairman Alan Greenspan warned this week that he couldn't rule out a U.S. recession later this year. The rate of expansion and declining unemployment may fuel wage demands and increase pressure on the European Central Bank to keep raising interest rates even as inflation remains below its 2 percent limit. Over the month shares of Sogefi were sold and proceeds were used to establish a position in SAES Getters.
Fund Performance Summary (Benchmark is S&P Euro Index)
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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