April 2010
April showers certainly bring May flowers. Or so, I’ve been told! In the case of the Ambroise Investment Value Fund: I would agree! On the horizon lurks a (possible) thunderstorm that could lead into June tides.
The month of April brought with it fantastic results – the likes, of which, that have propelled the fund to ever-greater heights and profitable returns. But all is not well on the global economic front. While the markets that the Fund covers are either booming (Asia Pacific) or recovering (North America), it is the European bloc that is reeking tremendous havoc on the psyche of the geo-economic front. Let’s put aside the ongoing issues in the Mid-East for the time being and make sense of what troubles the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain) could impose on the world community. While these five countries make up a relatively small proportion of the world economic picture, it is the fear that a possible default on the debt that each country holds within their accounts could lead to other larger countries defaulting. Last week, Standard and Poor’s Rating agency (and their brethren), pulled the trigger and lowered the ratings on several of these country’s debt. (Keep in mind, it was S&P, Fitch and Moody’s who missed the collapse of the mortgage industry in the US.) Too little, too late some might say? I will explain to you the potential implications of a lower rating (i.e. A to B to C). Right off the bat, when debt products are downgraded the cost to fund that debt automatically rises (in fact, the cost of future debt rises). Lower the debt another notch and the interest rates rise once again. The country in which this debt is found will have to pay much more to service their debt obligations. Not a very nice picture, indeed. If (and this is a very large “if”) Greece were to default on their debt, this would lead to a massive “tidal wave” of monstrous proportions. Not so much within Greece itself; but the effects of a “contagion” would, no doubt, hit the rest of the PIGS.
So what has the AIVF done to shelter itself from a possible debt fallout? More importantly, how has the Fund been able to post profits from one month to the next? Let’s take a look.
Asia-Pacific
The Asia-Pacific portfolio kept pace with the overall growth of the region. This economic community has had to whether several storms over the last several years (specifically the Asian Currency Crisis) and has learned many lessons along the way. Most importantly: consume, but within reason. The Asia-Pacific economies – Japan included – have led the recovery with impressive growth numbers and phenomenal stock markets returns (ex-China). The Fund’s holdings continue to grow from within and through recent acquisitions. GZI Asset Management Reit had a relatively strong month with a return of 5.9%. The Reit went ex-dividend this past week, and in keeping with tradition, the stock fell sharply. That gave us a fantastic buying opportunity. Our Australian Reit, Commonwealth Office Property Fund, is now building its own following with a 2.8% return on the month. This is the first company that we sought to invest with in Australia, and while returns have been muted in the short term, the Fund does see great potential in this company for the long term. We will continue to add to our shareholdings on a quarterly basis. Rounding out the winners for the month of April was Standard Chartered Banking. We cannot stop raving about this company and its strong foundations. The stock returned a healthy 3.1% on the month. The likes of Great Eagle Holdings and The Link Reit posted flat returns month-on-month.
The AIVF added a fantastic company to the portfolio with the addition of Uni-President Enterprise Corporation. This Taiwan-based company has been not only the supplier of my ready-made cold teas, pastries and instant noodles for the last 6 years, but when I’m in need of a caffeine fix I can always count on a delicious coffee at my local Uni-P/Starbucks store. This company has been around for many years and has spread its wings and taken flight in various other Far East Asian countries, China included. On the day that we invested in Uni-P, the company announced their dividend payment for the year – up a whopping 25%!
Canada
For the most part, the Canadian portfolio was flat relative to March. While most of the companies in the portfolio showed gains and losses under 1%, there were a few standouts and one stand alone. Let’s get that stand alone out the way. Planet Organic Health Corp., our only food retailer in our Fund, filed for Creditor Protection this past week. What does that mean? Straight up: the company went bankrupt! That’s right. We took a hit on this company, but in return we learned a few lessons. (By the way, if you’d like to know what we learned from this smack in the lip give me a shout either via phone or email and I can give you the details.) The Fund took an overall loss of 92.5%. The stock held no more than a 2% weighting in the portfolio. In other words, we are very unhappy about the loss but it was mitigated through other returns in the portfolio. With that out of the way, let’s take a look at three of our core holdings. Alarm Force Industries, with an overall return of 25% since August, 2009, lost 5.3% on the month. In a nutshell: The Canadian housing market has begun to cool with rising interest rates. As AF is a leading house alarm service provider in Canada, the company will also see it’s growing revenue cool in the near to long term. Still, we feel very confident in the company’s business and its future prospects. Rounding out the fund was Yellow Media Inc. with an eye-popping return of 11.8%. That’s before a very healthy dividend of 12%!
United States
The US portfolio saw the greatest effects from the Greece debt crisis. The Portfolio saw its holdings swing rapidly from the upside to the downside on many occasions. For the most part, stocks remained flat to relatively higher on a month-to-month base. Taking a hit was Suntech Power Holdings with a loss of 3.3%. Suntech will be reporting first quarter results in May. Other losses came from Toyota Motor Corp. With their lineup of Toyota vehicles nearly through their recalls, the Lexus family has now been put to the test and other car-related problems are popping up unexpectedly. Nevertheless, we believe that Toyota’s years-long reputation built on price, quality and service, along with its substantial cash levels and product innovation, will lead the company through this difficult patch. Morningstar’s currently offers a Fair Value price on Toyota’s stock at around $113 a share (as of February 2010). On the flip side, the portfolio had two winners to show for its efforts. Carnival Cruise busted through the roof with an astonishing 7.3% return. The stock seems to bereaching new heights with each passing week. This is why we have been scaling back our holdings in the short-term. Another winner was our extreme value stock LS Starrett. Trading at approximately 50% of its enterprise value, LS pulled in a fantastic 11.6% return. On an annual basis (since our first trade – May, 2009), the stock has returned a very healthy 22%. We continue to add to our holdings.
Notes
Your Fund manager is not certain where to start this month’s Notes section, but the enthusiasm and joy can’t be contained. As of the end of April, the Ambroise Investment Value Fund (and the parent Ambroise Investment Management) has signed on a total of 9 investors. While this number may be like comparing peanuts to meteorites in the face of Warren Buffet or Franklin Templeton Investments, this small and growing family of investors means the world to us at AIM. Whether you were the first investor to sign on the dotted line (and you know who you are!) or number 2, 3…, I want to thank absolutely everyone for your trust, faith and belief in what we are doing here at Ambroise. Most importantly: we’re all making money!
On a side note. Thanks to one of our investors and their continued efforts to see this Fund grow, we have added a new company to the fold. West Mountain Capital Corp., a highly respected and growing company out of Saskatchewan, Canada, will see its holdings grow within our investment family. We look forward to watching not only the stock, but the company grow into a Canadian-born success!
Finally, if you are out and about on the town (most likely Taichung) or sitting back with a cold one on a hot summer day and a friend asks about what you are doing with your hard-earned money, please don’t hesitate to mention our name or my name. I’d be more than happy to meet up with him/her and discuss the various options that they may want to consider when putting their hard-earned money to work. You never know, they may decide to join our small and growing family.