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May 2006 Newsletter
Monday, May 01, 2006
CANADIAN ADVANTAGE FUND
The Van Arbor Canadian Advantage Fund recorded a 1.45% gain for the month to close at $17.89, exceeding the return of the S&P TSX by 0.42%. The Fund captured 8.94% for 2006 year to date, and since its inception, has endured only three negative months, compared to the TSX which had twice as many months of negative returns. The Canadian equity market, as represented by the S&P TSX Equity Index, closed at 12,266 advancing 8.86% year to date. Buoyed by surging energy and gold prices, the S&P Energy Index captured a gain of 11% this year, while the S&P Materials Index advanced an astonishing 23%.
Lackluster performance of the S&P Utilities Index has resulted from upward pressure of overnight lending rates, as this highly interest sensitive asset class ended the month flat, however down over 10% year to date. On average, the Fund was rewarded from holdings of retailers, which as a group advanced almost 5% this past month. Led by Reitman's Canada (RET/NV:TSX), which was up over 13% this month, the group has enjoyed a 10% advance over the past four months. Solid performance was also seen from IGM Financial (IGM:TSX) as the mutual fund giant reported growth of fund assets in the magnitude of 3% for the month of March. IGM advanced 9.50% for the month and led the other financials, which as a group have advanced 7% year to date.
In economic news, the Bank of Canada last week raised its benchmark interest rate for the sixth time since September 2005 to 4%, to keep the economy from overheating. On the currency front, the Canadian dollar touched a 28-year high, as surging commodity prices bolstered the outlook for faster economic growth and higher interest rates. There were no portfolio trades to report.
Fund Performance Summary (Benchmark is S&P TSX Index)
US ADVANTAGE FUND
The Van Arbor US Advantage Fund recorded a gain of 2.36% for the month to close at $11.92, while the benchmark, S&P 500 Index ended the month up 1.22% to close at 1310. During the latter part of the month, the portfolio was rewarded from holdings of large cap financials, which uplifted the markets on subdued concerns regarding further rate hikes and possible tightening of credit yield spreads. Shares of Bank of America (BAC:NYSE), Wells Fargo (WFC:NYSE) and Golden West Financial (GDW:NYSE) ended the month up 8.5%, 7% and 5.5%. Strong performance was also seen from shares of 3M (MMM:NYSE), which ended the month up 10%. The maker of some 50,000 products reported a 17% jump in first-quarter profit on stronger demand for its consumer and security goods.
With US firms reporting healthy profits for the quarter, the corporate outlook for the US market remains positive, but still overshadowed by the frothy real estate market and record consumer and federal debt levels. Notwithstanding the US economy grew at its strongest rate in 2½ years during the first quarter of 2006. Gross domestic product recorded an annualized 4.8% growth rate, in the first quarter, or more than twice the 1.7% rate in the fourth quarter of 2005. There were no portfolio trades this month.
Fund Performance Summary (Benchmark is S&P 500 Index)
EURO ADVANTAGE FUND
The Van Arbor Euro Advantage Fund advanced 1.12%, while the S&P Euro declined 0.54% for the month. Over the past four months the Fund has advanced 16.74% and has exceeded the Euro benchmark by 4.54%. The pullback in the Eurozone equity markets resulted largely from under-performance in the healthcare and financials sector. For the month of April, majority of the fund's holdings finished positive, as the fund was rewarded from its exposure to a variety of different industries - from real state to chemicals and steel producers.
Top performers for the fund included ERG SpA (ERG:IM), refiner and marketer of oil products, and K+S AG (SDF:GR), a chemicals manufacturer and distributor. Shares of ERG and K+S advanced 13.50% and 9.50% for the month respectfully. Currency related - the Fund was affected by the rising the Canadian dollar, which advanced to new highs against some major world currencies.
In economic news, the European Central Bank (ECB) might have to contemplate rate hikes in the near future after the consumer inflation index came in at 2.4% for the month of April, or 0.2% above economic forecasts. With the Eurozone economic sentiment indicator hitting a five year high, it has only added to the expectations of rate hikes by the ECB. 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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