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February 2007 Newsletter
Thursday, February 01, 2007
CANADIAN ADVANTAGE FUND
The Canadian Advantage Fund commenced the New Year with a strong first month return of 2.44%, ahead of the market which captured a year to date return of 1.11%. The positive excess performance resulted in part from the Fund's overweight exposure to the Canadian Industrial companies, which advanced 6.35% for the month. Shares of SNC Lavalin (SNC:TSX), Stantec (STN) and First Service Corp (FSV) ended the month up 9.90%, 9.94%, and 9.70% respectively. Shareholders of SNC were pleased as the company signed two EPCM contracts (Engineering, Procurement and Construction Management Services) during the month with Cobre Las Cruces (Spanish copper producer) and GreenField Ethanol (Canada's leading ethanol producer) and one engineering design services contract with Fort Hills Energy (Oil sands producer). Shares of Canadian energy related companies experienced a high measure of volatility this past month as many tracked the price of oil, which bounced around heavily for the month. After dipping to $50 per barrel earlier in the month, crude oil rose to $56 by month end as OPEC, which pumps about 40% of the world's crude, said that it would cut production by 500,000 barrels a day starting February 1st.
Shares of Astral Media (ACM/A:TSX) advanced 14.95% for the month on speculation that the Canadian media company may bid for Alliance Atlantis Communications, which put itself up for purchase earlier in the month. Shares of Astral also advanced on reports that first quarter earnings doubled on lower taxes and TV advertising sales increases. A single trade took place in the month - our holding of Talisman Energy was replaced with Empire Co (EMP/A:TSX), a diversified company with key investment activities in the food distribution, real estate, and corporate investment activities.
Fund Performance Summary (Benchmark is S&P TSX Index)
US ADVANTAGE FUND
The US Advantage Fund advanced 0.33% for the first month of 2007 to close at $13.12, while the S&P 500 Index ended the month up 1.41%. The Fund continues its bullish steak from July 2006 and has now recorded its seventh consecutive month of positive returns. Amongst the winners this past month were shares of Barr Pharmaceuticals (BRL:NYSE). Shares of Barr advanced 6.78% for the month as the company said it won tentative US approval for a generic version of Roche's Kytril, a drug to prevent sickness in patients receiving chemotherapy or radiation treatment.
Other stocks that advanced this past month included shares of discount retailer, Target Corp and Constellation Energy Group (CEG:NYSE). Shares of the two advanced 7.55% and 5.34% respectively. On the economic front the Fed seems to be a little puzzled over the disparity between lagging economic growth numbers and the robust growth in the labour markets. Latest figures show an unemployment rate that is near a five-year low and the 2006 job growth rate that is almost as strong as the prior year's. Either the labour market is lagging behind the economic slowdown by a few months, or the economy is stronger than official numbers suggest. Either way the tightening in the labour market seems to suggest possible inflationary pressures to come. At the beginning of the month the Fund made two transactions - shares of CR Bard and Altria Group were sold and their proceeds were used to establish positions in News Corp (NWS:NYSE), and Zion Bancorporation (ZION:NYSE).
Fund Performance Summary (Benchmark is S&P 500 Index)
EURO ADVANTAGE FUND
The Euro Advantage Fund ended the first month of 2007 up 1.52% to close at $11.63, while the S&P Euro Index closed the month advancing 1.83%. The Van Arbor Euro Advantage Fund, as mentioned in the last month's newsletter, captured a 38% return in 2006. On January 29, 2007, The Globe and Mail published its annual Report on Mutual Funds ranking the top 75 mutual funds by their 2006 calendar year returns. According to the report, out of more than 7,000 retail mutual funds available to Canadian investors, the Van Arbor Euro Advantage Fund was ranked 56th according to its 2006 total return. This is a tremendous achievement considering that the Fund was placed amongst the top 1% of Canadian mutual funds offered to investors. What is even more impressive is the fact that most of the Funds in the top 75 are largely focused on investing in precious metals, emerging markets and alternative strategies. The Euro Advantage Fund is one of the very few funds that made it in the top 75 with a strict mandate of investing in large capitalization companies with proven track records and low volatility.
On the equity selection front, shares of Ramirent Oyj (RMR1V:FH), marketer of construction and machinery, continued its advance in the New Year appreciating in excess of 10% for the month. Likewise shares of Grupo Catalona (GCO:SM) advanced 10% for the month after the Spanish insurer posted a 42% gain in revenue from insurance, funds and investments. Over the month, the Euro gave back a slight percentage against the Canadian dollar. During the month shares of Merck and K+S AG were replaced by Alba Financial Corp (ALB:SM) and Titan Cement (TITK:GA).
Please note that the Fund's NAV has been adjusted to reflect last month's distribution.
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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