James Hodgins, president and chief investment officer of Curvature Hedge Strategies
Focus: Small and mid-cap stocks
MARKET OUTLOOK
The "Everything Bubble", inflated by a decade of experimental central bank money printing and market interventions has popped. The size of the malinvestment during this period is unknown, but suffice to say it will mean a lot more downside for risk assets. Going forward Curvature Hedge Strategies believes that a well-managed market neutral strategy can outperform equities and fixed income on a risk-adjusted basis.
TOP PICKS
LEUCROTTA EXPLORATION (LXE.V)
Leucrotta is our favourite contrarian tax-loss pick in the Canadian oil patch. We look at the company on the basis of the asset value at a per section basis. Even at today's lower commodity price deck we believe that their 220 net Montney sections are worth over $2.00 on a risked basis, and over $4.00 on an eventual derisked basis. They have a pristine balance sheet which means they have the ability to wait out the downturn. Our one year price target is $2.40 but we could see $3 to $5 dollar range should Canadian energy come back into favour.
CIPHER PHARMACEUTICALS (CPH.TO)
Cipher is a classic deep value tax-loss pick and it is not cyclical, which given our bearish outlook is important. We also think it would make a natural takeover candidate for companies like HLS Therapeutics and Knight Therapeutics where they would have significant synergies. Our one year target price is $3.00 but we think Cipher would be accretive in an acquisition at up to $4.00.
MAG SILVER (MAG.TO)
MAG Silver is another name that is down and a tax-loss pick. We like precious metals into the bear market in risk assets and MAG Silver is our favourite name. MAG currently trades a 0.8 times net asset value (NAV). We expect it to trade at a premium to its $12 NAV within a year. We can see a further upside if gold and silver do well. The company continues to be a takeout target.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| LXE | N | N | Y |
| CPH | N | N | Y |
| MAG | N | N | Y |
PAST PICKS: MAY 15, 2018
ITAFOS (IFOS.V)
- Then: $2.51
- Now: $0.98
- Return: -61%
- Total return: -61%
THESCORE (SCR.V)
- Then: $0.385
- Now: $0.29
- Return: -25%
- Total return: -25%
LEUCROTTA EXPLORATION (LXE.V)
- Then: $1.92
- Now: $0.88
- Return: -54%
- Total return: -54%
Total return average: -47%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| LXE | N | N | Y |
| IFOS | N | N | Y |
| SCR | N | N | Y |
FUND PROFILE
Curvature Fund LP
Performance as of Nov. 30, 2018
- 1 month: -4.9% fund, 1.1% index
- 1 year: -6.3% fund, -5.4% index
- 3 year: -1.1% fund, 4.1% index
Index: TSX Composite
Returns are net of fees and annualized.
TOP 5 HOLDINGS AND WEIGHTINGS
- TransAlta: 2.23%
- Gran Tierra Energy: 1.98%
- Leucrotta Exploration: 1.71 %
- Burford Capital: 1.69 %
- Parex Resources: 1.62 %
WEBSITE: www.curvaturehedge.com
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