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November 2007 Newsletter
Thursday, November 01, 2007
CANADIAN ADVANTAGE FUND
The Canadian Advantage Fund soared 5.3% last month with strong earnings reports driving most of the gains. Some of the biggest winners were TransCanada Corp, Home Capital Group Inc and Gildan Activewear Inc. Home Capital Group saw the largest returns after the undervalued company posted better then expected record profits. The consumer discretionary and utilities sector were strong performers last month while industrials were weaker on currency concerns. The Loonie hitting a new all-time high does have some negative implications for manufacturing industries and exporters; however, non-US exporting industrials and consumer goods sectors look to benefit from cheaper costs of input and capital goods imported from the US. This would be consistent with the Canadian GDP report for August which showed a better then expected 0.2% gain in growth with retailers leading the way while manufacturing continued to lag. Reductions in corporate, income and sales taxes announced recently and a strengthing job market should help soften any possible slowdown in US demand.
US ADVANTAGE FUND
The US Advantage Fund ended the month fairly flat, down 0.9%. It was a volatile month for US markets with strong gains early on tempered by weakness in the financial sector. Third quarter earnings were solid with the majority of companies beating expectations. US economic growth last quarter came in strong at a 3.9% annualized rate with trade contributing a quarter of the growth due to increasing demand for US exports. As the US Dollar reaches new lows, the manufacturing and industrial sectors are starting to see a pick up in production to meet new demand. The Federal Reserve cut interest rates by another 25 basis points which helped markets rally on the last day of the month. The Fed's statement dampened expectations of further rate cuts as growth and inflation risks remain in balance. The re-acknowledgement of inflation risk by the Fed should help slowdown the steady decline of the US dollar. The outlook for the US in the next two quarters is for moderate growth with weakness from housing and strength from trade and the job market.
EURO ADVANTAGE FUND
The Euro Advantage Fund rose 1.1% last month with solid gains from the consumer discretionary, industrial and telecommunications sectors. The start of semi-annual earnings reporting season helped guide a few of our undervalued holdings with strong earnings and returns from MAN AG and Continental AG. The portfolio's relative return in Euros was roughly 4%; however, the appreciation of the Loonie last month contributed almost 3% to the downside and almost 10% year to date as it hits an almost two year high. On the economic front, Eurozone growth has not fallen appreciably due to slowing US demand but has moderated from its rapid pace. Inflation remains a concern of the European Central Bank; however, the rise of the Euro versus the US Dollar has not gone unnoticed in helping reduce import costs. There are a large number of companies still to report earnings in November, which should help give guidance to some of our holdings whom have been affected more by sentiment then by facts.
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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