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February 2006 Newsletter
Wednesday, February 01, 2006
CANADIAN ADVANTAGE FUND
The Van Arbor Canadian Advantage Fund commenced the New Year with a strong first month. While the S&P TSX Equity Index recorded a gain of 6.03% for the month of January, the Canadian Fund ended the month up 6.00% to close at $17.40. Led by robust growth in energy and industrials, 15 of the Fund's holdings appreciated for the month and recorded average gains in excess of 7% for the month. The top performing energy holding in the Fund was Suncor Energy (SU: TSX), the world's second largest oil-sands miner. After announcing that fourth quarter profit more than doubled on increased production of 20%, the stock hit a new 52-week of $91 and returned well over 20% for the month. Overall, the Fund's energy related holdings returned an average of 16% this month, compared to the S&P TSX Energy Index which pushed forward 12%. The top industrial performer for the Fund was Russel Metals (RUS:TSX), one of the largest metals distribution and processing companies in North America. Russel's exposure to the distribution and transportation of energy related products along with the recent wave of consolidation in the steel sector helped the stock hit a new 52-week high mid-month returning 14% year to date. There were no portfolio trades this month. In market news the Bank of Canada continued its course of tightening as it raised the overnight lending rate by 25 basis points to 3.5%. The Bank also raised its 2006 growth forecast for the Canadian economy from 2.9% to 3.1%, and said the economy should expect a modest rise in interest rates for the remainder of the year in order to offset the lack of projected capacity.
Fund Performance Summary (Benchmark is S&P TSX Index)
US ADVANTAGE FUND
The Van Arbor US Advantage Fund recorded a gain of 0.97% for the month to close at $12.30. Over the month, the benchmark, S&P 500 Index also finished in positive territory advancing 2.55%. The US market continues its struggle in 2006 faced with similar problems that overshadowed investor optimism at the end of 2005. Fear of a housing bubble translating into weaker consumer demand and a slowdown in corporate profits is still on the mind of many economists and as a result emphasis is currently placed on this quarter's earning reports and their ability to provide some sort of guidance for the remainder of 2006. Some of the top performers in the US Fund were Stryker (SYK:NYSE) and Golden West Financial (GDW:NYSE), which were up 12% and 7% respectfully for the month. Stryker Corp, the world's third largest maker of artificial hips and knees, said fourth quarter profit rose 14%, helped by sales of surgical equipment and instruments, while shares of Golden West Financial were rewarded following the banks release of earnings that handsomely beat consensus estimates. On the other hand shares of 3M ended the month down 5% after the company released its fourth quarter results, which showed weaker sales than anticipated in the health care unit. There were no portfolio trades this month. In economic news the 2005 GDP expanded by 3.5%, slowing from 4.2% growth in 2004. There also were also signs of increased pressure on prices in the fourth quarter. The Federal Reserve's policy-setting Federal Open Market Committee met this past Tuesday and decided to raise the federal funds rate by another 25 basis points to 4.5% and has indicated it is closely watching inflation. The Fed has raised short-term interest rates 14 times since mid-2004.
Fund Performance Summary (Benchmark is S&P 500 Index)
EURO ADVANTAGE FUND
The Van Arbor Euro Advantage Fund had an exceptional month of January recording a 7.57% return for the month to close at $10.49. Since its inception on August 2005, the Fund has recorded a total return of 4.92%. While decomposition of the return signaled some strengthening in the Euro currency this past month, the majority of the gain was a result of equity selection. The top three performers in the Euro Fund averaged a return of over 20% for the single month alone, and surprisingly are not part of the energy sector. Shares of Aalberts Industries (AALB NA), Europe's largest maker of water and gas fittings, hit a 52-week high this month on news that it had agreed to buy Comap SA of France, an acquisition that will boost Aalberts' earnings this year. Shares of Aalberts were up over 17% this month. Similar growth in share price was seen from Spain's second largest publicly traded insurer after the company was given a favorable rating by an industry analyst. Shares of Grupo Catalina Occidente (GCO SM) hit a 52-week high this past month. While some feel that much of the strength in the European markets is coming from buoyant Asian markets, the lackluster performance of European stocks in the second half of 2005 seems to have been finally put to rest, and attention has been geared at the recent spurge of global mergers and acquisition, many of which have originated from European based economies. There were no portfolio trades this month.
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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