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 Preservation Trust increased its exposure in April resulting in a net market exposure of +55% (beta adjusted net exposure = +45%) at month end and generated a loss of 1.91% on the month. The Canadian and US long books were down during the month, however, the Canadian and US short books generated gains. At the end of April, the fund was net long in Canada (+45%) and net long in the US (+10%). Overall, approximately 52% of the fund was invested in Canada and 48% in the US. Gross exposure stood at approximately 122%.
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 its inception, Preservation Trust has shown a negative correlation (-0.26) to its benchmark, equal weightings of the S&P 500 and S&P/TSX Composite Index. The Preservation Trust has demonstrated an ability to outperform in tougher market environments since its inception in May 1999 and has generated annualized returns of 10.2% while its benchmark has gained 2.5% annualized over the same period.
