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August 2004 Newsletter
Sunday, August 01, 2004
"The future will be better tomorrow"
- George W. Bush (POTUS)
Dear Investor,
The Van Arbor Canadian Advantage Fund (Canadian Fund) has performed remarkably well during the month of July. In fact, our Canadian Fund was ranked # 1 for the month of July, by www.GlobeFund.com, against 850 Canadian equity funds (We ranked 2nd overall in the universe of 5,667 funds).
This is against a background where the North American equity markets spent the majority of the month going in one direction, down. The DJIA retreated 2.63%, the S&P 500 was negative 3.03% and the S&P/TSX slipped 1.02%, despite a small late month rally fuelled by a surge in US Consumer Confidence for July to 106.1%. This is a two year high for this index. An improving job market and strong new home sales are the key factors in this boost of confidence. In fact, the equity markets have moved in a very narrow trading range, about 8%, for the past six months.
US Federal Reserve (the Fed) ChairmanAlan Greenspan, and other central bank officials said this month that the US economy is expected to shake off the "softness" from June and resume its expansion. The Fed's goal is to engineer a sustainable and steady growth rate for the economy and, with this in mind, we think the Fed will continue to edge up rates to stop the economy and capital markets from overheating.
The Bank of Canada may not match the Fed increase for increase, but rates will have upward pressure in Canada.
Crude Oil futures hit an all time high at the end of July, closing the month at US $43 a barrel, up US $6.66 during the month.
US PORTFOLIO HIGHLIGHTS
NetAsset Value $ 9.860
The Van Arbor US Advantage Fund (US Fund), after a fast start, gave some of its value back in July. Two underperformers in the US Fund have been WellPoint Health Networks (WLP:NYSE) and Stryker Corp. (SYK:NYSE). The state of California's biggest health insurer, WellPoint, saw a second quarter jump in profits of 34% (beating analysts' expectations), however the company's stock immediately surrendered 14% in price after California courts blocked the proposed merger with Anthem Inc. Stryker Corp reported strong earnings but was heavily punished by investors for falling short of meeting analyst's sales expectations. Stryker's share price dropped so precipitously that its stop-loss was triggered and the position was sold. Stryker was replaced by Murphy Oil (MUR:NYSE). On a positive note, Pulte Holmes, the largest US home builder, brought in 54% increase in its second quarter profit pushing its stock price up in value by 7.7% last month. Johnson Controls, an auto part manufacturer, also had good earnings and increased in value by 9.6% in the month.
CANADIAN PORTFOLIO HIGHLIGHTS
Net Asset Value $ 10.613
The biggest contributors to the Canadian Fund have been Suncor Energy (SU:TSX), CHC Helicopter (FLY/A:TSX) and Great West Lifeco Inc (GWO:TSX). Suncor Energy, the world's No. 2 miner of oil sands, contributed a 7% price gain over the month and concluded the quarter with a 75% jump in profits as prices and production increased. CHC Helicopter posted a 9% appreciation for the period having reported a 12% increase in fourth quarter net income and a 25% increase in sales. The third biggest contributor to the Canadian Fund was Great West Lifeco, with a price gain of 6% over the month. The company concluded the second quarter with a 55% increase in net income over the same quarter last year, a 12.5% increase in quarterly dividends and a plan for a two for one stock split. No changes were made to the portfolio this 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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