2020 Q4 Manager Letter

December 31, 2020

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Quarterly Manager Letter
Current News and Updates

Q4 2020

Aventine Balanced Composite:   +10.6%
Aventine Canadian Equity Fund:  +13.0%
Aventine Dividend Fund (USD):    +12.9%

December 31, 2020 – Q4 Commentary

After such a tumultuous year, we are pleased to have such a strong finish to 2020. Despite the Covid-19 pandemic getting progressively worse around the world, both the S&P 500 and the TSX Composite hit all-time highs.  The bond market also finished at its highs as measured by credit spreads, suggesting that this positive momentum should continue. Those investors who moved to the sidelines during the March lows are surely questioning the wisdom of markets and their correlation to the real economy.

So why, during this economic disaster underpinned by excessive government spending and recovery packages that will saddle future generations, are stock markets soaring?

One quote that comes to mind is from Bernard Baruch, a highly successful financier from the early part of the last century, who wrote: “The main purpose of the stock market is to make fools of as many men as possible”. Trying to link the fluctuations of the stock market to economic conditions will often make sensible people look like fools, particularly in times when asset prices are being artificially inflated. It is clear there is a level of exuberance in this market with valuations of certain IPOs, Special Purpose Acquisition Companies (“SPACs”) and many emerging sectors reaching levels not seen since 1999.

As we have been stating for several quarters, low interest rates, combined with historic levels of fiscal and monetary support, have led to excessive premiums on companies projecting above average growth.  We have had numerous clients call us this year looking to raise cash, yet the risk-free rate of interest is now well below 1%.  This lack of options for a positive risk-free real rate of return will continue to push investors out on the risk curve into equities and alternative income solutions.  This scenario will also bring out speculators who will continue to inflate stock prices.  We see certain areas of the market which concern us but would also caution against trying to time a market correction.

At Aventine we continue to diligently rely on our asset allocation procedures. Our process preserved capital well during the steep 18% market decline in March 2020. We were able to provide uncorrelated returns with our basket of alternative investments and allocation to real assets, while also participating in much of the upside in the stock market due to our high allocation to quality stocks. We continue to allocate to uncorrelated asset classes such as “merger arbitrage” and credit opportunities, two strategies that returned 38% and 11%, respectively, for our clients in 2020.   

Overall, our Balanced Composite, a group of our client accounts which have an average risk tolerance, gained 10.6% in 2020. Our internal Aventine strategies performed very well with preferred shares, all-cap equities and U.S. equities leading the way.  Specifically, our two internally run equity funds, which make up a large percentage of our client accounts, performed very well in the last quarter of 2020.

Aventine Canadian Equity (“ACE”) Fund

The ACE Fund posted a record quarter in Q4 2020, realizing a return after fees of 16%, bringing the Fund’s full year 2020 return to 13%.  Our strong performance was in part driven by our holding in People Corp and ATS Automation.

People Corporation (PEO-TO): In December, Goldman Sachs’ internal private equity group announced that it would acquire People Corp for $1.13 billion in cash, or $15.22 per share, a 36% premium to the market price. People Corp, headquartered in Winnipeg, provides employee benefits, group retirement and human resources consulting services throughout North America and has been a structural long-term holding of Aventine’s. In fact, we first initiated our position in January 2017 at $4.50 per share. We are pleased to see the market realize the value in People Corp that we saw and wrote about (click here to read our commentary) at that time.

ATS Automation (ATA-CN): ATS, which is one of our Fund’s top positions, saw its shares rise 29% in the fourth quarter.  This $2.2 Billion market cap company, headquartered in Cambridge, ON, is a hidden gem in plain view.  ATS is a custom engineer and producer of industrial automatic manufacturing systems and in that is exposed to the electric vehicle/battery production market, as well as automation in manufacturing and life sciences, two sectors where we see significant growth. ATS is run by a CEO (Andrew Hider) who is extremely disciplined and focused on providing strong shareholder returns.  The company’s success has been driven by organic growth and effective, strategic acquisitions.  We believe 2021 will be the year where this under-the-radar company gets the attention it deserves. This should result in multiple expansion and move valuation more in line with peers such as Rockwell Automation (ROK-US).

Aventine Dividend Fund 


The Aventine Dividend Fund performed well in the fourth quarter, returning 7% and achieving a full year return of 13% (each in USD and after fees).  This strong return was generated by solid contributions in terms of both dividends and share price increases by many of the Fund’s equity positions. The Aventine Dividend Fund seeks to have far less turnover than the ACE Fund and we normally take the opportunity in this commentary to discuss one of the Fund’s core holdings, in this case Volkswagen AG.

Volkswagen AG (VWAGY-US): We have been building a position in Volkswagen in the Dividend Fund. We believe that Volkswagen is best positioned to take advantage of the auto market’s transition to full electrification. VW has been investing heavily in R&D related to its EV offering and, as this cycle begins to mature, we expect them to reap significant benefits. VW has the most ambitious plans for battery electric vehicle sales among legacy automakers and many are expecting the Company to overtake Tesla’s volume as soon as 2023, with nearly 3 million EV units budgeted for 2025. VW’s electrification goal is to have about 70 EV models available and to sell a combined 26 million EVs by 2030. These predictions don’t factor in the U.K. and California’s announced ban of pure internal combustion engine (ICE) vehicles, a new EU Green Deal, and enhanced EV ambitions elsewhere in the U.S. and China. The company’s valuation does not reflect this.

Furthermore, we believe the company could take several steps to narrow the gap between its share price and its intrinsic value, including spinning off its Lamborghini brand, a strategy about which many news agencies have been speculating (VW’s Audi brand acquired Lamborghini in 1998 for about €60 million and we believe that its current worth may now be approaching €10 billion (vs. VW’s €70 billion market cap), based on our scenario analysis that uses a 15% discount to Ferrari’s EV/EBITDA). In fact, such a move could just be the first step toward an even bolder corporate restructuring, including a Porsche IPO, which itself could potentially be valued at over €100 billion euros. In summary, we believe Volkswagen (like all the Aventine Dividend Fund’s portfolio companies) remains remarkably undervalued considering its growth trajectory and market position.

Corporate Update

We feel very fortunate that we were able to add another key piece to our team in late 2020, with our recent hire Nicholas “Nicho” Hart. You may have met Nicho over the years while he was a summer student working with us while completing his Commerce Degree at Queens University.  Since then, he recently graduated amongst the top of his class from the Juris Doctor program at Bond University Law School in Australia.  We are very excited to have Nicho join our team, especially given his complementary skill set.  We have already seen great contributions on the equity research side of our process and look forward to building up both the estate and trust side of our business with him in the future.

Like all of you, we discovered a lot about our technological abilities in 2020!  We continue to have daily team Zoom meetings and have almost forgotten how to make regular calls – but we still want to hear from you! Please call or email any of us at any time to ask questions, give suggestions or make introductions, or even just to say hi.

Once again, we truly hope that you all keep yourselves and your families safe and healthy, as we all strive to do our collective parts to try to combat this virus.  We hope that 2021 will bring a stronger economy as well as a continuation of extraordinary investment returns.

Best wishes as always,

James, Jim, David, Shannon and Nicho 

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
Nicho Hart   nh@aventine.ca 416-847-1767 x514

Aventine Performance Update
December 31, 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.  

Q4 YTD 2020
Aventine Balanced Composite  7.9% 10.6%
Annualized 3 Year 5 Year Inception
3.4% 5.4% 7.5%
The Inception Date of this Strategy is June 1, 2009.
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





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