Commentary

31 Jan 2012

Fear and expectations drove equity markets in 2011, as investors fled in droves. Typically they withdrew from investing in smaller-to-intermediate growth stocks, and ran to larger dividend paying stocks, driving the valuations of many companies, such as utilities, to what we feel are excessive. These concerns were fuelled by the credit downgrades and potential debt defaults in European countries, such as Greece and Italy. The front pages of the newspapers also told us about the overthrowing of governments in the Middle East, as well as the “Occupy” protest around the world.

16 Jan 2012

Fund Performance

31 Dec 2011

The year 2011 will forever be remembered as the year of protests. In the Middle East and North Africa, from Tunisia to Egypt, Libya and Yemen, the Arab frustrations took to the streets to protest decades-long autocratic rule. In the Western World, streets were filled with those voicing concern over austerity measures, frustrations over capital market excesses, as well as government inabilities (unwillingness) to do the right thing. Beyond the press headlines, the protests did succeed in overthrowing four governments, a number likely to grow higher.

31 Dec 2011

An Extremely Frustrating Year Comes To An End
2011 will go down as one where macro events trumped many fundamentals and the bifurcation was probably the most extreme since I have managed money. Let us highlight some of our observations and frustrations.

31 Dec 2011

The fourth quarter of 2011 finally gave equity investors a break from the double-digit losses of the third quarter. The Fund rose approximately 1.5% during the quarter, compared to a 3.1% return of the S&P/TSX Composite Index (TSX), while the loss for 2011 came to -3.2%, compared to -8.7% for the TSX.

30 Sep 2011

Once again, a disappointing month and an even worse quarter for capital markets, and particularly our funds, as macro events trumped any semblance of sanity. What was already a tough year, especially for mid to small cap, just got worse as our policy makers and politicians bumbled their way into ineptitude, starting with a budget impasse in the U.S. and to a Euro crisis by the end of September. As such, this correction has called into question the global economy and the bull market we have been experiencing since February 2009.

30 Sep 2011

It is very disconcerting to see the governments bickering in times of trouble. Unfortunately, it’s human nature to take it as close to the wall as possible, before putting measures in place that should have been initiated months beforehand. In many respects, the current market bears a striking resemblance to the 2007-2009 fiasco, in which the factions in the U.S. politics dragged the fiscal and monetary fixes later than the market and the economic world needed. The longer they wait, the greater the stress, and ultimately, the greater the economic scar tissue that’s longer lasting.

30 Sep 2011

Global equity markets suffered dramatically in the third quarter, on the back of the European debt crisis. Fears of a Greek debt default, and the implications for the rest of Europe, sent investors to the sidelines. At the end of the quarter, the stronger members of the ECU were designing ways to create a stabilization (bailout) fund of up to two trillion dollars. Citizens of stronger nations, such as France and Germany, find it politically distasteful to bailout other governments who have lived beyond their means for years. So there are no easy or quick solutions to these problems.

30 Sep 2011

Front Street Strategic Yield Fund posted a total return of 7.3% for the quarter ending September 30, 2011, compared to the S&P/TSX, S&P and DOW Jones, which were down 12%, 13.8%, and 11.5% respectively. Small cap indices suffered severe losses with the S&P/TSX Venture index down 23% for the quarter. Commodities also corrected with the CRB index (Thompson Reuters basket of commodities) down 12%, led by declines in oil and copper. Volatility, as measured by the VIX, has remained elevated and was up 160% for the quarter, with the index closing above 40 in September.

23 Aug 2011

The latest commentary from Steelpath's MLP portfolio management team.

31 Jul 2011

Global Investor sentiment towards the risk trade worsened in the second quarter.  Global equity shares retreated as the euro contagion risks, as well as the U.S. debt ceiling uncertainties dominated most headlines.  While commodities did also retreat, they faired better than equities.  Gold bullion, on the other hand, advanced $70/ounce during Q2, but the gold shares acted like stocks, and retreated in a bad macro environment.

31 Jul 2011

Risk aversion was the key phrase in the latter stages of the last quarter. Markets sold off in reaction to a number of political and financial issues taking place around the world. The noise from government upheavals in the Middle East, the Greek central bank bailout, and U.S. debt problems all sent investors running for the sidelines. We could see this flight to safety...

31 Jul 2011

Commodity- related stocks suffered significant declines and small cap stocks suffered large losses as the S&P/TSX Venture Index fell 17.1% for the quarter. The VIX declined for the quarter and credit spreads widened, causing a sell-off in hedged warrant positions and hedged bond positions.

30 Jun 2011

Not a great month or quarter, especially for risk securities and mid-to-small cap equities. This, despite the underlying commodities remaining reasonably firm. Macro events have weighed heavily on the risk trade.

A global economic slow down and European contagion are the latest concerns in the market. We can also add the debt ceiling impasse in the U.S. as well. Although something we must stay on top of, we think it may be somewhat overblown.

30 Jun 2011

The second quarter began where the first quarter ended, as supply disruptions from March's massive earthquake in Japan and rising commodity prices began to slow global economic growth. It was a difficult quarter for equities as the S&P/TSX lost 5.7 per cent. The Fund lost about 90 basis points over the same period. Gains in fixed-income holdings and health care equities, short positions, and option-premiums received, were offset by price declines in most long equity positions.

31 Mar 2011

All things considered, the markets are taking a number of events in stride. Although we may see some further near-term weakness, we do not anticipate a substantive correction.

31 Mar 2011

The year started off well, as markets, focusing on improving economic data, were pointing towards a global economic recovery.

31 Mar 2011

Despite the brood of Black Swans that descended on global markets in the first quarter of 2011, equity indices generally finished in positive territory. These Swans, or unexpected events, came in the form of both natural disasters (earthquakes in New Zealand and Japan, cyclones in Australia) and man-made events (the collapse of long-embedded political regimes in Northern Africa).

In Canada, the S&P/TSX Composite Index returned 5% in the quarter while Canadian bond indices, conversely, were virtually flat.

31 Mar 2011

Markets

The S&P/TSX, Dow Jones, and S&P 500 were up 5.6%, 7.0%, and 5.9%, respectively for the quarter. Improving fundamentals and civil unrest in the middle east/north Africa caused oil prices to spike, resulting in an increase of 16.8% for the quarter. During the same period, copper remained over $4, gold was flat, closing at $1439/ounce, while silver was up 22%, to close at $37.91/ounce.

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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.