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April 2009 Newsletter

April 1st, 2009

MARKETS AT A GLANCE: QUARTERLY UPDATE

For the first time, in a long time, some constructive signs are emerging from equity markets and the economy. Confidence appears to be pulling markets from the depths of despair to a more reasonable view of tempered optimism. The fact that both our Canadian & World Fund have now turned positive for the year is an indication of the possibility for returns ahead of an actual economic recovery. Leadership in early cycle sectors, financials, and commodities are an indication that risk aversion is waning and opportunity seeking is growing.

The big turnaround this month was sparked by better than expected economic news, thus driving stability to markets around the World. Improving sentiment was the spark igniting the fire, but where will the fuel come from? Some reasons that could contribute to a sustainable market recovery is the record amount of cash sitting in money market and savings accounts, cheap valuations, as well as monetary and fiscal stimulus that is likely to fan inflation. Cautiously optimistic seems to be the view at the moment.

Canadian Economic Update

Canada is in the midst of its worst economic contraction since the 80’s as the Great Recession in the US permeates all corners of industry. Central Canada is suffering from a manufacturing slump, as exports and auto sales have dropped off. Alberta is dealing with cyclical issues centered on their oil & gas industry. BC has helped mitigate some of the weakness in the forestry and mining industries with Olympic & transportation spending projects; however, it is still feeling cyclical effects. The one ray of light may be that the rate of economic decline is slowing. Historically, when there is a sharp contraction in consumer and business spending, it is usually followed by a sharp initial rebound as many purchases are postponed/delayed rather than forever cancelled.

World Economic Update

The Global economy is set for its first worldwide contraction, estimated to be up to 1%, since World War II. The US and Europe are setting up for a possible U-shaped recovery as they work off some of their high levels of debt. Some signs are emerging from areas like Asia that suggest their economies are more likely to follow a V-shaped recovery. China, for example, has pumped the equivalent of 15% of GDP in mainly infrastructure stimulus projects. Their nearly 50% gross savings rate is getting a lot of attention as it offers them the flexibility to stimulate the economy as well as shift their reliance on exports for economic growth to domestic/consumer demand. Chinese economic leadership will likely bode well for commodities and commodity producing countries like Canada over the next few years.

CANADIAN ADVANTAGE FUND

March was a big month for the Canadian Fund, gaining 20.7%, while the S&P; TSX Index rose 7.4%. The very broad rally was led by financials, energy, and materials. There was no shortage of buying opportunities over the last few months as fear and panic drove shares to unreasonably cheap levels. Fortunately we have been accumulating positions in excellent companies that were trading well below fair value. Patience paid off, as some value returned to our portfolio; however, we still view our portfolio as very undervalued with many of our holdings still trading below book value. In a testament to the kind of value we are seeing, our stake in Petro-Canada was acquired by Suncor (with a 30% premium), which may mark the start of a consolidation wave. Some highlights from the numerous winners last month were double digit gains in oil producer Nexen, infrastructure company Aecon, and materials producer Pan American Silver.

WORLD ADVANTAGE FUND

The World Fund had another solid month, gaining 10.4%, and is now outperforming the MSCI World Index by 35.7% since June. Global companies in strong countries have been showing great leadership throughout the credit crisis. The big turnaround in equity markets in March has really been felt across the Globe as a flight to equities helped lift markets around the World. Our focus on large global companies has been well rewarded in terms of diversification and now we are starting to see the other side of that coin with strong absolute returns. One winner last month was Norwegian bank DnB Nor, gaining 18%, as their solid balance sheet has helped them emerge as a safe and profitable global financial leader. Material producers like British Anglo American PLC and Australian BHP Billiton also had good month, rising 18% and 11% respectively.

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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