April 2012
North American equity markets generated predominantly negative performance results in April. More specifically, the S&P/TSX Composite Index declined by 0.80%, the S&P 500 was down 0.75%; the NASDAQ decreased 1.46%; while the DJIA finished flat for the month (up 0.01%).
The Focused Opportunities Fund maintained its net market exposure of +56% (beta adjusted net exposure= +46%) during April and generated a loss of 2.06% on the month. Fund positions in the consumer cyclical, communications, energy, basic materials, and financial sectors were down during the month; while holdings in the consumer non-cyclical and industrial sectors were up. The Canadian and US long books generated losses for the month, however, the Canadian and US short books recorded gains. At the end of April the fund was net long in Canada (+42%) and net long in the US (+14%). Overall, approximately 53% of the fund was invested in Canada and 47% in the US. Net exposure stood at +56% at the end of the month due mainly to security-specific investment ideas, while gross exposure stood at approximately 107%.
March’s pattern of weak performance among commodity based equities and relative outperformance by defensive sectors and U.S. equities in general, continued in April. We continue to re-allocate capital towards U.S. equities with the view that the aforementioned trends could persist for some time. We believe decelerating growth in China and continued evidence of deteriorating economic conditions in Europe are two key risk factors that investors must protect against in the current market environment. In contrast, recent economic data and earnings results continue to provide support to the view that the U.S. economic recovery is underway. As a result, we are increasingly turning our focus to domestic U.S. businesses, while we remain more cautious with respect to those companies with significant exposure to Europe or emerging markets. We continue to identify interesting opportunities in large North American corporations. Many businesses are trading at extremely low valuation multiples despite strong fundamental performance, solid balance sheets, and attractive dividend yields. From a sector standpoint, U.S. automotive, U.S. housing, technology and healthcare all offer attractive opportunities. While we continue to hold significant cash and hedges in the form of short positions, we have used the recent pullback in equity prices to add modestly to high quality U.S. equity positions.
Since inception, the fund has delivered strong risk-adjusted performance with a 5.5% annualized return, and a low correlation to equity markets while the benchmark S&P/TSX Composite Index has returned 3.6% annualized over the same period. Since inception the Focused Opportunities Fund has had a volatility of 7.3% versus 15.7% for its benchmark. The fund has also protected capital well with a maximum drawdown since inception of 14% compared to a 45% drawdown for the S&P/TSX Composite over the same time period.
