The Aventine Canadian Equity Fund concluded its first month of operations with a 1.6% gain in unit price after all fees.  We regard this return with great satisfaction given that it was generated during a month where the Fund’s average market exposure was only roughly 50%. The Fund “ramped up” from a 100% cash position at its launch to having 95% of its capital invested by the end of the April.

•   OFFERING MEMORANDUM
•   SUBSCRIPTION FORM

www.aventine.ca

We are managing a very exciting portfolio of predominately Canadian equities that fit our core fundamental investment philosophy. This philosophy is built around owning positions in companies that have: 1) a solid competitive position within an attractive market, 2) strong prospects for growth driven by investment, acquisition or other catalysts, and 3) visible shareholder support. The goal of this philosophy is to identify and own companies which trade today at values that are substantially below what we believe they are worth over a medium term investment horizon.

For those of you that are new to our distribution, let us further highlight our investment philosophy by stating that we are neither long term buy and hold investors, nor are we “twitchy” traders.  We are active, nimble and insightful stock pickers within the world of Canadian equities with strong conviction in our ability to value businesses and find attractive investment opportunities. Proof of this conviction is evident in the fact that we, our partners at Aventine, and our respective families, are the largest collective unit holders of the Canadian Equity Fund.

One of our largest gains from our portfolio in April came from Easyhome (EH), a Canadian business which we believe is undervalued, under-followed and that is undergoing an exciting and lucrative transformation.   Over the past five years or so, Easyhome has transformed from a home furnishing leasing company (TV’s, cellphone, couches, etc.) into a financial services company, providing higher interest consumer loans to those facing temporary or structural credit constraints through its  Easyfinancial division (which has grown to 120 branches).  By positioning themselves between payday loan providers – whom have both struggled and faced increased government pressure – and traditional banks and credit card companies, they have been able to build relationships and brand scalability within the Canadian marketplace and are now well positioned to succeed.

Another large gain in our portfolio in April came from Micron Technologies (MU-US), a leading supplier of memory chips used in smartphones, tablets, servers, PC, etc.  Like many technology component suppliers, Micron has struggled with the dynamic of having to increase volume while managing the impact of a brutal pricing war, which has impacted profitability. However, recent consolidation in the industry (Micron acquired the assets of Elpida, the fourth largest player out of bankruptcy last year) has improved the supply/demand balance and pricing has stabilized.  This has created an attractive environment for companies like Micron (now the second largest global supplier in this space) to generate significant cash flow growth moving forward.

Although the S&P/TSX Composite is up 21.3% over the last year and 8.6% year-to-date on a total return basis, we still believe that there is plenty of room for individual equities to move higher this year.  Our portfolio has its largest weights in sectors that have been showing strong relative strength such as energy, industrials and technology while avoiding what we believe are overvalued pockets of the market such as utilities, telecom and some areas of the financial sector.  Furthermore, our current portfolio is only trading at 12x 2015 EPS (vs. 15x for the market) which sets us up for multiple expansion while we await the next catalyst.

We use stock selection as our main risk management tool, as we believe that if we build a portfolio of undervalued equities going through material transformations (or with other high probability catalysts on the horizon), we can generate returns that are uncorrelated with the market as our thesis plays out. The portfolio is also managed with a very strict sell discipline based on technical breaks of market support and a combination of the quantitative and qualitative assessment of individual security valuation metrics. This extra level of downside protection is helpful after such a strong rally.

If you would like to hear more about our investment style and meet us and the other partners at Aventine Management Group, we invite you to join us on Thursday June 4, 2014 at 4pm at our office on the 34th floor of 2 Bloor Street West (NW corner of Yonge & Bloor), followed by drinks and oysters at our favorite neighborhood restaurant, Pangaea, (1221 Bay Street), where we have the bar reserved from 5:00pm to 6:30pm. Please send us a quick email if you are planning to drop by.

As we have always said to our friends and family members: we appreciate your personal support and encouragement, and we hope that all those reading this note will continue to follow our Canadian Equity fund as we build what we hope will be an exceptional investing track record.