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New Years Letter To Investors 2018

New Years Letter to Investors 2018

We are off to a great start this year and are up double digits in January. This is likely to be a breakout year for us and the Fund and we thought it might be useful to give people an update on developments at the firm as well as investment themes we will expect to capitalize on in 2018.

A dynamic market

In order to make exceptional returns, investors first require opportunity. While the Canadian equity markets have been trailing just about every global index, one could argue that it is quite a dynamic and exciting period for Canadian Investors. Not only are the Cannabis and Crypto-Currency/Blockchain industries bringing exciting opportunities to our market but energy, commodities and technology companies are good value and climbing quickly.

The Fund is well positioned for Q1 ‘18

Our largest private holding was Nuuvera Corp. (NUU.v) which began trading in January and more than doubled in its first week of trading.  This is an exciting global growth opportunity in the Cannabis space.  The Fund invested at an early round and this investment now represents about a 6x return, while the relative valuation remains well below public comparables.  If the stock begins to trade in line with its comps, we will have to continue to manage its weight in the portfolio: a nice problem to have in the money management business.

Our other potential cannabis investment is through a medical marijuana opportunity in the US. Two of our partners David Creighton and Gill Broome have been working to bring the company to list here in Canada and management is presently writing the prospectus.  This is a solid, profitable business with an impressive portfolio of products.  Think lab coats and clipboards rather than tie-dye and Bob Marley. Our firm is a big believer in this company’s management team and their business plan of replicating their existing success in one US State and taking it to several others. We plan to be long term investors and our Fund investors will be provided with front row seats to see this investment opportunity in early 2018. We expect this company’s IPO to be very well received.


On the resource front, we watched Cobalt, Lithium and Uranium prices rise and the equities take flight. The global demand for all the metals destined for the electrical vehicle (EV) market is simply enormous. Copper and Zinc also had a very good year which was more predictable and easier for us to find good investments (First Quantum and Trevali Mining being our favorites). The EV industry is certainly a game changer for the world and will provide investment opportunities for decades to come both on the long and short side. What the Canadian market taught us last year, as demonstrated by the Lithium metals companies, is that the speed at which value is recognized is impressive.

We are well positioned for a rebound in energy prices. It is in fact already happening as WTI is above US $60.00. The Canadian energy stocks have been clobbered and the bounce in Q1 2018 may be significant. We have learned that it is dangerous to be “wedded” to this rather volatile sector, but at these valuations, the risk-return proposition is indeed compelling.

We are also positioned for a continued rally in Financials. Trump’s tax breaks and slightly higher interest rates, with a steady US economy, could send this sector significantly higher this year. We met with TD Securities Strategist, Mr. Chis Dutton, before the holidays and he observed that “one is almost forced to buy more Canadian Banks as the sector has both good momentum and relative value’’. We are buyers of CIBC in Canada and JP Morgan, Citicorp and Bank of America in the US.

We own a number of technology names that have performed well recently and we expect the trend to continue next year. Many mid-cap Canadian listed companies like Baylin Technologies are simply too cheap. If the shares don’t appreciate, someone will likely acquire them. We have also taken smaller positions in some futuristic plays including a drone delivery company (FLT.v) and an eSports business, both with very bright futures.

Many Canadian smaller cap healthcare stocks are also undervalued. We still own PHM, which just split into two companies: PHM and Viemed Healthcare Inc. (VMD). The stocks are up 30% since the split in December and both trade at less than 5 x EBITDA vs 8-12x for most peers.

Corporate Developments

Mike Shannon has moved from advisor to becoming a full partner and Portfolio Manager at the Firm. He has taken over many of Jacques Lacroix’s responsibilities and is now our Chief Compliance Officer, which is very much appreciated by all of us. Our Advisory Board has been expanded to include Jacques Lacroix and David Creighton.

Last fall the Quebec Regulators, the AMF, completed their audit process (usually every 3-5 years) and we seem to be fully compliant for the Fund, Segregated Accounts and the EMD licenses. Philippe Martel and Miranda Aziri have done a terrific job and are solid additions to the team and Gill Broome is heading the largest deal in the firm’s history with the exciting IPO described above and scheduled for this spring.

The Fund Portfolio has been doing well recently and we like how it is positioned going into the New Year. We have prepared a more detailed portfolio description for those who would like to see how the Fund is positioned and we shall have the audited financial statements of the Fund in March/April with the details down to the penny.

All the best in the New Year and please do not hesitate to contact us. Our Fund would only benefit if it were a bit larger and we encourage investors to consider taking a position in early 2018 as we believe timing to be excellent.

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