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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Don’t worry, be happy….that you don’t own a passive Fund
 
 October Performance   (F Series, Net of Fees)

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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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What a difference a year makes. Last year, we collectively stared into the Abyss, watching our economy grind to a halt. Yet, as history has shown us over and over again, we picked ourselves up, dusted ourselves off, and business activity has resumed. Spending that was canceled, was really just postponed. Investment that was hesitant came back to life (at much cheaper prices). The financial system has been stabilized, people are beginning to catch up on postponed purchases, and businesses have begun to restock their inventories. Cyclical forces were held down too long, which is like pulling on a spring, eventually it needs to bounce back.

The last time Canada experienced such a severe drop off in the economy, was in the 1981-82 recession. The TSX index, over 12 months, fell 43%. Not unlike last year’s 50% decline that brought prices down to a six year low. What is often forgotten about the ’81-82 decline, was that the market went on to produce a stunning full recovery in only one year (see chart on page 3). While the circumstances are different between today and in ’81-82, the point is that recoveries happen much faster than people expect. Buying when the headlines are the bleakest historically is exactly when one should be buying. To borrow a quote from Warren Buffett: “be greedy when everyone is fearful and fearful when everyone is greedy”.

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Most of us know that life insurance is used to protect the people we love most. It pays tax free cash when we die.

We can get life insurance through work (some employers offer it through group benefits plans, but this type usually ends when we leave our employer) or we can buy it from an insurance advisor, like a ZLC Associate.

As each of our needs is different from someone else’s, it’s good to start with a basic rule of thumb: If someone relies on us to provide for them, then yes, we probably need life insurance.
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ZLC Foundation held its 24th annual charity golf tournament on July 6, 2009 at Marine Drive Golf Club. Over the years, the tournament has raised over $780,000 for many local charities.

This year, ZLC Foundation is honoured to have provided $25,000 to the Juvenile Diabetes Research Foundation and $7,500 to the Kids Up Front Foundation.

ZLC Foundation thanks its generous sponsors, donors, players and volunteers for a successful day on and off the course.