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%.


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

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.

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.

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

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.

9 Sep 2013

The portfolio continues to seek balance between growth and income, while maintaining an 80% mandated equity position. Currently, we have approximately 20% cash going into what is historically a volatile period. The cash increased due to sales of some U.S. holdings, and trimming of a few Canadian positions (i.e. Redknee, CAE). While we sold JP Morgan, Bank of America, Allstate and Citibank, we also sold puts to protect our exposure to the financials group. By writing puts, we collect premiums while also setting a target for repurchase.

20 Jul 2013


A Dedicated and Experienced Team
The OppenheimerFunds MLP team consists of seasoned investment professionals specializing in United States energy infrastructure investments. Headquartered in Dallas, Texas, the dedicated team consists of an investment committee, portfolio managers, research analysts and traders who are solely focused on the Master Limited Partnership (“MLP”) space.

15 Jul 2013

At the end of May shareholders of the Front Street Resource Class Fund approved a change to the mandate. As a result, the Fund is being renamed the Front Street Resource Growth and Income Class to reflect its new emphasis on dividend paying stocks. The change is being made for a couple of reasons. First, we are attempting to lower the volatility that has come with investing in the resource sector over the last decade. Second, numerous resource companies are changing their business models to respond to shareholders seeking lower volatility, or yield.

15 Jul 2013

Economic Overview

As we enter summer we believe that market volatility will continue to increase over the near term due to geopolitical events, yield volatility and the likelihood of QE tapering. In addition, the likely retirement of Bernanke will result in some uncertainty until we get a better handle of his successor.

15 Jul 2013

During the second quarter of 2013, a number of changes were made with respect to the Front Street Diversified Income Class, most notably, the announcement that Rick Brown had joined Front Street Capital, and would be taking over the lead portfolio management responsibilities of the Fund, effective June 10, 2013.

The Fund reported a loss of 5.17% over the second quarter of 2013, slightly underperforming the benchmark, which was down 3.37% over the same period. Relative performance did improve during June, as the fund outperformed the benchmark by 2.25%.

15 Jul 2013

Front Street Special Opportunities Class:

The Front Street Special Opportunities Class Fund was caught up in the Basic Materials carnage during the month of June. It gave up 8.5% in the month and lost 13.8% for the quarter.

As many of our readers know, the Special Opportunities Class is a bottom-up Fund. It looks to invest in exciting growth companies, underpinned by a great management team, or, great assets, game-changing technologies, or the companies could be catalyst targets (M&A).

29 Apr 2013

We’ve been fielding a number of questions about the gold and precious metals sector recently, more specifically, why we are not buyers on gold? Let’s start there. The price of gold bullion has been exceptionally volatile recently, dropping $250/ounce over a two-day period in mid-April. Bullion has now given up $500/ounce from its highs in September, and is now, technically, in a bear market. Gold equity shares are down 40% year-to-date alone. So what’s up (or down) with gold lately? Gold bullion and precious metal shares have been in profit taking mode for much of 2012 and early 2013.

2 Apr 2013

U.S. Stock market leadership remains defensive, suggesting weak economic growth, but a lack of inflation should keep bond yields low. Relative valuation (dividend yield 2.1% for S&P 500 and 3% for the S&P/TSX (TSX) vs U.S. 10-year bond of 1.9%) is still favourable for stocks. Markets peaked in April 2010, 2011, and 2012 followed by corrections of 16%, 18%, and 10%, respectively, on Eurozone flare-ups. However, with strong, widely-recognized recovery in U.S. housing, North American stocks are less likely to offshore exogenous shocks, in our opinion.

1 Apr 2013

With continued headlines of record highs on U.S. stock exchanges in the first quarter, investors may have felt confident in their investments. However, the rally has been very sector specific. The Dow Jones 30 was up over 10% in the first quarter, while the Toronto Stock Exchange (TSX) rose only 2%. The major discrepancy can be explained by the large natural resource weighting on the TSX. Resources make up over 40% of the TSX. During this period, the energy sub-index was flat, golds were down 15%, and metals were down 14%.

31 Mar 2013

“Life’s missed opportunities, at the end, may seem more poignant to us than those we embraced—because in our imagination they have a perfection that reality can never rival.”
-Roger Ebert

2 Mar 2013

Norm Lamarche: It is difficult to find a period of time when the Canadian resource sector has been so out of favor. The period post-Asian contagion, from 1998-2000 comes to mind. In that period, a western economy was healthy and growing, and had absorbed the emerging nations’ issues of 1997-1998. Commodity prices had recovered, reflecting worldwide economic fundamentals, but the resource stocks remained out of favor because investors were funneling money into sectors deemed more exciting. The technology sector at the time was taking cash flows away from the resource sector.

20 Feb 2013

Current Asset Allocation (Feb 2013):
Equity 20%, Short 10%, Net Cash 20%, Privates 7%, Convertible Debentures 17%, Short-Term Bond 7%, Other Bond 14%, Cash Encumbered for Shorts 15%

We have been redeploying to cyclical equities on a hedged basis and to shorts in individual names that we deem to be expensive and, furthermore, we are allocating to convertible bonds as we see value in these securities. We are also building short positions in equity indices as one means to hedge equity exposure.

1 Feb 2013

Economic Overview and Fund Positioning

A Dedicated and Experienced Team

OFI SteelPath focuses on energy infrastructure investment primarily through the Master Limited Partnership (MLP) asset class. OFI SteelPath has a market leading position and an eight-year track record in MLP investing, including an investment
team with over 50 years of combined energy infrastructure analysis and investment experience. The Investment Team is located in Dallas, Texas, in close proximity to the majority of MLP management teams and the country’s energy industry leaders.


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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.