2020 Q3 Manager Letter

September 30, 2020


Quarterly Manager Letter
Current News and Updates

Q3 2020

September 30, 2020 – Q3 Commentary

Client portfolios performed well during the quarter. While it has been a volatile year, we have maintained our patience and it has been rewarded. The tug of war between the bond and equity markets continues. Equity markets are near all-time highs, while bond yields seem pinned to the floor. Similarly, investors are split as to whether we are in the early stages of reflation, or if markets are stuck in a deflationary loop. The eventual outcome of these debates will impact all asset classes, from currencies, to treasuries, to hard assets. Central banks are on record stating that interest rates will remain near the lower bound for some time and that there is a willingness to let inflation run above target. We believe this will continue to support the valuation of risk assets in the near-term leading us to remain constructive on equity markets through Q4, albeit with an expectation for elevated volatility and lower than average volumes.

The absolute level of corporate debt remains a concern of ours, most notably the size of the BBB-rated market. To put it in perspective, in 2007, the BBB corporate bond market was the same size as the junk bond market while today it is 300% of the size. Said another way, if 1/3 of the BBB corporate bond market gets downgraded, the junk bond market will double in size. At the same time, due to the support of central banks, the composition of the market is increasingly of longer duration, and lower yield. In this environment of low growth and interest rates we remain focused on top line and dividend growth in our equity portfolios.

All Cap Equities (“ACE Fund”)

Our All Cap Canadian Equity strategy, the Aventine Canadian Equity Fund (“ACE Fund”), continued its stretch of positive returns, experiencing one of its best months ever in August (+9.2%) and realizing 11.0% in Q3. This brings our cumulative 2020 return to -1.0% (S&P/TSX Composite at -3.2%). Throughout the quarter we increased our net exposure to 95% with significant concentration. We acknowledge that this concentration leads to an elevated level of volatility as our Fund does not necessarily move with the ebbs and flows of major market indices.  August was a great reminder of why it is so important to stick with your strategy and trust your fundamental analysis.The biggest contribution in the quarter came from our position in Akumin (AKU-TO), our diagnostic imaging centre consolidator.  Having built up enough scale to be a formidable competitor in the space (#2 in the US) they are now starting to demonstrate their operational prowess.  Through technology and cost management they have put up two consecutive quarters of impressive cash flow growth: the life blood of a consolidation play. Akumin recently achieved a listing on the Nasdaq which has had a notable impact on volumes.  We know the management team well and are confident in their ability to navigate the next few years.

We also saw significant gains from Cargojet (CJT-TO), Canada’s leading overnight delivery airline, which has exceeded already elevated expectations. E-commerce trends continue to impress, and we view this change as structural. The analyst community seems to have finally caught on and we are seeing target prices increase. The stock is up 125% year-to-date and we continue to hold the shares.

This is a very exciting time for the strategy as we are finally seeing the strong fundamentals being reflected in our holdings. Many companies are still trading at a significant discount to peers, a gap we expect will close as we approach year end.

US Equities (Aventine Dividend Find)


The Aventine Dividend Fund performed well in the third quarter with a constant currency (USD) return of 7.1% bringing the year-to-date return to 6.0%. Returns in the quarter were supported by our sizable holding in Nike, up 30.9%, as they continue to be a beneficiary of the resurgence in demand for “athleisure” wear in the work from home environment. Returns were also bolstered by our position in McDonald’s which returned 20.1% in the quarter as same store sales figures continued to improve.

We increased our net exposure to 90% throughout Q3 as we took note of the Federal Reserve’s commitment to low short-term interest rates, and the resulting impact on valuations. We sold several positions including Wells Fargo (WFC), and CVS Health Corp (CVS), while we added others, including American Tower (AMT).

American Tower is the world’s largest owner, operator, and developer of wireless communications and broadcast towers globally. The company leases antennae sites on multi-tenant towers for a diverse range of wireless communications industries. AMT owns approximately 41,000 towers in the US, nearly 75,000 in India, and nearly 60,000 throughout the rest of the world. We view AMT as the top beneficiary of global mobile data growth over the long-term.

The biggest boost in near-term demand will come from a resumption in large capital spending by US wireless carriers following a period of industry consolidation. In fact, with many deals now closed, we can expect spending among some carriers to increase 60% or more in 2H vs. 1H as they seek to secure 5G network capacity. This should act to further bolster AMT’s $40 Billion+ in contracted revenues.

Globally, the combination of increased number of devices and usage per device equates to very strong total demand growth. Right now, mobile data usage is growing at a 30%-40% rate in the US and we expect international growth to stay strong as well, as Internet penetration continues to proliferate in developing markets. AMT’s global diversification will undoubtedly provide greater long-term growth prospects versus its competition. Mobile penetration and data usage is much smaller globally than in the US, and AMT’s established position in markets like India and Brazil will provide significant growth and margin enhancement over the long-term.

New Website

We hope that you will take the time to check out our brand-new website (www.aventine.ca). We also updated our company name to Aventine Investment Counsel to better reflect the transformation our business has taken over the years.

While we are mostly known for our top performing all-cap and US dividend growth strategies (Aventine Canadian Equity Fund and Aventine Dividend Fund), we aren’t just asset managers – our clients have entrusted us with so much more. This trust, and proper alignment of interest, has given us the opportunity to help our clients realize their aspirations without the qualities (and inherent conflicts) of the outdated, traditional Canadian investment brokerage model.

We understand the complex needs of families and have designed a suite of strategies that are complimentary, tax effective and have demonstrated long-term success. In addition to our flagship strategies mentioned above, this includes allocations to our concentrated large cap Canadian equity strategy, unique co-invest private equity opportunities, alternatives, fixed income and more. Our modern portfolio design offers stability and consistency of returns with less risk than a conventional portfolio of stocks and bonds. We provide families with experienced investment counsel they can trust.

Best wishes as always,

James, Jim, David and Shannon

Contact Information
Email Phone
James Telfser   jt@aventine.ca 416-847-1767 x501
Jim Pottow   jp@aventine.ca 416-847-1767 x502
David Pepall   dp@aventine.ca 416-847-1767 x511
Shannon Veitch   sv@aventine.ca 416-847-1767 x510

Aventine Performance Update
September 30, 2020
Aventine’s Partners and their families are among the largest investors across each of our strategies. 

Aventine Balanced Composite
Inception: June 1, 2009

Aventine Balanced is our core portfolio for separately managed accounts following a “balanced” mandate. It is an actively managed, endowment-style portfolio that offers investors diversified exposure to a broad variety of markets and asset classes. This diverse portfolio produces below average volatility and high income generation as we include asset classes such as private debt, mortgages, traditional and non-traditional fixed income, all-cap equities, alternatives and portfolio protection through prudent risk management strategies.  

Q3 YTD 2020
Aventine Balanced Composite  6.0% 2.2%
Annualized 3 Year 5 Year Inception
2.5% 4.0% 6.9%
The Inception Date of this Strategy is June 1, 2009.
Additional performance information and disclosures on composite construction is available upon request.

Aventine Income Composite
Inception: December 1, 2008

Aventine Income is our core portfolio for separately managed accounts following an “income” mandate. This actively managed “sleep at night” portfolio offers investors reliable, tax effective income. This portfolio applies a higher focus on traditional and non-traditional fixed income securities and has a lessor allocation to equities. Alternatives as well as prudent risk management strategies are used to protect the portfolio.

Q3 YTD 2020
Aventine Income Composite  5.2% 2.9%
Annualized 3 Year 5 Year Inception
1.9% 4.2% 6.6%
The Inception Date of this Strategy is December 1, 2008.
Additional performance information and disclosures on composite construction is available upon request.

We encourage new clients to join Aventine by investing in our customized portfolio solutions which are tailored to your specific goals.

To learn more about how our independent approach to managing wealth differs from traditional models please feel free to contact us anytime.

WEB: AVENTINE.CA     |     EMAIL: INFO@AVENTINE.CA     |     PHONE: 416.847.1767





This email communication is intended to provide you with information about the Aventine Total Wealth Strategy (the “Strategy”), the Aventine Canadian Equity Fund and the Aventine Dividend Fund (the “Funds”) managed by Aventine Management Group Inc. The Strategy and the Funds are distributed by prospectus exemption in various jurisdictions across Canada, please contact Aventine Management Group Inc. to discuss if you may be eligible to invest.  Important information about each Fund and Strategy is contained in its Offering Memorandum which should be read carefully before investing and may be obtained from Aventine Management Group Inc. upon request. The Offering Memorandum does not constitute an offer or solicitation to anyone in any jurisdiction in which such an offer or solicitation is not authorized, or to any person to whom it is unlawful to make such an offer or solicitation. All investors should fully understand their risk tolerances and the suitability of the Strategy and the Funds prior to making any investment. Rates of return presented for all periods greater than one year are the historical annualized compound total returns for the period indicated. For periods less than one year the rates of returns are a simple period total return. Rates of return do not take into account income taxes payable that would have reduced net returns. The performance presented for the Funds is the performance of the target series of F Class units. The value of the Strategy and the Funds is not guaranteed and will change frequently. Past performance may not be repeated. All credited third party information contained herein has been obtained from sources believed to be reliable at the time of writing but Aventine Management Group Inc makes no representations as to its accuracy.
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