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April 2007 Newsletter
Sunday, April 01, 2007
MARKETS AT A GLANCE: QUARTERLY UPDATE
The first quarter of 2007 saw Canada's economic growth rebound to over 2%. The energy and services sectors continue to show the most strength, with manufacturing being the only sector that is lagging. Unemployment remains at historic lows, resulting in a tight labour market and rising incomes. This continues to fuel consumer spending, which remains the main driving force in the Canadian economy. Inflation has increased slightly, due mostly to rising oil prices, and remains on the radar of the Bank of Canada. As long as inflation remains near or above two percent, expectations of future interest cuts remain low.
The US equity markets remain flat for the year as economic uncertainty has prevented any sort of direction. The Fed chairman announced a loosening of its bias towards a tightening monetary policy, which led to expectations of an interest rate cut sometime this year. The anticipation of lower borrowing costs pushed US markets to post its largest weekly gain in four years. This helped bring the S&P 500 back into positive territory for 2007. The strength of the labor market coupled with rising oil prices have put inflation back into the spotlight, which will be a big factor in future interest rate decisions. Concerns that the US housing market will be a drag on economic growth continue to persist. The fallout of sub prime mortgage foreclosures seems to be contained; however, home sales continue to show evidence of weakness.
The Euro Zone started the first quarter of 2007 on a strong note, as GDP growth accelerated this quarter. Europe continues to gain strength with consumer and export demand being the main drivers of its growth. The European Central Bank anticipates continued economic growth with moderate interest rates in 2007. European markets have pulled back slightly over concerns of a slowing US economy; however, it remains to be seen if Europe will see any spill over effects of a weaker US housing market.
CANADIAN ADVANTAGE FUND
The Canadian Advantage Fund ended the month up 0.7% to close at $18.07. In Canada, energy and financial companies led the way with gains of almost 3% as a group. The price of oil spiked in the latter part of the month as geopolitical concerns in Iran saw oil prices rise by 10% to a 6 month high of $65 a barrel. Strong job growth and a relatively healthy housing market has led to a generally good outlook for the Canadian economy in the near term. The fund saw strong performance from TELUS (T:TSX) and FirstService Corp (FSV:TSX) with shares appreciating 5% and 9% respectively. This month saw shares of TD Bank (TD:TSX) and Empire Corp (EMP/A:TSX) sold, while positions were established in Royal Bank (RY:TSX) and Thomson Corp (TOC:TSX).
Fund Performance Summary (Benchmark is S&P TSX Index)
US ADVANTAGE FUND
The Van Arbor US Advantage Fund ended the month marginally down 0.7% to close at $12.81. The US fund remained relatively flat for the month as there are concerns that a weaker housing market might slow down economic growth. Consumer spending continues to show strength, due mostly to rising incomes and moderate job growth. Energy shares ended the month with strong performances by Constellation Energy Group (CEG:NYSE) and MDU Resources (MDU:NYSE). Shares of Barr Pharmaceuticals were sold this month and a position was established in All State Insurance (ALL:NYSE).
Fund Performance Summary (Benchmark is S&P 500 Index)
EURO ADVANTAGE FUND
The Van Arbor Euro Advantage Fund had a strong performance advancing 4.5% while the S&P Euro Index advanced 2.5% for the month. The Euro fund's performance was especially outstanding considering it outperformed the S&P Euro Index by 2%. The Euro Zone in general continues to show strengthening economic growth with most Euro Zone countries positively contributing. The strength of domestic consumer demand and exports has helped alleviate concerns of the effect of a US slowdown. Energy and materials sector continued to show strength this month with returns of 5% and 4% respectively. Some of the fund's best performers this month were Krones AG, Bijoo Brigette AG, Albertis Infraestruturas, and Ramirent Oyj whom all finished with double digit gains for the month. Shares of IAWS Group were sold and a position in Viscofan SA was established.
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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