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October 2005 Newsletter
Saturday, October 01, 2005
NEW FUND OFFERING
VAN ARBOR EURO ADVANTAGE FUND
Van Arbor Asset Management recently launched its third equity fund; the Van Arbor Euro Advantage Fund.
Analogous to the US and Canadian Funds, the Euro Advantage Fund utilizes the quantitative-based methodology of selecting 20 stocks for inclusion in the portfolio of large capitalization blue chip equities.
The portfolio of securities for the fund is selected using our proprietary multi-factor approach intended to identify European securities with low price volatility, positive and consistent earnings and dividend growth rates and low valuations relative to industry peers. This scientific approach is designed to remove human emotion from investment decisions.
The investment philosophy utilizes a bottom-up approach to stock selection by concentrating on fundamentals instead of attempting to forecast the "next" big market sector. Diversification is achieved by considering, for inclusion in the portfolio, a universe of equities from the Eurozone.
To enhance returns a series of growth drivers will be applied to the portfolio including a formula based, strictly managed buying program, leverage and risk management tools intended to provide protection against severe market volatility. The portfolio is to be fully invested at all times across the 12 countries belonging to the European Monetary Union or the Eurozone.
After successfully managing this fund internally since February 2005, we believe that the Euro Advantage Fund will offer our current clients and new investors the opportunity to diversify their portfolio holdings. Van Arbor's proprietary investment strategy has resulted in our Canadian and U.S. funds both ranking well against their peers and we believe that this discipline is well suited for the European equity market as well.
The Van Arbor Euro Advantage Fund is RRSP eligible and has a minimum initial investment of $25,000. The Fund will be priced monthly and can be purchased directly though Van Arbor. For more information please contact Steve Hanson at 604.895.7126 or John Bear at 604.895.7138.
We are also pleased to announce Ulyana Kordyuk as the latest addition to the Van Arbor team as the office administrator. Please feel free to direct account inquiries to Ulyana at 604.895.7134.
CANADIAN ADVANTAGE FUND
For the month of September the Van Arbor Canadian Advantage Fund posted absolute gains of 5.83% or excess gains over the S&P TSX Index of 2.62%. The broad market's 3.21% return was characterized by large advances in excess of 2% for six of the ten industry groups, with healthcare and utilities leading the way up 6.42% and 4.62% for the month respectively. Domestic consumer spending continues to be buoyed by healthy employment gains, low interest rates and a hot housing market. The prolonged surge in energy costs has prompted the Bank of Canada to keep a close eye on inflationary pressures, even though the core inflation level (excluding energy) has remained relatively tame with an increase of only 1.7% over the last 12 months. The Fund was rewarded from holdings of Russel Metals (RUS:TSX) and Canadian Western Bank (CWB:TSX), as the two were up 8.30% and 10.50% for the month. Shares of Encana (ECA:TSX), Canada's leading natural gas producer, appreciated 16.50% for the month after the company announced a promising oil discovery in offshore Brazil earlier this month. Encana also agreed to sell oil and pipeline holdings in Ecuador for $1.42 billion to fund debt and stock buybacks. The portfolio experienced two trades this month as holdings of Transcontinental (TCL/SV:TSX) and Terasen (TER:TSX) were liquidated and proceeds were used to establish positions in IGM Financial (IGM:TSX), a personal financial planning firm and Stantec (STN:TSX), an enterprise involved in engineering, architecture and related consulting projects.
US ADVANTAGE FUND
The US capital markets remained relatively flat for the month of September, as the Van Arbor US Advantage Fund closed up 0.18%. The broad market, as represented by the S&P 500 finished the month up 0.58%. In financial news, the U.S. consumer confidence fell by the most in 15 years after Hurricane Katrina devastated the Gulf Coast and pushed gasoline prices to a record this month. Economists closely track consumer confidence because consumer spending accounts for two-thirds of all U.S. economic activity. As a result some economists have predicted a pullback in consumer spending this holiday shopping season while others have advocated that consumer spending is a function of fundamentals like income and employment rates, which have not suffered from the transitory shock this hurricane season. In fact the Federal Reserve Chairman, Allan Greenspan, has recently cited his concern with the historically low savings rate and the large number of investors who are depending on low interest rates to stay. Over the month, the performance of the US portfolio was positively affected by holdings of oil and gas related firms such as Newfield Exploration (NFX:NYSE), Exxon Mobil (XOM:NYSE) and Equitable Resources (EQT:NYSE) which were up 5.21%, 4.57% and 4.88% respectively. With about 29% of the US crude-oil refining capacity being offline due to the hurricanes, at least 15 refineries were shut down including some owned by Murphy Oil (MUR:NYSE). Shares of Murphy were down 10.21% this month as the company was unable to take full advantage of rising oil prices amid refining disruptions. There were no portfolio trades this month.
EURO ADVANTAGE FUND
The Van Arbor Euro Advantage Fund posted a 2.51% return since its inception on August 1, 2005, while the benchmark S&P Euro Index delivered a -2.50% return over the same period. For the month of September, the Fund recorded excess returns over the benchmark of 1.24%. In general news, recent economic data continue to confirm a gradual pickup in domestic spending within the Eurozone, though political uncertainties in Germany and Italy and the recent run-up in oil prices could derail the recovery. Companies around Europe however seem to be in the process of restructuring, particularly so in Germany, so election news may have been put on the backburner and restructuring and reforms will continue to take place no matter which government is appointed. Throughout the month, the Euro Fund benefited from its 25% exposure to oil and gas holdings which as a group appreciated an average of 5.90%. Shares of ERG Spa (ERG IM), Italy's biggest exporter of refined oil products, rose 23.50% throughout the month on a 98% increase in earnings for the first-half of 2005. Similarly shares of OMV AG (OMV AV), central Europe's biggest oil company based in Austria, appreciated 15.61% for the month on higher profit margins and strong demand. European steel producers were also rewarded on rumors of takeover speculations this past month. Shares of Salzgitter, Germany's second-biggest steelmaker advanced 23.50% for the month, after its finance chief reported the company is preparing a takeover defense strategy. Boehler, Austria based specialty steelmaker, was up 14.33% this month on reports of higher demand for high-alloy specialty steel products and a 35% jump in order backlogs for the first six months of the year. There were no portfolio trades 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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