Bruce Campbell, President & Portfolio Manager, StoneCastle Investment Management

FOCUS: Canadian Equities

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MARKET OUTLOOK:

BREXIT has been the news of the week and will continue to dominate the news and investors’ minds for the months to come. This is all about change; change in leadership, change in sentiment and this creates uncertainty. With no real precedent for such an event occurring in the past not a single person knows what will happen from here. We can all make our guesses on what we think may happen but reality is that investor aren’t too sure how to handle this. With uncertainty, there is volatility and that can create opportunities. We may see sharp sell offs and strong counter trend rallies. Investors need to understand what they own and decide what they want to own and at what price.

Before the BREXIT vote, the economy in the U.S. and Canada was showing some signs of improvement after bottoming in the first quarter of the year. Tracking economic cycles both short and long term we are watching carefully what happens with the shorter term cycle as it will peak out and turn down in the 3rd or 4th quarter of this year. At that point we will have a much better gauge on the strength of the economic recovery over the longer term. If the economy is growing the ISM Manufacturing and Non-Manufacturing indices along with other indicators will make higher lows. This will lead to growth as the short term trend moves higher and the longer term economic indicators improve.

We will continue to monitor the top down indicators for any changes. As of now, we continue to be on offence with the indicators we follow. We need to see some improvements to avoid moving back to defense. We are at a critical levels on many of the indicators and these need to hold or improve for the markets to continue the upward trajectory. We host a regular monthly webinar to update our indicators. The next webinar is July 20, 2016 at 4:30pm ET. To register contact info@stonecastlefunds.ca


Top Picks:

CRH Medical (CRH.TO)

The company specializes in anesthesia services for endoscopic procedures and a treatment for hemorrhoids. After several years for steady growth in their traditional business, they did a transformational acquisition in December 2014 to enter the anesthesiology market. Since that time they have continued to grow by acquisition, consolidating a highly fragmented market. They have expanded geographically and continue to have a list of potential acquisition targets. The stock trades at reasonable valuations based on price to earnings and price to EBITDA. Last purchase was $4.79.

Pacific Insight Electronics (PIH.TO)

The Company designs and manufactures components for the automotive heavy truck and marine industry. The company provides LED lighting, electronic control modules and wire harnesses. Customers include Caterpillar, Ford, Daimler and Harley Davidson. The company grew EPS over 30 per cent in the last year and the stock trades at a reasonable valuation of less than less than 8 times earnings. The stock not covered by analysts and is now showing up on the radar of many investors after being in business for 27 years. Last purchase was $10.85.

Sleep Country Canada (ZZZ.TO) 
Sleep Country is the number one mattress retailer in Canada. The company went public in July of 2015 for the second time. The business continues to provide impressive growth with 11 consecutive quarters of higher same store sales growth. Sleep Country has a 4 pillar growth strategy which allowed them to grow revenue at a 17 per cent annual rate. The stock trades at a reasonable valuation for the past and future growth. The last purchase was $22.80.

 

Disclsoure Personal Family Portfolio/Fund
 CRH  N N  Y 
PIH  N  N  Y 
 ZZZ N  N  Y 

Past Picks: July 3, 2015

Alimentation Couche-Tard (ATDb.TO )

  • Then: $53.80
  • Now: $55.04
  • Return: +2.30%
  • TR: +2.73%

Carmanah Technologies ( CMH.TO )

  • Then: $7.04
  • Now: $3.88
  • Return: -44.89%
  • TR: -44.89%

DIRTT Environmental Solutions (DRT.TO)

  • Then: $6.86
  • Now: $5.46
  • Return: -20.41%
  • TR: -20.41%

 

Total Return Average: -20.86%

 

Disclsoure Personal Family Portfolio/Fund
ATDb N N N
CMH N N N
DRT N N N

Fund Profile

Redwood Income Growth Fund

Performance as of:June 24, 2016

1 month: Fund 5.11%, Index* 6.78%

1 year: Fund -5.22%, Index* -7.06%

3 year: Fund 7.54%, Index*4.97%

* Index:

* Identify if your fund’s returns are based on reinvested dividends. Returns provided must be net of fees!

Top Holdings

  1. Cash - 16.12%
  2. Boralex Inc. - 4.89%
  3. Exchange Income - 4.66%
  4. Chartwell Retirement Residences - 4.64%
  5. Crombie REIT - 4.58%

Twitter: @SC_funds

Website: www.stonecastlefunds.ca