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November 2004 Newsletter
Monday, November 01, 2004
"A market is the combined behavior of thousands of people responding to information, misinformation and whim."
- Kenneth Chang (author)
Dear Investor,
This past month saw the Dow Jones Industrial Average reach the lowest point in 2004, in contrast to oil futures, which traded over US $55 a barrel for the first time in history. Overall the North American equity markets were mixed. The S&P TSX improved by 2.34% and the DJIA was weaker by 1.62% in October.
Financial markets do not like uncertainty. Our expectation is that after the US election, the focus will return to the financial markets, the economy and jobs. The US Consumer Confidence for October showed weakness moving from 96.7% to 92.8%. This is the third consecutive drop in confidence, which implies a slowdown in demand and may imply a lagging recovery for US domestic producers.
The adverse weather in the hurricane belt dampened industrial production and capacity utilization in contrast to a rise of 2.6% in orders for core capital goods - an indication of business' willingness to invest in new equipment. The US Gross Domestic Product (GDP) for the quarter, the measure of the value of all goods and services produced, grew at a 3.7% annual rate. This increase was led by consumers' increasing spending 4.6%, mostly on big ticket items such as autos.
Canadian GDP improved by 0.5% in August and Canadian factories increased shipments for the ninth straight month, the longest winning streak in 16 years. Durable Goods also rose in August, nearing the record set in October, 2000. Both Central Banks continue to raise short term interest rates with the US Federal Reserve next one up on November 10th where we expect another 0.25% increase.
CANADIAN PORTFOLIO HIGHLIGHTS
Net Asset Value $ 11.21 + 3.64%
Morningstar ranked the Van Arbor Canadian Advantage Fund # 1 in its asset class for the 3 months ending September 30th and our success continued in October with an increase of 3.64%. Manufacturers and distributors of petroleum related products were rewarded for their higher profit margins for the quarter. Shares of Shell Canada (SHC:TSE) appreciated over 9.5 % for the month after the company reported a 95% increase in operating earnings from the same quarter in 2003. Similarly, Imperial Oil (IMO:TSE), Canada's largest energy company, said third quarter profit rose 44%. Common shares of Imperial Oil appreciated 9%. Over the month however, profit taking has put downward pressures on CHC Helicopter (FLY.A:TSE) as the company's shares ended the period down almost 6% During late October a sell signal was generated for Jean Coutu Group (PJC/A:TSE) which was replaced by Reitman's Canada (RET/A:TSE), a women's apparel retailer with stores located throughout Canada.
US PORTFOLIO HIGHLIGHTS
Net Asset Value $ 10.107 - 1.09%
The Van Arbor US Advantage Fund outperformed the market, with a small negative return of 1.09%, while the market was weaker by 1.62% over the month. While higher energy prices have been a help for natural resource oriented economies, like Canada's, the US markets have been negatively affected by the new highs in oil prices. During the month of October, 90% of companies in the Fund reported third quarter earnings and of those, 78% beat analysts' estimates and all reported higher earnings over last year's third quarter. The reporting firms, on average, delivered a 24% increase in operating earnings per share over the same quarter in 2003. The Fund's biggest gainers in October were Pulte Homes Inc (PHM:NYSE), up 8.5%, and Sysco Corp (SYY:NYSE), up 7.5%. The investigation into the insurance industry by New York Attorney General Eliot Spitzer, affected the whole sector. We hold the shares of WellPoint Health Networks (WLP:NYSE) and United Health Group (UNH:NYSE) and both have been somewhat affected by the probe. There were no trades in 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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