James Hodgins, chief investment officer at Curvature Hedge Strategies
Focus: Market-neutral investing (small and mid-cap stocks)
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MARKET OUTLOOK
Broader equity markets entered a bubble phase following the U.S. election, driven not only by the economic cycle, but also by central banks pumping hundreds of billions into the global financial system. As global growth and inflation expectations have risen, so have interest rates which we believe was the root of the volatility explosion in early February. We continue to see central banks moving away from quantitative easing as the economic and credit cycles age. We believe this will lead to significantly more volatility in the year ahead, which is a great environment for market-neutral investing.
TOP PICKS
LEUCROTTA EXPLORATION (LXE.V)
We continue to like Leucrotta for its largely undervalued asset position in the Montney. The company remains extremely lightly booked on their drilling locations, with the potential for up to 800. They’ve seen some dramatic improvement in the performance of their wells by optimizing lateral design, with minimal incremental capital costs. We believe there’s takeout optionality on this name due to the oil-dominant nature of their assets and drilling location inventory. Shell or Tourmaline could be potential suitors at a price north of $3, assuming only 500 drilling locations in inventory.
CIPHER PHARMACEUTICALS (CPH.TO)
A special situation where Cipher is buying the Canadian assets of Cardiome. The stock is not very liquid and we believe the selling following the announcement was overdone. The company's fundamentals are not tied to economic growth and we believe it should do well in the economic environment we envision. We have estimated a NAV of around $7 on the combined assets, which is about double its current trading price.
TERAGO (TGO.TO)
Another special situation where TeraGo is sitting on extremely valuable 5G spectrum which is due to be auctioned off later this year. We think TeraGo will either be acquired or they will sell off the spectrum and pay out a special dividend. Our sum of the parts target is $9.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| LXE | N | N | Y |
| CPH | N | N | Y |
| TGO | N | N | Y |
PAST PICKS: JUNE 23, 2017
LEUCROTTA EXPLORATION (LXE.V)
- Then: $1.85
- Now: $1.52
- Return: -17.83%
- Total return: -17.83%
KLONDEX GOLD (KDX.TO)
- Then: $4.76
- Now: $3.06
- Return: -35.71%
- Total return: -35.71%
CASH
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| LXE | N | N | Y |
| KDX | N | N | Y |
Total return average: -26.77%
FUND PROFILE
Curvature Fund LP
Performance as of: February 2018
- 1 Month: 0.08% fund, -3.19% index
- 1 Year: 0.72% fund, 0.28% index
- 3 Year: 2.84% fund, 0.46% index
* Index: S&P TSX Composite
* Returns are net of fees. Three-year is representative of annualized returns.
TOP HOLDINGS AND WEIGHTINGS
| NAME | TICKER | % OF PORTFOLIO |
|---|---|---|
| PAREX RESOURCES | PXT CN EQUITY | 2.44% |
| LEUCROTTA EXPLORATION | LXE CN EQUITY | 2.16% |
| DELPHI ENERGY CORP 10% CEL NOTES | DEECN 10 07/15/2021 | 1.70% |
| DELPHI ENERGY | DEE CN EQUITY | 1.64% |
| NATIONAL ENERGY SERVICES REUNITED | NESR US EQUITY | 1.56% |
WEBSITE: https://arrow-capital.com/curvature-market-neutral-fund
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