ACE Fund: Manager Letter December 2014

December 31, 2014



31 DECEMBER 2014
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The ACE Fund gained 1.8% in December on strong performance in several of the Technology and Industrial companies we own. The top positive contributions came from AirBoss (BOS-T, 5.3% weight) which rose 18% in December, and Sandvine (SVC-T, 5.2% weight) which was up 14%.



MONTH SINCE 3/31/14*
ACE Fund  (Class F) 1.8% 6.3%


AMG300 (Class F) $106.33


December Highlights:

  • The Month in Review
  • Our “Active Value” Investment Process
  • Portfolio Characteristics
  • Outlook 

December: The Month in Review

First of all, we wish all of our readers a very Happy New Year!  We hope your holidays were filled with cheer and cherished family time.  And perhaps less volatility than the TSX!

There is only one word to describe the Canadian markets in 2014 and that is: volatile.  As managers of a fund with clear objectives to limit downside and reduce volatility, we use these types of markets as an opportunity to demonstrate our disciplined process in action.  December stayed true to the volatility story right until the last trading day of the year.  In December, the Fund posted a +1.8% return after all fees, compared to the S&P/TSX Composite Total Return (“TSX”) monthly return of -0.4%.  Since inception on March 31, 2014, the Fund posted a +6.3% return after all fees, compared to the TSX return over that period of +4.2%.

Our insurance policies limited losses in the first half of month as markets broadly corrected, and we took advantage of these lower prices to add to our highest quality ideas.   This additional exposure meant that the fund was fully invested as stocks recovered into year end and our participation in the rally helped generate the month’s positive result.

Also contributing to the Fund’s strong alpha for the month was AirBoss of America, an industrial products company which surged 18%.  Positive sentiment was driven by several reports suggesting that a recent change in senior management should lead to additional acquisitions during 2015.  Airboss Chairman Gren Schroch (who is also the firm’s largest shareholder, owning roughly 25% of outstanding stock) has proven himself quite adept at acquiring undervalued assets and we are very interested to see how the coming year unfolds for this company.  Sandvine, which we have previously written about, surged 14% as the company announced further significant contract wins in December.

Our Investment Process:  “Active Value”

During times of volatility and stress it is important that investors stick with a well-defined investment process.  This process should be rigorous, repeatable, suit your risk tolerance and most importantly be followed (this last quality speaks to the discipline of investing).

When evaluating investment ideas, our Active Value Process relies on three unique research pillars, each of which has been instrumental in generating our positive net returns since inception.  Individually, each research discipline has its shortcomings but they combine into a robust strategy that we leverage to take advantage of inefficiencies in the Canadian market:

  1. Quantitative Research allows us to evaluate and rank a large universe of potential investment candidates based on objective criteria which we believe indicate attractive valuation, market support and improving operating performance.  Our goal with this stage of the research process is to identify companies undergoing positive changes, at the early stages of their valuation expansion, and highlight them as candidates for further fundamental research.
  2. Our approach to Fundamental Research is to analyze a company like we are acquiring the entire enterprise, not just a minority share block.  We want to find companies that possess strategic positioning within their industry, credible management teams and are operating in industries with attractive dynamics – not just ones that look great “on paper”. Of particular interest to us are catalyst-rich stories, those companies with defined, near term value-unlocking events that we expect to generate material gains for shareholders regardless of the market’s overall direction.
  3. Risk Management strategies help dampen the fund’s volatility and preserve capital in falling markets.  By incorporating portfolio insurance policies, such as options, into our investment process we are able to provide a buffer against large losses for a relatively small up front cost.  We believe that capital preservation is key to long term outperformance and therefore this third pillar is a key element to our process – one that has been extremely helpful over the past number of months given the market volatility.


Enghouse Systems (ESL-T) 5.5%
Linamar (LNR-T) 5.4%
AirBoss of America (BOS-T) 5.3%
New Flyer Industries (NFI-T) 5.3%
Easyhome (EH-T) 5.2%
Sandvine (SVC-T) 5.2%


Market Capitalization ($B) $7.4B
Expected EPS Growth 12%
Forward Price-to-Earnings 14x
Dividend Yield 1.5%
Return on Equity 10%


In year one of managing the ACE Fund, our process helped us to discover underfollowed and exciting names like Clearwater Seafood (CLR-T, +29%), Enghouse Systems (ESL-T, +24%) and AirBoss (BOS-T, +39%).  It has provided us the discipline to stay underweight struggling sectors like Energy and Materials while participating in areas of market leadership like Technology, Health Care and Consumer Discretionary.  We were not immune to the volatility caused in 2014 by geopolitical conflicts and macroeconomic imbalances but we stuck to our process, which helped us to make mostly good decisions at critical times.

While we are cautious on the market in 2015, we do see a number of company-specific opportunities that are expected to create value for our investors and we look forward to updating you along the way.  In the meantime, our day to day objectives will remain simple:

  • Execute our Active Value investment process with tenacity and discipline;
  • Generate consistently positive absolute returns with a focus on capital preservation; and
  • Capture upside within the Canadian Equity market.

Investors who are familiar with us know that we have substantially all of our investment capital invested in the ACE Fund and believe the prospects for superior long term returns in this strategy are excellent.  We are thankful to those friends and investors who have shown us support in our endeavors and encourage new investors to allow us the opportunity to manage some of their savings alongside our own.

Best wishes for a happy, healthy and prosperous 2015.



*The  Fund’s “Peer Index “ is the Scotiabank Canadian Equity Hedge Index (Equally Weighted).  Most recent monthly performance of this index is not always available at the time of publishing.

Our growth oriented North American equity fund, investing in companies with strong momentum in earnings and revenue growth, positive management guidance trends, and superior share price performance. A monthly investment strategy bulletin from our Chief Investment Officer. Focuses on the big picture global economy, asset allocation, and risk management strategies to preserve capital in volatile markets. While we mostly distribute our thoughts on the financial markets, sometimes our activities at the firm level are important enough to share with our clients, friends, colleagues and other stakeholders.

* Inception of the Aventine Canadian Equity Fund is March 31, 2014

This email communication is intended to provide you with information about the Aventine Canadian Equity Fund managed by Aventine Management Group Inc. This Fund is distributed by prospectus exemption exclusively to qualified investors in the provinces of Alberta, British Columbia and Ontario. Important information about the Fund is contained in its Offering Memorandum which should be read carefully before investing and may be obtained from Aventine Management Group upon request, or by clicking on the link at the top of this email. The Offering Memorandum of the Aventine Canadian Equity (“ACE”) Fund 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 this Fund 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 Class A and Class F Units of the ACE Fund is the performance of the target series of each class and the NAV Per Unit presented for Class A, Class F and Class I Units is the current NAV Per Unit of the target series of each class. The value of the Fund 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.

Copyright 2014 Aventine Management Group. All Rights Reserved.

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