Manager’s Quarterly Commentary – David Barr – Q3 2012

Good quarter, bad quarter, good quarter… sounds ominous for the fourth quarter. The S&P/TSX Capped Composite Total Return Index was up 7.02% in the third quarter. The Fund¹ lagged the index by 2.54% for the quarter but still gained 4.48% for the quarter. Since inception the Fund² has an annualized return of 17.39%, compared to 8.28% for the S&P/TSX Capped Composite Total Return Index, the Fund’s benchmark.

1 Refers to Class A units in the Fund.
2 Inception is June 2009.

This is a Stock Pickers Market

Looking out into the world today, with developed world economies sputtering and historically low interest rates, we find ourselves in a very low return market. In this type of environment, annual returns of 2-4% in the stock market over the next five+ years are highly probable.

On top of this, we have an extremely uncertain macro environment dominated by headlines from the US economy, the European debt crisis and a soft/hard landing in China. This precarious backdrop drives increased volatility as the markets react to the newest piece of economic data.

What this means for investors is that even though markets may return 2-4% over the next five + years – it will not be a straight line! This is a perfect world for bottom-up stock pickers who can take advantage of the volatility by actively managing their portfolio to outperform in this low return world. Invest in the index at your own risk.

Portfolio Updates

We had another active quarter as we bought five new holdings, added to several positions and exited from six companies. We continue to position the Fund with a high level of cash, 31% at September 30th, to take advantage of timely market opportunities. The top 10 positions in the Fund make up 41% of the Fund’s investment portfolio.

We increased the Fund’s weighting in the US from 5.9% at June 30th to 9.5% at September 30th. We continue to see tremendous opportunities south of the border as US investors, hurt by the financial crisis and the loss of value in the real estate market, are still extremely risk adverse and therefore stay away from small cap companies.

David Barr,
September 30, 2012