Alex Ruus, portfolio manager at Arrow Capital Management
Focus: North American equities

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MARKET OUTLOOK

We see continuing solid economic fundamentals underlying the global economy. The world’s largest economy, the U.S., is growing at its strongest rate since the great recession and is approaching full employment. The U.S.’s strong performance is helping lead the entire global economy towards solid growth. Financial markets had a strong last year and, given the continuing strong economy, we see the backdrop for another up-year for markets in the year to come, although it’s unlikely to be as strong as the last year. Similarly, the record-low volatility of 2017 is also unlikely to be replicated in 2018 and we have seen the first correction in several years in the last few months.

Security selection is likely to be increasingly important over the coming year as we see some remarkable divergences in performance from different areas of the market. The recent market dislocation has generated some very good individual security-purchasing opportunities, which the Leaders Fund is currently taking advantage of. This should help us to continue to build value for the holders of the fund.

TOP PICKS

ANTHEM (ANTM.N)
Last purchased on Dec. 5 at $223.

The leading U.S. healthcare insurance provider, Anthem is strategically positioned to benefit from the need for cost control in the healthcare system. The company produces prodigious amounts of free cash flow, which translates into growing dividends and share repurchases to return capital to shareholders. The stock is undervalued at 13 times next year’s earnings.

POLARIS INFRASTRUCTURE (PIF.TO)
Last purchased on Feb. 27 at $19.50.

Polaris is an independent green power producer bringing cheaper power to emerging markets. It generates electricity from geothermal heat and is displacing more expensive power generated from diesel fuel. The company trades at around five times forward EBITDA and a double-digit free cash flow yield: less than half of what similar companies trade at.

ACASTI PHARMA (ACST.V)
Last purchased on Dec. 21 at US$1.01.

Acasti is an undervalued drug developer which is just starting a phase-3 trial for CaPre, its revolutionary drug for treating hypertriglyceridemia. CaPre has shown superior efficacy and better side-effect profile to the current drug treatments, which sell over a billion per year. CaPre should capture the lion’s share of the market once its phase-3 trial is completed and the drug is approved for sale. The stock trades at just a tiny fraction of what similar companies entering into phase 3 trials do, and we see substantial upside for the stock.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
ANTM Y Y Y
PIF Y Y Y
ACST Y Y Y

 

PAST PICKS: AUG. 1, 2017

FREEHOLD ROYALTIES (FRU.TO)

  • Then: $14.02
  • Now: $12.35
  • Return: -11.91%
  • Total return: -9.31%

MICROSOFT (MSFT.O)

  • Then: $72.58
  • Now: $91.27
  • Return: 25.75%
  • Total return: 27.64%

ALARIS ROYALTY (AD.TO)

  • Then: $22.68
  • Now: $16.39
  • Return: -27.73%               
  • Total return: -23.65%

Total return average: -1.77%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
FRU Y Y Y
MSFT Y Y Y
AD Y Y Y

 

FUND PROFILE

Exemplar Leaders Fund – Class F
Performance as of: Feb. 28, 2018

  • 1 Month: -4.39% fund, -3.02% index
  • 1 Year: 1.97% fund, 3.23% index
  • 3 Year: 4.32% fund, 3.47% index

* Index: S&P/TSX Composite TR
*Fund’s returns are based on reinvested dividends and are net of fees.

TOP 5 HOLDINGS AND WEIGHTINGS

  1. Anthem Inc: 6.85%
  2. Microsoft Corp: 6.85%
  3. Freehold Royalties Ltd: 6.21%
  4. Magna International Inc.: 4.39%
  5. Polaris Infrastructure Inc: 4.00%

TWITTER: @ArrowCapital
WEBSITE: www.arrow-capital.com