Alex Ruus, portfolio manager at Arrow Capital Management

Focus: North American equities
_______________________________________________________________

MARKET OUTLOOK
A continuing slowly-growing global economy alongside low interest rates is providing the backdrop for a slowly-rising stock market. The U.S. election has given a very favourable backdrop for stronger growth in the coming year. While the media is full of stories of problems, the global economy continues to move forward. While the overall market has climbed higher, leading some securities into overvalued territory, there is a multitude of undervalued opportunities available for those investors willing to dig for opportunities. Three recent takeovers in our portfolios are a strong indicator of the strong opportunities available in the market. If the public market is not willing to recognize the intrinsic value of some of our portfolio companies, eventually either larger companies or private equities are only too happy to take advantage of mis-valuations in the public market. This backdrop should provide a solid environment for the Leaders fund to outperform. Fundamentals for our portfolio companies are excellent and underappreciated in the market; we look forward to good results to come.

TOP PICKS

ANTHEM INC (ANTM.N)
The leading U.S. healthcare insurance provider, strategically positioned to benefit from the need for cost control in the healthcare system. The company produces prodigious amounts of free cash flow, which translates into growing dividends and share repurchases to return capital to shareholders. The stock is undervalued at 12 times next year’s earnings. Last purchased on November 4, 2016 at $119.58/share.

FREEHOLD ROYALTIES (FRU.TO)
A leading owner of Canadian oil and gas royalties. One of the lowest-cost producers of energy in Canada that pays a sustainable 3.4 per cent dividend and trades at a discount to its intrinsic value. Last purchased on December 2, 2016 at $13.69/share.

MAGNA INTERNATIONAL (MG.TO)
The world’s second largest independent auto parts supplier. Magna is an innovative global leader in several key auto parts segments, led by a strong management team with a demonstrated record of shareholder value creation. The company is steadily building shareholder value and returns value to shareholders through a rising dividend accompanied by numerous share buybacks. We own the company and believe it is undervalued, trading at seven times earnings and a 2.4 per cent dividend yield. Last purchased on December 5, 2016 at $56.46/share.
 

PAST PICKS: DECEMBER 7, 2015

MICROSOFT (MSFT.O)

• Then: $55.81
• Now: $60.22
• Return: +7.90%
• TR: +10.85%

ALARIS ROYALTY (AD.TO)

• Then: $23.00
• Now: $23.00
• Return: 0.00%
• TR: +6.72%

ELEMENT FINANCIAL FLEET (EFN.TO)

• Then: $16.46
• Now: $11.78
• Return: -10.15%
• TR: -9.54%

ECN CAPITAL CORP (ECN.TO)

• Then: $3.28
• Now: $3.06
• Return: -6.70%
• TR: -6.70%

Element Financial split into two companies in September 2016: Element Financial Fleet and ECN Capital Corp. The total from both EFN.TO and ECN.TO: -16.24%

TOTAL RETURN AVERAGE: +0.44%