Andrey Omelchak, president & CIO, LionGuard Capital Management

FOCUS: Canadian Equities

_______________________________________________________________

MARKET OUTLOOK:

From the valuation standpoint, we are of the view that Canadian and U.S. markets are currently trading more on the expensive side, given underlying dynamics in respective domestic and global economies. Having said this, at this point we also believe that odds of correctly predicting overall direction of stock market indices, over the next 1-to-2 years, are not high enough to make a strong stance in either direction.

We view with skepticism recent commodity price resurgence, as it appears to be mostly driven by speculative activities of retail Chinese investors. At the same time, we have not seen any meaningful changes in supply-demand dynamics. We are also cognizant of increasing challenges for U.S. companies to organically grow their revenues, while most of growth in their bottom lines has been largely attributable to availability of cheap credit and to financial engineering. On another side, Central Banks’ never ending quest to at-any-cost stimulate respective economies, and in some cases to even support local stock markets, should continue to provide a boost to the indices.

Despite our cautious stance on the overall market levels, and our view that sizable portion of it has been artificially inflated by availability of cheap credit, we are able to find good number of high quality businesses trading at attractive prices. Our approach is to carefully accumulate stakes in such businesses, while keeping in mind that overall market will most likely remain highly volatile. We encourage investors to invest in stable and predictable businesses only and to steer away from short-term speculative activities especially in the commodities sector.
 

Top Picks:

Element Financial (EFN.TO)

Upcoming separation of Element Financial into two stand-alone entities should provide for major unlocking of the value, as determined by the sum-of-the parts valuation. In addition to more focused management attention and expected re-pricing of the stock towards respective comparable, separation provides an opportunity to access cheaper funding and to materially increase overall return on employed capital. We expect ongoing excellent business dynamics and much more disclosure on plan of separation, when the company reports its second quarter results.

Yellow Pages (Y.TO)

Yellow Pages is undergoing major transformation as the company focuses its attention on growing predictable and recurring media solutions. By using free cash flow, management is actively repaying the debt and selectively diversifying further away from legacy printing business. Company trades at attractive valuation levels given its predictable and growing media assets.

EXCO Technologies (XTC.TO)

EXCO Technologies is a high quality company led by top management team and experiencing positive industry and company-specific dynamics. Recent correction in the stock price is related to elevated concerns around the impact of potential peaking in vehicle sales in U.S. and weaker quarterly results, albeit due to one-time items. Price decline, in my opinion, provides an opportunity to acquire shares in excellent company at a sizable discount to their intrinsic value. 

Lionguard Opportunities Fund

Performance as of: April 30, 2016

1 month: Fund 0.51%, Index* 3.68%

1 year: Fund 9.34%, Index* -5.43%

Since Inception: Fund 15.72%, Index* -1.33%

* Index: S&P/TSX Total Return Index

* Returns net fees and distributions

2016 AI Hedge Fund Awards Winner - "Best Long/Short Equity Manager - Canada & Best Canadian Long/Short Equity Fund (1 Year): LionGuard Opportunities Fund"

Website: www.lionguardcapital.com