Monday December 8th, 2014
The Fund aims to provide returns in excess of broad U.S. equity markets by investing in a portfolio of fundamentally selected US listed equities. The Fund employs leverage to increase its long portfolio exposure and hedges the increased market risk associated with the leveraged portion of the portfolio with index futures.
The Fund was positive this month. The best performing sectors were consumer discretionary, technology and healthcare while energy, materials and industrials were the worst.
The best performing stocks were Best Buy, Walmart and Pilgrim’s Pride. The retail sector saw generally positive Q3 earnings and was boosted further by optimism going into the important holiday sales season. Best Buy rose after topping analyst earnings expectations by doubling its profit on the back of improving operating margins. Walmart surged to all-time highs on the back of better than expected sales and earnings. It received a rare boost from same store sales which rose for the first time in 2 years. Pilgrim’s Pride bounced back from weakness the previous month on a strong earnings report, and a bullish demand outlook for poultry.
The worst performers were Oasis Petroleum, SM Energy and Nu Skin Enterprises. Oasis and SM fell with oil prices as OPEC’s decision not to cut production was viewed as squeezing out higher cost U.S. producers. Oasis indicated that a WTI price sub $80 per barrel would prompt it to cut capital expenditures and limit spending to only core wells. Nu Skin beat Q3 earnings estimates, but dropped after offering a weak Q4 forecast. It also acknowledged that key sales in China had slumped following a government investigation, and revenues were negatively affected by the stronger dollar.
The Fund completed a monthly rebalance, turning over 30 names in the portfolio. The new additions were AOL, Apache, Arrow Electronics, Ascena Retail Group, Alliant Techsystems, Avon Products, Baxter International, Bed Bath & Beyond, Dana Holdings, Cal-Maine Foods, Celanese, Denbury Resources, Exelis Ford Motor, Flowers Foods, General Motors, Huntsman, International Paper, KBR, Laboratory Corp. of America Holdings, Lyondellbasell, Micron Technology, Nabors Industries, Oasis Petroleum, ON Semiconductor, PBF Energy, SM Energy, Supervalu, Tenneco, Triumph Group, and Unit. The holdings sold were Anixter International, Bloomin’ Brands, Cardinal Health, Cabot, Commercial Metals, Conocophillips, Copa Holdings, Cisco, Chevron, Amdocs, Dr Pepper Snapple, DSW, Emcor, Exxon Mobil, Fluor, GNC Holdings, Kellogg, Lockheed Martin, Macy’s, Magellan Health, National Oilwell Varco, Nu Skin, Oil States International, Occidental Petroleum, Packaging Corp of America, Phillip Morris, Rowan Companies, Reliance Steel, AT&T and Whirlpool.
The Fund is levered by approximately 21% and has an offsetting short futures hedge of approximately 21%.
The Fund continued to hedge its USD currency exposure maintaining a net USD exposure at approximately 10% of the Fund’s NAV.
Stocks moved higher this month. In the U.S., generally strong data continued to support a positive economic outlook for 2015, and widen the economic gap between the U.S. and other developed countries. Conversely, Japan and Europe saw weakening economic data which prompted the BOJ and ECB towards even more aggressive stimulus measures in order to fend off deflationary pressures. In addition, the Bank of China unexpectedly cut rates to improve liquidity sending global stocks higher. Commodities were under pressure all month highlighted by an 18% plunge in crude prices. The end of month OPEC meeting was pointed to as a potential catalyst for stemming the fall in prices; however OPEC kept its production ceiling unchanged escalating its price war with other oil producing nations. The U.S. dollar pushed higher this month in particular against the Japanese Yen and currencies from commodity exporting nations. The loonie sold off in tandem with oil prices as USD/CAD closed at the year highs above 1.1400.