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April 2006 Newsletter
Saturday, April 01, 2006
MARKETS AT A GLANCE: 1ST QUARTER UPDATE
Led by buoyant growth in energy and materials, Canada continues to attract attention from domestic and foreign investors alike. Potential gains for international investors have not only resulted from exposure to our resource sector, but also from the strengthening in our dollar. Modest rate hikes are expected in the near future by the Bank of Canada to control inflation, while more conservative returns from the equity markets are anticipated for the remainder of the year.
The US equity markets continue to display poise and resilience in the opening quarter of 2006, notwithstanding the evidential slowdown in the housing market, the looming budget and trade deficits, and the continued tension in the Middle East. Look for further rate hikes by the Fed, accompanied by a stronger stands on inflation and some slowdown in consumer spending.
Led by a recent wave of consolidation activities and strong energy prices, the Eurozone has outperformed both North American markets this first quarter (in Euros and Canadian dollar denominated returns) and continues to provide positive signals for the remainder of 2006. Furthermore, the Eurozone market remains quite inexpensive relative to the North American counterparts (determined by the relatively low price to earnings multiple), and we believe would provide a good investment opportunity at these levels.
UPDATES:
The Van Arbor Euro Advantage Fund is now available across Canada through your investment advisor.
CANADIAN ADVANTAGE FUND
The Van Arbor Canadian Advantage Fund advanced 0.92% for the month to close at $17.63, while the S&P TSX Index recorded a 3.84% gain to close at 12,157. Led by continued strength in energy, the Fund was rewarded from holdings of Petro-Canada (PCA:TSX +6.25%), Suncor Energy (SU:TSX +5.11%) and Shell Canada (SHC:TSX +8.14%). As a group the energy related holdings advanced 3.82% for the month of March, and were up 6.93% since the beginning of the year. Strong performance was also captured by financials, which collectively gained 1.3% this past month. March returns in excess of 5% were recorded by IGM Financial (IGM:TSX) and Power Financial (PWF:TSX). Within the sector, Home Capital Group (HCG:TSX) was the underperformer after announcing that first quarter results for 06 will not be expected to exceed fourth quarter results of 05, and as a result will probably be more in line with first quarter 05 numbers. Although it has shown some recent price weakness, Home Capital continues to rank high and as a result we continued to add to our position and average down the cost basis. There were no portfolio trades this month.
Fund Performance Summary (Benchmark is S&P TSX Index)
US ADVANTAGE FUND
The Van Arbor US Advantage Fund recorded a gain of 0.67% to close at $11.65, while the benchmark, S&P 500 Index was up 1.10% to close at 1294 for the month. During the course of 2005, the S&P Index traded in the 1150 to 1250 range, while in the first quarter of 2006 the trading range compressed even more as the Index drifted between 1250 and 1300. During the latter part of March however, the Index pushed forward and broke 1300 for the first time since May 2001, which was seen as a positive signal by many technical analysts. Over the month of March, holdings of consumer products contributed favorably to the portfolio's return, including shares of Brown Forman (BF/A:NYSE) and Sysco (SYY:NYSE). After announcing a 13% rise in third quarter profit from higher demand for its Jack Daniel's, Southern Comfort and Finlandia spirits, shares of Brown improved 12% for the month. Shares of Sysco were also up 6.9% for the month as investors have begun to uncover attractive valuations in the underperforming retail segment. Similarly share of McGraw Hill (MHP:NYSE) climbed 8.12% for the month to close at $57.6, after dipping as low as $47 only two months earlier. The Federal Funds Rate was pushed up this past week by another 25 basis points to 4.75% and further increases are expected to offset the threat of inflation. There were no portfolio trades this past month.
Fund Performance Summary (Benchmark is S&P 500 Index)
EURO ADVANTAGE FUND
The Van Arbor Euro Advantage Fund soared 7.05% to close at $11.23, while the S&P Euro Index ended the month up 7.32%. The robust growth of the Eurozone equity market reinforces the views of economists who believe that the conditions remain in place for economic growth and expansion to continue over the coming quarters. Anticipated strength in investment demand and growth in consumer demand are expected to play a pivotal role, while on the inflation front, there is widespread consensus that short term rates will be impacted by higher energy prices and as a result one can expect the European Central Bank to push its key overnight lending rate even higher. Growth in the Fund resulted from various sector exposures and favorable exchange rate movement. Leading the pact was Metrovacesa (MVC SM), a Spanish real estate operator and developer. Shares of Metrovacesa ended up 12.15% for the month after announcing that Grupo Sacresa was bidding $1.6 billion euros for a 20% stake in Spain's biggest real-estate company. Similarly shares of Pernod Ricard (RI FP), a French based manufacturer of wines and spirits were up 6.90% for the month after announcing that annual profit will be at the top end of company's forecast. Shares of Pernod climbed to the highest level in 16 years. Three trades occurred this past month. Positions in OMV, SOS Cuetara and Alberts Industries were closed and proceeds were used to establish holdings in KBC Group (KBC BB), Cementos Portland (CPL SM), and Acciona (ANA SM).
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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