Commentary

15 Apr 2014

The Front Street Value Class has been positioned to take advantage of 3 main themes that we see developing in the U.S. market.

15 Apr 2014

By Frank Mersch & Rick Brown

Equities Overview

The first quarter saw the re-emergence of the materials (+9.2%), and energy (+8.7%), sectors as big drivers, due to their overall weightings, of the performance in the S&P/TSX Composite Index in Q1. In absolute terms, auto components and pharmaceuticals performed the best, ranking one and two respectively. The weaker performers were telecommunications companies (+3.0%), financials (+1.9%), and industrials (+1.8%).

14 Apr 2014

By Frank Mersch

The first quarter saw the reemergence of the materials (+9.2%) and energy (+8.7%) sectors as big drivers, due to their overall weightings, of the performance in the S&P/TSX Composite Index in Q1. In absolute terms, auto components and pharmaceuticals performed the best, ranking one and two respectively. The weaker performers were telecommunications companies (+3.0%), financials (+1.9%), and industrials (+1.8%).

14 Apr 2014

By Frank Mersch & Rick Brown

Equities Overview

The first quarter saw the re-emergence of the materials (+9.2%), and energy (+8.7%), sectors as big drivers, due to their overall weightings, of the performance in the S&P/TSX Composite Index in Q1. In absolute terms, auto components and pharmaceuticals performed the best, ranking one and two respectively. The weaker performers were telecommunications companies (+3.0%), financials (+1.9%), and industrials (+1.8%).

14 Apr 2014

By Frank Mersch

The first quarter saw the reemergence of the materials (+9.2%) and energy (+8.7%) sectors as big drivers, due to their overall weightings, of the performance in the S&P/TSX Composite Index in Q1. In absolute terms, auto components and pharmaceuticals performed the best, ranking one and two respectively. The weaker performers were telecommunications companies (+3.0%), financials (+1.9%), and industrials (+1.8%).

14 Apr 2014

By Craig Porter

In the first quarter, two of the top three subsectors on the TSX were resource related: energy and materials. The materials sector was primarily driven by its gold components, solely as a result of a higher bullion price. But something different is happening in the energy patch: companies are growing production, and expectations of higher earnings are starting to increase.

28 Jan 2014

OFI SteelPath Macroeconomic Overview
MLPs underperformed the broader markets in the fourth quarter, lagging behind the S&P 500 by 5.2% on a total return basis. Though performance lagged the broader market, the 5.3% total return provided by the asset class, as measured by the Alerian MLP Index (AMZ), was healthy on an absolute basis and relative to the sector’s historical performance; over the past ten years, average quarterly total return has been 4.2%.

24 Jan 2014

Diversified Income Class

During the last quarter, we completed the task of addressing the legacy issues in the Front Street Diversified Income Class. The exercise was necessary to enable the fund to perform much more in line with what one would expect of a Canadian neutral balanced fund. Although we are not happy with the relative performance over the quarter, we are very positive about the potential for the year ahead for a number of reasons, discussed below.

24 Jan 2014

Special Opportunities Class

Stock markets climbed the proverbial ‘wall-of-worry’ in 2013, and many worries were the same as they have been since the credit crisis of 2007-2008.

2013 began with a European economy in flux, a U.S. economy seemingly improving, but plagued with a Congress and Senate that were unable to deal with day-to-day issues, sending markets into frenzies with budgetary or debt ceiling issues. China and the rest of the emerging-market world economies were still decelerating, without a bottom in sight.

24 Jan 2014

Oil trading was fairly subdued over the quarter, with West Texas oil averaging about $97 U.S. per barrel. At their most recent meeting, OPEC felt there was no need to adjust production levels, as supply and demand remained fairly well-balanced. Global demand for oil increased by about 1 million barrels per day. However, the only region that showed any sign of growth was the U.S., where production grew by about a million barrels. OPEC is limited in its ability to increase production with issues hampering Iran, Iraq, and Libya’s production.

24 Jan 2014

Over the past six months I have talked about how the market reminds me of the 1990’s, my Altamira days. Given the year that has just passed, many are asking about the sustainability of this rally and “are we in a bubble"?

11 Nov 2013

Equity Portion of Diversified Income Class

15 Oct 2013

The third quarter was fairly strong for commodities, and the companies that produce them. Economic data out of China showed that growth was starting to accelerate, after tailing off slightly earlier this year. In Europe, the numbers showed that the region has left behind its last recession. In North America, moderate growth continues. Expectations of further growth sent the prices of many commodities higher last quarter, including copper, oil, and iron-ore.

15 Oct 2013

As we write this, the U.S. government has shut down, and we are weeks away from the decision to increase the debt ceiling. Politicians continue to play their games, although it is likely to be another unnecessary, and possibly ugly, fight. With some slight unsettling in the markets, we believe that things will get worked out. We are anticipating strong market conditions after these issues are resolved.

Why do we anticipate strong market conditions?

1) Since World War II, the average 4th quarter return of the S&P 500 is roughly 4%

15 Oct 2013

During the month of September, the fixed-income market priced in the high probability of the Federal Reserve Bank’s likely decision to start tapering and, as a result, the 10-year U.S. government bond yield made an intra-day high of over 3%. After the Fed shocked the market by delaying the removal of the stimulus, the rate market rallied strongly, with longer duration bonds outperforming as the 10-year yield dropped to finish the month at 2.611%.

INCOME

15 Oct 2013

Front Street Special Opportunities Class

We have contended recently that we live in two worlds (we’ve loosely named them): the real world and the capital markets world.

10 Sep 2013

Our markets have been feeling better of late. The Energy sector in particular has been generating good results. The oil commodity has benefitted from a number of things: First, the mid-East tensions in Syria have put the spotlight on potential disturbances out of the MENA (Middle Eastern/North African) world. Second, global economic news seems to be supporting a broadening recovery worldwide. Europe has now been showing some evidence of positive “greenshoots” of growth (and stability). Third, the news out of China is supportive of a re-accelerating picture of growth. We shall see.

10 Sep 2013

After a shareholder vote this summer, the fund changed its mandate with a goal to become a somewhat less volatile, income generating resource fund. This reflects a changing resource landscape, where growth for growth’s sake is no longer acceptable, with shareholders seeking a greater return from corporations’ profits.

9 Sep 2013

Since May 24, 2013 the Global Opportunities Class benchmark, the S&P 500, has basically moved sideways. In fact, the S&P 500 is at the same level as the end of May. During this period the Fund has outperformed its benchmark by 6%. Also, the volatility is a fraction of that of the broader index www.frontstreetcapital.com/files/salesteam/GOvsSP500.pdf

9 Sep 2013

Equity Portion of Diversified Income Class

The fund went from limited exposure in equities to net exposure of 35%. During the month we were as high as 40% invested in equities. We recently reduced the equity exposure through sales of a number of U.S. holdings, including a number of the U.S. Banks we owned. We wrote puts on Citigroup, and JP Morgan Chase & Co., with the view that on a 5-10% market correction, we would re-establish these positions. September and October have historically been volatile, and we have erred on the conservative side.

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Disclaimer:

The opinions expressed herein reflect those of the individual portfolio manager. These opinions are subject to change at any time based on market or other conditions, and Front Street Capital disclaims any responsibility to update such views. These opinions may differ from those of other portfolio managers or of Front Street Capital as a whole.

These views are for informational purposes only and are not intended to be a forecast of future events, a guarantee of future results or investment advice. All data referenced herein are from sources deemed to be reliable but cannot be guaranteed.

These views may not be relied upon as investment advice and, because investment decisions are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of Front Street Capital. Any discussion of any of the funds’ holdings are as of the podcast interview date, and are subject to change.

If specific securities are referenced, they have been selected by the portfolio manager on an objective basis to illustrate the views expressed herein. Such references do not include all material information about such securities, including risks, and are not intended to be recommendations to take any action with respect to such securities. Referenced securities may not be representative of the portfolio manager's current or future investments and are subject to change at any time.