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April 2008 Newsletter
Tuesday, April 01, 2008
MARKETS AT A GLANCE: QUARTERLY UPDATE
The benefits and costs of having a strong Canadian dollar are being more broadly felt across the economy. The remarkable fall in consumer prices, especially food costs, has been a huge benefit in tempering inflation as import prices have fallen quickly. The Bank of Canada welcomed the inflation relief as other countries are facing much higher rates of price increases. The labour market continues to add jobs at an impressive rate with unemployment still sitting at a historic low. The strength of the energy, mining and consumer sectors has helped prop up the economy even as the US economy slows. The main weakness in growth has been the export sector with manufacturing and automotive demand suffering from the strong Loonie. The Bank of Canada appears intent on slowing the rise of the Loonie by cutting interest rates twice so far this year. Further rate cuts seem evident as weakness in the US economy puts more pressure on the export market; however, the strength of the domestic economy coupled with demand for commodities will keep the economy relatively buoyant.
The US economy faced numerous challenges in the first quarter of 2008 as developments in the housing and credit market continued to add pressure to the US economy. The Federal Reserve's swift actions of interest cuts and added liquidity to the financial system should help prevent a severe slowdown from developing. Rising inflation and slowing growth has helped push the US dollar to record lows against most major currencies. The weak dollar is helping boost the export and manufacturing sectors as US goods become relatively inexpensive for foreigners. Lower borrowing costs and the weakness in the dollar remain key to driving growth in the second half of the year.
The Eurozone economy has so far avoided many of the concerns surrounding a slowing US economy and a Euro at record highs. The focus remains on inflation as rising food and oil costs has prevented the European Central Bank from cutting rates in step with the US. Unemployment continues to fall, especially in Germany where low unemployment is helping support a strong consumer sector. As the effects of a high Euro and slowing US demand begin to be felt, slower export growth seems evident. There haven't been many signs of weakness in the domestic economy; therefore, moderate growth rather than contraction seems to be the more likely direction of the Eurozone economy.
CANADIAN ADVANTAGE FUND
The Canadian Advantage Fund rose 0.6% last month, while the S&P TSX Index fell 2.1%. Leadership shifted out of the energy and material sectors and into the financial, telecommunication and utility sectors. As commodities retreated after hitting record highs, the focus shifted to non-cyclical diversified companies whose valuations look very attractive in the current environment. We continue to favor large cap companies with consistent earnings and dividends which we expect to lead going forward. Some of the best performers last month were Shoppers Drug Mart, Fortis and Research in Motion.
US ADVANTAGE FUND
The US Advantage Fund rose 1.6% last month, while the S&P 500 index fell 0.6%. Industrials, consumer staples and utilities were the best performing sectors last month while financials and health care were the main drag. The weakness from the housing and credit market is beginning to spillover into the consumer discretionary and financial sectors; however, we continue to see ample strength from defensive sectors and those benefiting from the weak US dollar. Large multinationals with international exposure have so far been the biggest winners to date as foreign denominated earnings are helping boost their bottom line. Our best performers last month were Proctor & Gamble, General Electric and Exelon, rising 6%, 12% and 9% respectively. 
EURO ADVANTAGE FUND
The Euro Advantage fund rose 6.7%, while the S&P Euro Index rose 5.9%. The Euro equity market was stable and resilient last month, benefiting from greater confidence in the domestic economy. The Euro reached a three year high versus the Canadian dollar, which helped contribute most of the gains for the month. Fears of Eurozone growth contracting eased as strong domestic data showed a healthy consumer. Inflation and a rising Euro remain the main concerns going into next quarter; however, expectations of a moderate pace of growth seems to have helped restore some confidence into the Euro equity market. 
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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