EHP Advantage Fund

FEBRUARY 2015
EHP Advantage Fund
Returns (Class A units, net of all fees and expenses)
JAN
FEB
2015
5.3%
2.4%
2014
0.6%
4.7%
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
YTD
0.4%
1.4%
1.2%
2.3%
-0.6%
2.7%
-1.0%
5.1%
1.0%
2.6%
22.2%
3.2%
3.4%
1.5%
1.4%
1.2%
4.6%
3.7%
2.0%
22.9%
7.9%
2013
Growth of $100,000 (daily)
Risk/Reward Analysis
$175,000
$165,000
$155,000
$145,000
$135,000
$125,000
$115,000
$105,000
$95,000
Apr/13
Jul/13
Oct/13
Jan/14 Apr/14
Jul/14
Oct/14
Jan/15
Compound Returns (%)
Fund
Benchmark*
1 Mo
2.4%
4.0%
Annualized Return
Annualized Std Deviation
Winning Months
Average Monthly Gain
Average Monthly Loss
Largest Drawdown
Sharpe Ratio (1.5%)
Correlation
Beta
Net Exposure
Gross Exposure
Fund Benchmark*
30.1%
24.1%
6.0%
6.0%
91%
91%
2.5%
2.2%
-0.8%
-1.4%
-1.0%
-1.7%
4.7
3.8
0.48
0.46
113%
188%
Source of Returns for Most Recent Month
3 Mo
10.6%
8.0%
6 Mo
16.3%
10.1%
1 Yr
25.1%
20.3%
Incep.
62.0%
48.5%
Returns from Longs
Returns from Shorts
4.5%
-2.1%
*50/50 composite of S&P/TSX TR and S&P 500 TR in $CAD terms
Commentary
The EHP Advantage Fund Class A units increased 2.4% for the month of February versus 4.0% for the TSX
Composite and 4.0% for the S&P 500 in CAD terms. February saw a bit of a reversal from recent trends and
our move to gear risk back up at the end of January served us well, but we lagged the “junk” rally in beatenup cyclicals and lost money on the short side of our strategies. Value was our best performing strategy in
both markets, with its heavier concentration in legacy technology in the U.S. and cyclicals in Canada.
Momentum and Low Volatility strategies trailed as defensive staples, utilities and telcos checked back from
recent strong gains and the most volatile stocks with stressed balance sheets (where our shorts tend to be
concentrated) led gains. Our Credit Momentum strategy had gains as we were fully invested in recovering
high yield debt, having switched out of our flight-to-safety U.S. treasuries at the end of January. Finally,
Issuance Arbitrage had good gains as deal flow picked up and a number of companies took advantage of
stronger markets to do badly needed balance sheet repair – a trend we expect to continue in coming
months assuming continued market strength.
EdgeHill Partners
2 Bloor Street East
Suite 2102
Toronto, Ontario
M4W 1A8
(416) 360-0310
[email protected]
www.ehpfunds.com
The big question is whether February’s shifting tides represents a change in trend from a strong USD, weak
commodities, falling government bond yields and defensive leadership, or just a temporary pause. Our
observation last month that the big moves in yields, currencies and commodities represented “blow-off”
behaviour was correct, but the jury is still out as to whether those trends reassert themselves in coming
months. Our strategies have responded by further adding cyclical exposure, and energy in particular has
moved up the ranks to represent our third largest sector weight in Canada. We expect the sector to remain
volatile, but good value is finally starting to outweigh bad momentum and earnings in general have been
“less bad” than the now overly pessimistic street outlook. That all said, our largest weighting remain
financials and consumer discretionary in Canada and tech, financials and healthcare in the U.S. which we
view as having the best combination of cheap, rising and stable stocks.
Perhaps our greatest concern with markets in general is the rising disconnect with multiple expansion
(markets are by no means cheap at some 18.5x earnings) and the fall-off in expected future earnings.
Analysts now expect declining U.S. earnings over the next year for tech, staples, telecom, materials, energy
and utilities (data courtesy FactSet) which should ultimately find its way into stock valuations if earnings do
indeed roll over, and yet an overly accommodative Fed and low rates are keeping investors in stocks as the
“only” alternative. A change in Fed policy and a shift to raise rates could indeed be the trigger for this
disconnect to unwind. While we don’t second-guess a rising market, as always we have a pre-defined
process to gear down risk if that changes.
Page 1
FEBRUARY 2015
Fund Structure
Strategy Allocation
Country Allocation
Momentum
Capital Allocation
Short
U.S.
Value
Low
Volatility
Canada
Long
Issuance
Arb
Credit
Canadian Equity - Top 10 Longs
U.S. Equity - Top 10 Longs
Alimentation Couche-Tard Inc
Dollarama Inc
Linamar Corp
Toromont Industries Ltd
CCL Industries Inc
Power Financial Corp
Canadian National Railway Co
Magna International Inc
Transcontinental Inc
Intact Financial Corp
1.4%
1.4%
1.4%
1.2%
1.1%
1.1%
1.0%
1.0%
0.9%
0.8%
Sector Allocations % of NAV - Canadian Equity
-10% -5%
0%
5%
0.7%
0.7%
0.6%
0.6%
0.6%
0.6%
0.5%
0.5%
0.5%
0.5%
Sector Allocations % of NAV - U.S. Equity
10%
15%
Financials
Consumer Discretionary
Energy
Materials
Information Technology
Industrials
Consumer Staples
Health Care
Telecommunication…
Utilities
Long
Travelers Cos Inc/The
Harman International Industrie
Apple Inc
Lockheed Martin Corp
Edwards Lifesciences Corp
Cardinal Health Inc
Progressive Corp/The
Boeing Co/The
Delphi Automotive PLC
Electronic Arts Inc
-10% -5%
0%
5%
10%
15%
Information Technology
Financials
Health Care
Industrials
Consumer Discretionary
Consumer Staples
Telecommunication…
Utilities
Materials
Energy
Short
Net
Long
Short
Net
Fund Information
The Fund’s investment objective is to construct a long/short portfolio of North American stocks by buying undervalued, rising,
stable stocks and shorting overvalued, declining, volatile stocks. The Fund actively gears down risk in declining markets and
tilts toward more defensive stocks and strategies to preserve capital. The Fund emphasizes a disciplined process of stock
selection, risk control and liquidity. The Fund targets returns of 10-12% net of all fees.
EdgeHill Partners
2 Bloor Street East
Suite 2102
Toronto, Ontario
M4W 1A8
(416) 360-0310
[email protected]
www.ehpfunds.com
Portfolio Manager:
Jason Mann
Fund Structure:
Mutual Fund Trust
RSP Eligible:
Yes
Fee Structure:
2% Mgmt Fee, 20% Performance Fee
Subscription Amounts: CAD $25,000 Minimum
Subscriptions:
Weekly, Friday 4pm deadline
Redemptions:
6 days notice, no penalty
Reporting Frequency:
Lockup:
High Water Mark:
Fund Administrator:
Prime Broker:
Legal:
Auditors:
Weekly
None
Yes, permanent (no reset)
CommonWealth Fund Services
Bank of Nova Scotia
McMillan LLP
KPMG
Page 2
DISCLAIMER: Performance returns refer to initial series of Class "A" Units, and are net of all fees and certain operating expenses.
Returns are unaudited. Return calculations are annualizedand since inception unless otherwise noted. Statistics are calculated using
monthly returns unless otherwise noted. Strategy Allocations are represented as percentages of net assets. Cash includes short
proceeds. Benchmark statistics use total return Indicies. The composition of the Funds’ portfolio will significantly differ from the
benchmark due to the investment strategy employed. Please see “Investment Strategies” in the Confidential Offering Memorandum for
more details. This presentation is not an offer to sell nor a solicitation of an offer to purchase interests of the Funds. The Manager
reserves the right to change any terms of the offering at any time. Offers and sales of interests in the Funds will be made only
pursuant to an offering memorandum, complete documentation of the relevant Fund and in accordance with the applicable securities
laws, and this presentation is qualified in its entirety by reference to such documentation, including the Risk Factors and Potential
Conflicts of Interest disclosure set forth therein.