August 2010
In August, North American equity market performance diverged at the border. The Canadian market was up modestly while the US equity markets were decidedly negative. In Canada, the S&P/TSX Composite Index rose 1.71%. Meanwhile the US markets posted very negative returns; the S&P 500 lost 4.74% in August and the DJIA was also negative for the month (-4.31%). The NASDAQ index posted a significant decrease of 6.24%. Year to date the S&P/TSX Composite Index has gained 1.43%, meanwhile the S&P 500 has fallen (-5.90%), the DJIA is down (-3.96%) and the NASDAQ index is down (-6.84%).
The Commonwealth Patriot Trust maintained a positive net market exposure of 36% (beta adjusted net exposure= +33%) during August and experienced a gain of 1.63% on the month. Year to date the Commonwealth Trust is up 5.07%. The gain in August can be attributed to positions in basic materials, communications and consumer non-cyclical sectors. Various index unit positions also added to returns on the month. Meanwhile, positions in the energy and technology sectors offset some of these gains.
At the end of August the fund was net long in Canada (+44%) and net short in the US (-8%). Net exposure stood at +36% by the end of the month due mainly to security-specific investment ideas, while gross exposure stood at approximately 119%. Currently, 53% of the Trust’s equity portfolio consists of Canadian equities and 47% is in U.S. securities. The Trust’s largest weightings were energy at 25%, basic materials at 14%, communications at 12%, and various equity index short positions totaling 41%.
The Trust’s manager continues to be cautious as a result of the speed and magnitude of the capital markets run up and has actively used top down sector rotation to drive investment strategy. He expects that the further returns are available in energy, precious metals, and certain basic materials equities, and has invested accordingly. Since inception (in February 2003) the Trust has generated annualized returns of 11.8% as compared to its TSX benchmark comparable of 8.2%.
