James Hodgins, president and chief investment officer at Curvature Hedge Strategies
Focus: Market-neutral investing (small and mid-cap stocks)
 

MARKET OUTLOOK

We believe the "everything bubble" has finally burst. By most cyclically adjusted valuation measures, equities and especially small caps are more highly valued than at any point in history. Further, the excessive risk-taking and increasing debt loads exacerbated by stock buybacks has pierced the corporate bond bubble, with spreads recently widening at a historic pace.  In Canada, add in the hyper-negative economic policies from the federal government and the conditions are ripe for a continued bust.

TOP PICKS

CORBY’S SPIRITS AND WINE (CSWa.TO)

We love Corby's for the cash generation, its dominant position in the Canadian liquor shelf space and counter-cyclicality.  It reminds me a lot of Rothman's, which for 30 years was the best total return stock on the TSX before it was finally acquired.  The special dividends, one of which was just announced, are a nice bonus on top. Our target is $22, but with dividends it’s a very healthy and safe total return.

CIPHER PHARMACEUTICALS (CPH.TO)

Cipher is an incredibly cheap stock trading at roughly five times earnings.  The market is concerned about its largest drug, Absorbica, coming off patent after 2020, but Cipher's management is confident they can maintain the current level of earnings through that event.  It's also a prime takeover candidate for a company like Knight Therapeutics or HLS Therapeutics and would be highly accretive to both.  We are actively working to convince Cipher management to entertain such a bid. Our target as a standalone is $5, but on a takeover we could see $7 or more including synergies.

SILVERCREST METALS (SIL.V)

Silvercrest is a Mexico- focused silver explorer. Their Las Chispas property has top-quartile silver grade with a very low capex number and they have had extraordinary exploration success. Resource grades are as high as 1 kilogram per tonne with a project internal rate of return in excess of 70 per cent, which is as high as I've seen in my career.  It’s very important to note that this resource booked only eight of 30 identified veins on the property. Four additional veins have been drilled with exceptional grades. There are lots of upcoming catalysts, including preliminary economic assessment early 2019, a new resource in quarter, lots of exploration results, and a project feasibility study late 2019. We think a lot more value will be unlocked over the next year, and this is a clear takeout candidate and we believe management willsell the company.  Our takeout target is approximately $5.50.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
CSW/A N N Y
CPH N N Y
SIL N N Y

 

PAST PICKS: MARCH 26, 2018

LEUCROTTA EXPLORATION (LXE.V)

  • Then: $ 1.60
  • Now: $1.20
  • Return: -25%
  • Total return: -25%

CIPHER PHARMACEUTICALS (CPH.TO)

  • Then: $4.15
  • Now: $2.02
  • Return: -51%
  • Total return: -51%

TERAGO (TGO.TO)

  • Then: $5.60
  • Now: $10.04
  • Return: 79%
  • Total return: 79%

 Total return average: 1%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
LXE N N Y
CPH N N Y
TGO N N N

 

FUND PROFILE

 Curvature Fund LP

  • 1 month: -0.94% fund, -6.51% index
  • 1 year: -1.55% fund, -6.23% index
  • 3 years: 0.96% fund, 3.56% index

Index:  S&P TSX Composite.
Returns are net of fees. The three-year performance is representative of annualized returns.

TOP 5 HOLDING WEIGHTINGS

  1. Burford Capital: 2.73%
  2. Corby's Spirit and Wine: 2.68%
  3. TransAlta: 2.42%
  4. Parex Resources: 1.96%
  5. Gran Tierra Energy 5% 04/21: 1.79%

WEBSITE: https://arrow-capital.com/curvature-market-neutral-fund