Alex Ruus, portfolio manager at Arrow Capital Management
Focus: North American Equities
MARKET OUTLOOK
Following an up-and-down start to 2018, prospects for the coming year looks solid. The U.S. and global economies are growing solidly, unemployment is at its lowest level in a decade and interest rates remain reasonable. Increasing trade tensions driven by President Trump are causing some volatility in the market, but solid growth is offsetting this. With a growing U.S. leading the global economy forward, the backdrop for the coming year is positive. The increased volatility so far this year is generating some heartburn for skittish investors, but it ultimately leads to better opportunities for those willing to focus on buying solid leaders. 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 Leaders fund is taking advantage of this year’s volatility to buy some very attractive investment opportunities.
TOP PICKS
MAGNA INTERNATIONAL (MG.TO)
Last purchased Sep. 5 at $70.28.
The world’s second largest independent auto parts supplier, Magna is an innovative global leader in several key auto parts segments. The company is led by a strong management team with a demonstrated record of shareholder value creation. It’s steadily building shareholder value and returns it through a rising dividend accompanied by numerous share buybacks. We own the company and believe it’s undervalued, trading at seven times earnings and a 2.5 per cent dividend yield.
ELEMENT FLEET (EFN.TO)
Last purchased Sep. 5 at $6.96
Element is a global leader in fleet management, with the no. 1 position in North America and Australia. It has an experienced management team.
The company has jumped into a void in the market following the 2008 downturn and has emerged as a new leader in the space. It’s undervalued trading at a discount to book value, nine times next year’s earnings, and has an attractive and growing 4.3 per cent dividend. The company trades at a discount to both the market and comparable companies despite its attractive valuation and could be a takeover target by either a competitor or private equity.
UNITED PARCEL SERVICE (UPS.N)
Last purchased Sep. 5 at $124.51.
The world`s leading small package logistics company, UPS produces prodigious amounts of free cash flow and has a dominant market position. The stock trades at an attractive 15 times earnings and 2.9 times dividend yield.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| MG | Y | Y | Y |
| EFN | Y | Y | Y |
| UPS | Y | Y | Y |
PAST PICKS: NOV. 16, 2017
MICROSOFT (MSFT.O)
- Then: $83.20
- Now: $108.49
- Return: 30%
- Total return: 32%
ANTHEM (ANTM.N)
- Then: $220.89
- Now: $267.85
- Return: 21%
- Total return: 22%
FREEHOLD ROYALTIES (FRU.TO)
- Then: $15.09
- Now: $11.16
- Return: -26%
- Total return: -23%
Total return average: 10%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| MSFT | Y | Y | Y |
| ANTM | Y | Y | Y |
| FRU | Y | Y | Y |
FUND PROFILE
Exemplar Leaders Fund – Class F
Performance as of: Aug. 31, 2018
- 1 Month: 1.01% fund, -0.82% index*
- 1 Year: 6.19% fund, 10.09% index
- 3 Year: 6.51% fund, 8.67% index
* Index: S&P/TSX Composite.
* Fund’s returns are based on reinvested dividends and are net of fees.
TOP 5 HOLDINGS AND WEIGHTINGS
- Freehold Royalties: 7.51%
- Microsoft: 7.22%
- Anthem: 7.18%
- Magna International: 4.31%
- Element Fleet: 4.10%
TWITTER: @arrowcapital
WEBSITE: www.arrow-capital.com
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