ACE Fund: Manager Letter October 2015

October 31, 2015



31 October 2015
View this email in your browser

Aventine Canadian Equity Fund

Monthly Fund Manager Update – October 2015

Executive Summary


The Aventine Canadian Equity Fund finished the month of October +4.6%.

The Fund was ranked as the #1 Canadian Equity Fund tracked by Morningstar (895 total) over the past 12 months with a total return of +6.5%. This represents stellar outperformance versus the TSX Composite Total Return Index at -4.6% and the Canadian Equity Fund category average of -2.8%.

Fund Documents

Purchase Documents


Media Appearances

Performance Overview

Net Asset Value per Unit

AMG250 (A) AMG350 (F) AMG450 (I)
Aventine Canadian Equity Fund $107.45 $108.82 $112.88

Current Year Performance

1 Month 6 Months Year to Date
Aventine Canadian Equity – Class F +4.6% -4.0% +2.3%


Historical Performance

1 Year 3 Years* Inception*
Aventine Canadian Equity – Class F +6.5% n/a +5.5%
* Performance for periods >1 year are annualized.

Top Holdings

Concordia Healthcare (CXR-T) 9.0%
Goeasy (GSY-T) 7.5%
Clearwater Seafood (CLR-T) 6.8%
CGI Group (GIB/A-T) 5.2%
Sandvine (SVC-T) 4.9%

Metrics of Average Company

Market Capitalization ($B) $4.9B
Expected EPS Growth 42%
Forward Price-to-Earnings 10.7x
Dividend Yield 1.3%
Return on Equity 11%

Fund Commentary

October was a good month for the ACE Fund. The Fund’s unit price improved by 4.6%, bringing our year to date return to +2.4% and our trailing 12 month return to +6.5%. Portfolio volatility in recent months has been at the high end of our target range, but acceptable given some pretty extreme moves in asset prices globally.

In our letters over the past few months we’ve openly reflected on several investments that have been falling short of expectations.  We believe that our investors deserve a high degree of transparency and also feel strongly that a continual, constructive self-review process helps us keep our edge.  During tougher periods it is beneficial to reinforce why we own specific companies, but this focus on weaker names in the portfolio often comes at the expense of celebrating winners in other areas.  Setbacks in a few core holdings like Concordia Healthcare notwithstanding, the average stock in our portfolio has outperformed the average Canadian stock by a significant margin.   Consider the following table:

2015 Return 1-Year Return Volatility
ACE Fund Class F  +2.3% +6.5% 10.2%
Average Canadian Equity Fund -3.5% -2.8% 8.7%
S&P/TSX Composite -5.2% -4.6% 8.9%
S&P/TSX Composite, Equal Wt. -9.8% -6.9% 13.6%
Our +6.5% return over the past 12 months has us ranked by Morningstar as the top performing Canadian Equity fund in the country over this time period (#1 out of 895 funds), and we are not far out of the top spot on a year to date basis either.

Pacing gains in October was an impressive 23% surge in Clearwater Seafood (CLR-T), the result of last month’s acquisition of Macduff Shellfish, Europe’s largest wild shellfish processor.  Clearwater is a great example of the fundamental side of our investment process at work, particularly as it relates to assessing management character and other intangible qualities of the company’s leadership.   Back in June the controlling shareholders of Clearwater championed a $55 million capital raise, which we gleaned was pre-planning for an acquisition of significant scale.   Although the stock subsequently declined some 20% between June and September we remained highly convicted and steadily accumulated shares below $11.  We continue to expect good things from Clearwater’s experienced and shareholder-friendly management team as we head into their seasonably strong second half.

The ACE Fund also benefitted from an impressive quarter and a “tuck in” acquisition announced by Colliers International (CIG–T).  These events drove the share price up 20% in October.  Recall that back in February we commented on the restructuring of FirstService Corp (FSV-T) into two separate public companies representing its separate business lines – FirstService for property management and Colliers International for property brokerage.  Post-split, we actually liked both companies so much that we made space in the portfolio to make each a full weight.  Our confidence in these two companies has been well rewarded over the past several months as they have been operating exceptionally well and the share prices have mirrored management’s superior execution.

Market Outlook

The end of October and early November is very busy time for us, as it coincides with the quarterly earnings releases for a large number of our portfolio holdings.   Given the acute market and economic volatility of late, this period carries even more significance than usual.  With companies typically blacked out from providing any meaningful commentary to the public on either side of earnings season, the quarterly conference calls give us an opportunity to hear how confidently management communicates their performance and outlook.  Often the most important things we pull out of a conference call come from a CEO’s tone and composure, as well as by listening for what a company doesn’t say.  To date, earnings season has been solid for us and we view the valuation of our portfolio – currently 10.7x our 2016 earnings forecast – as extremely attractive.   Recently a number of our holdings have experienced an increase in analyst coverage and as a wider audience begins to recognize these companies as undervalued growth stories (organic or by acquisition) we think it creates a pretty significant amount of demand for their shares.

Talking heads on television love to tell the public that “if there’s one thing markets hate, it’s uncertainty.”  While this statement is broadly accurate, its the lack of any specificity means that it is used in relation to everything from commodity prices to real estate prices, interest rates, equities and currencies.  Readers know that we do incorporate macroeconomic views when determining our cash balances, weighting scheme and hedging stance in the portfolio, but interacting directly with companies remains by far our most important method of investment evaluation.  For us it helps eliminate “uncertainty” and gives us real insight into the health of a business which we then use to forecast earnings and cash flows.

Given that we have managed to protect capital for the past 15 months while many of our peers and global benchmarks have failed to stay positive, we are even more excited for the future.   We strongly feel that the best is yet to come for our portfolio and we hope that you continue to allow us to care for some of your family’s investment capital alongside our own.

Performance Presentation

Fund Inception: 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  © *|CURRENT_YEAR|* AVENTINE MANAGEMENT GROUP INC., All rights reserved.

Our mailing address is:
#3400, 2 Bloor Street West, Toronto, Ontario M4W3E2

unsubscribe from this list    update subscription preferences