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%.

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:

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.

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.