Colin Stewart, CEO and portfolio manager at JC Clark Limited

Focus: North American large caps and long/short strategies
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MARKET OUTLOOK
The market’s expectation for near-term interest rate hikes has increased with firmer U.S. economic data and recent commentary by Federal Reserve officials. While we are pleased to see some evidence of a stronger economic backdrop, we are concerned that the market may not react well to interest-rate increases, as much of the recent rally in equities has been predicated on rates staying very low for a prolonged period of time. Valuations also remain historically high and combined with low levels of volatility and general investor complacency, the market remains vulnerable to a correction. We therefore continue to maintain a relatively defensive stance and focus on security-specific opportunities in out-of-favour areas and companies that are not yet on the radar of the broader investing community.

TOP PICKS

MAPLE LEAF FOODS (MFI.TO) – Most recent purchase two weeks ago at approximately $30.90/share
Maple Leaf is a leading food-processing company focused on producing and selling branded protein products. Over the last several years the company has undergone a significant plant modernization process, which has created large margin expansion. The company has over $300 million of cash in its balance sheet and is in a strong position to make accretive acquisitions and return capital to shareholders through share buybacks and dividends. Maple Leaf continues to trade at a valuation discount to larger U.S. peers, and could attract interest as an acquisition target for a larger competitor looking to gain a leading market position in the Canadian branded protein segment.

AIR CANADA (AC.TO) – Most recent purchase one month ago at approximately $9.70/share
The largest Canadian airline has undergone a significant transformation over the last few years. The company has reduced financial leverage, improved its pension liability, modernized its aircraft fleet and expanded capacity. As a result, profitability has grown significantly and with capital expenditures poised to decrease in the coming years, Air Canada will generate very significant free cash flow going forward. The company continues to trade at a valuation discount to its U.S. peers and as the balance sheet improves in the coming quarters, we believe investors will award Air Canada with a higher valuation.

IBI GROUP (IBG.TO) – Most recent purchase one week ago at approximately $6.06/share
IBI Group is among the top architectural firms in the world. The company provides planning, design, implementation and other services related to construction projects, transportation networks and systems technology. The company ran into problems a few years ago due to high financial leverage, but the management team has been diligently paying down debt and focusing on cash flow generation. The company trades at a discount to peers and with large insider ownership, we believe management is nicely aligned with shareholders and will continue to reduce leverage and grow the business to drive share-price performance.
 

PAST PICKS: NOVEMBER 9, 2015

INTERFOR (IFP.TO)

• Then: $11.59
• Now: $15.57
• Return: 34.33%
• TR: +34.33%

MASONITE (DOOR.N)

• Then: $62.51
• Now: $58.00
• Return: -7.21%
• TR: -7.21%

CLEARWATER SEAFOODS (CLR.TO)

• Then: $12.57
• Now: $13.69
• Return: 8.91%
• TR: +10.54%

TOTAL RETURN AVERAGE: +12.55%
 

FUND PROFILE: PRESERVATION TRUST

PERFORMANCE AS OF SEPT. 2016:

• Since inception: Fund 9.89%, Index* 3.71%
• 1 year: Fund 8.68%, Index* 11.79%
• 3 year: Fund 5.89%, Index* 6.87%

* Index: S&P500 & SP/TSX
* Net of fees

WEBSITE: www.jcclark.com