2021 Q1 Manager Letter

March 31, 2021

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Quarterly Manager Letter
Current News and Updates

Q1 2021

Aventine Balanced Composite:   +8.3%
Aventine Canadian Equity Fund:  +15.8%
Aventine Dividend Fund (USD):    +5.0%

James Telfser, Managing Partner and Portfolio Manager at Aventine, will be on BNN Bloomberg’s Market Call on Tuesday, April 20th at 12PM to share his top stock picks.  We hope you will tune in!

March 31, 2021 – Q1 Commentary

It was a strong start to the year as we continued to experience gains across all our strategies.  The Aventine Canadian Equity Fund (“ACE Fund”) closed the first quarter up 15.8%.  The portfolio’s positive correlation to the economic recovery, along with the realization of some stock-specific catalysts, helped drive a record quarter. The US Dividend Fund closed the quarter up 5% in US dollars.  Our focus on large-cap, stable US dividend growth stocks performed well as both growth and momentum factors, which we have very little exposure to, dramatically underperformed. Notably, this portfolio saw a strong contribution from Volkswagen (VWAGY-US), which we wrote about in Q4-20 commentary (available here), as the stock rallied 74%.  Finally, we experienced solid results from our Core Equity Strategy with the average position being up 7.1%.  This high-quality portfolio also saw increased investment flows as growth stocks wavered. 

Fixed income remains challenging, with credit spreads near record lows and interest rate risk front and centre on the minds of investors.  Preferred shares presented an excellent opportunity in 2020 as they captured additional yield along with capital appreciation, however many of these opportunities have come and gone, in our opinion.  We continue to believe that the best place to capture outsized returns in fixed income is by focusing on high yield credit opportunities, especially given the strength of commodity prices, which is where much of the dislocation in credit continues to exist.  Our credit opportunities strategies dramatically outperformed traditional fixed income in the first quarter with a gain of 21.7%.

Merger arbitrage continues to be a strong contributor to our asset mix as high-quality SPACs and healthy M&A continued to drive solid risk-adjusted returns of 7.5% in the quarter. Gold was the significant drag in the first quarter with losses of 10% although this loss was easily offset by a 103% gain in Bitcoin.

Overall, client portfolios, as represented by our Balanced Composite, were up 8.3% in the first quarter, a strong result relative to history and one of the best quarters we have experienced since Q1 2015. 

Core Equities

Canadian large-cap equities performed well in the quarter, lead by financials (+13%) which responded well to an improving economic picture and rising interest rates.  CCL Industries (CCL/b-TO), a global specialty packaging company, also contributed strongly with a 20% gain over the last 3 months. CCL has been a core position for years (we have been following it for close to a decade), and we give credit to their best-in-class management team.  CCL has dealt with several challenges recently, including supply chain disruptions, commodity price inflation, and a pandemic. However we believe the company will exceed expectations in 2021 as supply chains restock and we experience some of the most robust economic growth in years. CCL is a “GDP plus” type grower that has also been known to execute both transformative and tuck-in acquisitions, which we expect to continue moving forward. With the stock trading a hair above 2017 levels, combined with improving fundamentals, we believe this is a compelling opportunity. Valuation is undemanding with a current EV/EBITDA of 12x and our expectation that estimates will rise as the year progresses.

The Core Equity Strategy was also bolstered by the rebound in Constellation Software (CSU-TO). CSU returned 8% in the first quarter, not including the tax-free spinoff of Topicus (TOI-TO), which closed up 38% in Q1.  For clients who are wondering about this position, please see here for a quick summary of this corporate action.  

Aventine Canadian Equity (“ACE”) Fund


Positive stock specific fundamentals continued to drive the ACE Fund higher as we realized significant gains from increased 2021 earnings expectations. The Industrial, Material, and Consumer Discretionary sectors were standout performers as the market was unable to keep pace with the speed of the recovery. While we had several positions up over 20% in the quarter it was AirBoss (BOS-TO) returning 155% that stole the show.

AirBoss of America manufactures and distributes defence products, custom rubber compounds and specialty rubber-based products for a broad range of industries, including defence, transportation, industrial, manufacturing, and medical. The Company has a deep pipeline of growth opportunities across its divisions and has been winning significant contracts, predominantly in the defence and healthcare space. While BOS has benefitted from accelerated growth for PPE from the healthcare sector, it continues to successfully target traditional defence contracts for its broader portfolio of products globally. For example, so far in 2021, Airboss’ Defence Group has been awarded contracts potentially worth $600 million – an amount over 50% of its current market capitalization. Even after these contract announcements, Airboss’ valuation remains attractive with forward EV/EBITDA and P/E of 8.4x and 15.3x, respectively.

Aventine Dividend Fund 


In order to forecast a company’s ability to return capital to shareholders through dividend increases, it is essential to map, analyze, and predict certain macroeconomic factors and their inevitable impact on individual stocks. Undoubtedly one of the most relevant topics in financial markets today is the global supply/demand imbalance related to semiconductors. While production has fully recovered from COVID related plant shutdowns, a new surge in demand, driven by changing consumer habits, and fuelled by the pandemic, means that the semiconductor shortage is now reaching a crisis point. While this issue is surely to result in higher prices to the consumer, this new level of demand will clearly benefit the semiconductor manufacturers in the medium term. There is no sign of supply catching up, or demand decreasing, while prices are rising across the chain. In the Aventine Dividend Fund, we own Taiwan Semiconductor Manufacturing Co Ltd (TSM-US) to take advantage of this developing situation.

TSM is one of the world’s largest and highest quality manufacturers of semiconductors and counts most of the world’s leading fabless semiconductor companies, and users, such as Advanced Micro Devices (AMD), Apple Inc., Broadcom Inc., Marvell, MediaTek, Nvidia, and Qualcomm, as customers. As a strategically important supplier of semiconductors for the US and many other Western countries, TSM is being provided favourable economic terms to expand their manufacturing footprint in the western world. The pandemic has illuminated the requirement to have insulated and nationalized supply chains for essential products – none more important than semiconductors. While the stock only returned 8.5% in the first quarter, its peak to trough dispersion was 22%. This was primarily due to the market’s anticipation of higher-than-expected inflation weighing on the technology sector. We believe that the market is underestimating TSM’s pricing power, and thus its ability to weather inflation, and we capitalized on the share price volatility to add to our position at favourable levels.


Markets love to worry. There are always new issues that mesmerize us in the short term. At the moment the focus remains centered around interest rates, hedge fund leverage, and the Reddit army of retail traders. In our opinion, it remains favourable to have an overweight position in equities relative to traditional fixed income or cash.

At Aventine, we tend to focus on idiosyncratic factors given our passion for individual stock selection and we continue to see a gradual improvement in confidence resulting in higher spending, and an inevitable release of pent-up consumer demand. While there is always a risk that expectations have gotten too high, we remain confident in our portfolio construction and look forward to the resulting impact of higher medium term economic growth.

Thank you for your continued trust in Aventine to manage your savings. Please do not hesitate to reach out to learn more about the strategies or to set up a time to discuss your account.

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 Vadovic   sv@aventine.ca 416-847-1767 x510
Nicho Hart   nh@aventine.ca 416-847-1767 x514

Aventine Performance Update
March 31, 2021
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.  

Q1 YTD 2021
Aventine Balanced Composite  8.3% 8.3%
Annualized 3 Year 5 Year Inception
7.0% 7.8% 8.0%
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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