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December 2007 Newsletter
Saturday, December 01, 2007
CANADIAN ADVANTAGE FUND
The Canadian Advantage Fund fell 10.5% last month while the S&P TSX Index closed the month down 6.5%. After having such a stellar month in October, markets sold off on credit and growth concerns out of the US. Most sectors ended the month poorly with the industrial, telecommunication and consumer sectors faring the worst. The energy sector held up in the first half of the month but eventually pulled back as oil failed to reach $100 after hitting $99 and then subsequently retreating to $88. The telecommunications sector took the largest hit last month as the Federal government revealed guidelines on the upcoming wireless spectrum auction that will give smaller players a greater chance to participate. This led to a sharp drop in our holdings of Rogers Communications (RCI/B:TSX) and Telus (T:TSX) as they fell 14% and 18% respectively. Truly a month where fear and volatility dominated valuations and earnings.
US ADVANTAGE FUND
The US Advantage Fund ended the month flat while the S&P 500 Index fell 4.4%. A strong relative performance out of the US Fund considering the market selloff that occurred last month. Financial, telecommunication and consumer discretionary stocks led the decline as increased uncertainty on the direction of the economy added to volatility in the market. The economic picture so far has not confirmed a slowdown as the labour market has not shown signs of dramatic weakening and has been holding up quiet well. The Fed appears ready to cut rates again in its upcoming meeting this month as further insurance against a slowdown in growth. We continue to see strong performance from our holdings in the consumer staples and health care sectors where earnings are not strongly correlated to changes in consumer spending and economic growth. Some of the biggest winners last month were United Health Group (UNH), Altria Group (MO) and Covance (CVD).
EURO ADVANTAGE FUND
The Euro Advantage Fund ended the month down 1.9% while the S&P Euro Index was up 3.7%. The US led selloff last month helped push the Euro Zone equity market to its lowest level since the summer before rebounding in the last week of the month. The Euro currency finally broke free from its decline versus the Canadian dollar rising 6.7% for the month but still down almost 4% for the year. Financials and consumer stocks faced the brunt of the downside last month as investors digested the effects of a stronger currency versus the US and possible slowing US demand. Exporters will be the most affected by the strong Euro; however, consistent demand out of Asia, Russia and the Middle East coupled with a stable job market should help the Euro Zone cushion any possible US slowdown. Earnings releases came mostly in line with expectations with some positive surprises. Anglo Irish Bank had the biggest lift out of earnings after posting a 43% increase in profits while reiterating their strong balance sheet and growth guidance.
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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