Manager’s Quarterly Commentary – David Barr – Q2 2012

After a strong start to the year, the global macro picture was too much to bear and markets sold off in the second quarter. The S&P/TSX Capped Composite Total Return Index was down -5.68% for the quarter. The Fund* was able to buck the downward trend and gain 1.89% for the quarter. Since inception the Fund* has an annualized return of 17.26%, compared to 6.62% for the S&P/TSX Capped Composite Total Return Index, the Fund’s benchmark.

*Refers to Class A units in the Fund

Event Driven Returns

The positive returns in the quarter are mainly attributable to two events. Both demonstrate the impact that identifying catalysts can have on generating returns in a portfolio that have a much lower correlation to the markets.

On June 4,2012, Miranda Technologies Inc. (TSX: MT), a global leader in providing cost-saving hardware and software solutions to the broadcast industry, received a takeover offer at $17.00 per share. This represents a 68% increase over the Fund’s purchase price of $10.11 in March of this year.

Arctic Glacier is another interesting situation. The Fund purchased units (essentially common shares) in Arctic Glacier while it was in bankruptcy at $0.05 per unit. While most fund managers would prefer not to be seen to buy companies in bankruptcy, we calculated how much the common shareholders should get once the debtholders were taken care of. Based on conservative assumptions, our analysis forecasted a final disbursement to unitholders of between $0.10 and $0.30 per unit. We committed prior to the uncertainty being removed by the court, as, at that point, it would have been too late to buy the stock at a good price and with a strong margin of safety. These types of opportunities present themselves from time-to-time and believe that as long as we do our homework and understand the situation better than others, we have the potential to profit handsomely from buying into companies when other institutional buyers would not. On June 28, 2012 the company released the purchase price and calculations show that the final disbursement should come in at the high end of our previously forecasted range.

Portfolio Updates

We had another active quarter as we bought three new holdings, added to several positions and exited from one company.  We continue to position the Fund with a high level of cash, 32% at June 30, to take advantage of timely market opportunities. The top 10 positions in the fund make up 39% of the Fund’s investment portfolio.

David Barr,
July 12, 2012