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September 2006 Newsletter
Wednesday, September 06, 2006
CANADIAN ADVANTAGE FUND
The Van Arbor Canadian Advantage Fund ended the month up 1.36% to close at $16.87, while the S&P TSX Equity Index appreciated slightly over 2.5%. The volatility in energy and commodity prices continued to be the main driver of returns and their daily fluctuations, however a recovery seems to be insight considering that the underlying benchmark has gained almost 10% since confronting this year's lows in mid June 2006. After two consecutive months of positive returns, the Fund is determined to surpass the year's highest net asset value recorded this April. With the price of oil still hovering over $70 a barrel, and price of gold over $600 an ounce, the topic of discussion centers around the sustainability of commodity prices which are largely a function of global demand and the prevailing extraction costs for these commodities. While equity prices of energy related companies in the Fund declined an average of 4% for the month, the limited exposure to this industry group minimized possible losses.
The Fund's positive exposure to financials, consumer stocks and utilities helped offset the losses from energy holdings as the three industry groups finished the month up 6.4%, 5% and 6% respectively. Top performers in the Fund included holdings of Kingsway Financial (KFS:TSX) and Toronto-Dominion Bank (TD:TSX), which ended the month up in excess of ten percent, while shares of CCL Industries (CCL/B:TSX) declined after the provider of packaging for consumer goods mentioned concerns regarding slower consumer spending in the US and a falling US dollar, which could hurt earnings for the remainder of the year. 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 advanced for the second straight month to close at $12.02 or up 3.30%. Meanwhile the S&P 500 Index finished the month up 2.13% to close at 1,303 points. Notwithstanding reports of falling US consumer confidence, resulting from slowing growth in GDP, manufacturing and employment, the performance of the US Fund has been solid and the methodology has demonstrated some insurance against possible economic weakness. While business spending has kept pace, consumer spending has cooled following numerous reports of a slowing housing market. As less than positive economic data floods the market, investors weigh the probability of an economic slowdown, following two years of Federal Reserve interest rate hikes. This month however, the Federal Reserve left the benchmark rate unchanged at 5.25%. The Fund's performance was reflected largely by consumer stocks, which as a group ended the month returning over 5%, while shares of energy firms like Apache Corp (APA:NYSE) encountered weakness and ended the month in red.
In this particular part of the market cycle there seems to be a great deal of uncertainty regarding economic direction, consequently one should not be speculating and should be focusing on large cap companies with solid track records and years of proven earnings. As such is the cornerstone of our methodology we are confident in our performance for the latter half of the year. Considering the weakness in US, it is the giants with global exposure than will perform best as their international exposures will help soften the domestic pressures. There were no portfolio trades to report this month.
Fund Performance Summary (Benchmark is S&P 500 Index)
EURO ADVANTAGE FUND
The Van Arbor Euro Advantage Fund retracted 0.97% for the month to close at $10.74, while the benchmark S&P Euro Index ended the month up 1.32% to close at $11.21. The fueled European equities were led by information technology, industrials and financials which advanced 6%, 3.2% and 5% respectively. The slowdown in the US economy, and the Fed's reluctance to raise rates earlier in their August meeting, had eased global worries of a slowdown in consumer demand and inflationary pressures. The Fund benefited from holdings of financials, which as a group advanced over 7% for the month, while shares of Merck ended the month up 7% on favorable news regarding a strategic partnership with another drug related company.
The Fund was upset by holdings of Leoni (LEO:GR), a German based maker of wires and cables used in cars and consumer electronics, which reported higher second-quarter profit on higher copper prices and more orders from carmakers. Leoni, however missed analysts profit and revenue estimates and ended the month in red. The deprecation of the Euro against the Canadian dollar amounted to 1.6% for the month, and consequently dragged on the performance of the Fund. There were no portfolio trades to report for the 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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