Currently, CPP at age 65 is $934 per month.   Starting in 2011, CPP will begin phasing in higher payments to those of us who wait beyond age 65 to start our pensions, and lower payments for those of us who decide to collect them earlier.

Under the proposals, deferring our pension will add $78 each year, up to $1326 per month by age 70.  On the other hand, if we start to collect early, we will lose $67 each year, and receive only $598 at age 60.  (Our actual pension will depend on our contribution history, and annual inflation adjustments.)

Also, starting in 2012 we no longer have to stop work or reduce our earnings for at least two months in order to apply for CPP.  If we collect early and continue working, both we and our employer will still be required to contribute to CPP.  (This means a higher pension the following year.) At  age 65, contributing to CPP will then be optional.

Canada is definitely in the global spotlight these days. Our financial system is envied by most, our currency is strong, and our natural resources are in demand. It should be no surprise then to find energy, financial, and material companies making up almost 80% of the TSX index. This kind of market concentration means that most Canadians portfolios are influenced by those three sectors.  Much of last year’s market rebound was focused on these very sectors; however, in the process the other side of the market received little attention and has yet to fully participate in the market recovery. Fortunately, that is good news as it means that there is still value in the market if you look hard enough.

While most Canadian’s investment exposure is in the big three sectors, attention should be paid to the other 20% of the index which offers potentially better opportunities for relative and absolute growth. Which sectors make up the other smaller half of the market? They are mostly less cyclical sectors like utilities, consumer staples, telecommunications, and health care. It is these sectors that were ignored last year and potentially offer better value going forward. Often in investing, the best opportunities are where no one is looking.
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Ever since the middle of September, even though it may not feel like it, the TSX Index has been trading in a flat range. Markets are essentially digesting this year’s big gains. Van Arbor has had a nice feast on material, energy, and cyclical companies for most of the year, but as of late we have been repositioning into companies with better current risk/reward prospects.

More recently we have been snacking on food stocks (pardon the pun) as well as high yielding telecom & utility stocks. These have been doing great relative to the market and should benefit from earnings momentum and developing macro trends. See the charts below to get an idea of why this is a stock picker’s market.

So with markets digesting, that begs the question: when is the next big meal? As opposed to business which is about creating opportunities; investing is all about spotting the best opportunities before everyone else. Usually 90% of a good trade is planning, while 10% is executing it.
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So with winter in full gear, how is Van Arbor positioned for the next couple of months? With the TSX index consolidating some of its gains over the last couple of months, we have become more selective to the point where the portfolio almost has no resemblance to a typical index portfolio.

Why? Given our expectations over the next two to three months; risk management, selectivity, and looking for new opportunities, are our main priorities moving into the New Year. Sometimes it pays to follow the crowd (read: index portfolio), but that time is not likely now.
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Loblaw’s reported very positive earnings this morning, helping solidify our thesis in the company. Below is our analysis on the company, which also translates to other companies that we own in the grocery industry.

Our key thesis on Loblaw’s can be summarized as follows:

- The company is trading at two decade low valuations and is one of the better bargains in the today’s market (see chart 1 and 2).
- The extremely low valuation is attributed to multiple years of negative news regarding operations and the industry; thus, like any value stock with low expectations, it does not take much to lift the price of the stock (see chart 3).
- A good example of a comparable company is Safeway, which we have been building a stake in lately for our World Fund. Another turnaround story which seems to have put in a multi year bottom and has begun to see some gains (see chart 4).
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What if I told you that you can buy shares in a company at a 20% discount to everyone else? Well that offer is now available only to Canadians, who due to a confluence of factors are the coolest kids on the currency block!

We all know how much attention the Loonie has been getting over the last couple of years, all of which is due to some very good reasons (Oil, Gold, Banking System, and Speculative Interest). However, there becomes a point when all that good news gets baked in (priced to perfection so to speak) and one has to look at the other side of the coin.
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Dow 10,000
It doesn’t seem long ago that we stared into the Abyss at Dow 6,500 (7 months ago), but here we are at that headline milestone (for the 27th time). So what if it is exactly the same value ten years ago (Dow 10,021 October 15 1999). The point is that we have seen a powerful cyclical rally off depressed levels. The question is there value left?

It is true that many company’s strong returns were due to them being at severely depressed values. It is also true that the rally has been mainly cyclical in nature via commodities, industrials, and materials. However, in all the excitement there has been a basket of companies which have been largely ignored, namely non-cyclical companies. In some instances, these companies are quietly doing a great job at the company level, but attention has been pointed elsewhere. Thus, today’s note highlights a few companies that we like and which offer excellent absolute and relative gains going forward as attention begins to be paid.

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Building on the last two quarters of positive performance, the Van Arbor Funds had another great quarter with the Canadian Fund returning 14.55% (TSX 9.65%) and the World Fund returning 8.25% (World Index 7.82%). With three fourths of the year complete, both Funds remain the top ranked Canadian Equity and Global Equity Funds in Canada over multiple time frames. Even though 2009 has been a great year so far, we would like to highlight the fact that both Funds are one of the best performing mutual funds (all classes) in Canada over the last 12 months. We highlight this, because although we are enjoying a strong year to date on the upside, we also managed the downside last year just as well. So, while markets are almost returning to their value last fall, both Funds are up just over 40% from before the crash. Just another reason why having an actively managed portfolio that focuses on capital appreciation as much as capital preservation matters in a market that may not favor passive investing.
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As investors, we all know that the ideal strategy is to sell out of the market before it goes down, then reinvest just as it begins to go up. However, as good as this sounds, in reality this strategy is impossible to execute. How do we know when to sell, and when to buy? There’s an old Wall Street saying that nobody rings a bell at the top of the market, or at the bottom.

After a sharp decline in the market, we naturally want to sell to avoid the potential for further drops in our portfolios. Not only does that lock in our losses, but it also raises the question about when do we reinvest again? Historically, there have been no indicators that have consistently predicted the direction of the market. Even the economy is not a reliable predictor as it often rebounds months before an economic recovery is evident.
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