Quarterly Newsletter

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2004 Q1 Newsletter
March 31, 2004

Markets had a mixed performance during the first quarter of 2004. Concerns about jobless growth in the United States kept markets in a volatile movement. The March job numbers showed 300,000 + new jobs and triggered an April rally. For the first quarter market indices were mixed.

Data Table

In this newsletter, I would like to briefly review our top ten holdings. As you will note, most holdings performed well in the first quarter across a number of companies. As well, two major investment shifts are noted. We sold Bell Canada and replaced it with Manitoba Telecom. In addition, we have been accumulating positions in the forestry sector.

Top 10 Holdings

Hanging up on Bell, switching to Manitoba Tel (MBT)

In the first quarter of 2004, we made a strategic decision to sell our holdings of Bell Canada and replaced them with shares of Manitoba Telecom. Our reasons are both a loss of confidence in Bell Canada Enterprises future and a respect for the Manitoba Tel combination with All Stream (formerly AT & T Canada). Bell Canada will face increasing competition in its core Ontario market from Internet local phone service provided by Rogers and others. Manitoba Tel is merging with All Stream, which will add long-distance business revenues to its Manitoba base. We believe that Manitoba Tel represents much better value than BCE – so we have switched. Since the change, BCE as declined. Manitoba Tel is up $2+ per share.

Forestry

Over the past several months, we have directed considerable investment into the forestry sector. Within the Canadian forestry sector, our selection includes:

  • Canfor
  • Cascades
  • Nexfor
  • Norske Skog
  • Timberwest
  • Interfor

These six firms represent a cross section of lumber and other forest products produces. Our view is that an improving North American economy as well as demand from China and India will return the forestry sector to profitability. Demand for lumber, pulp and paper is leading to higher prices. Our intention is to continue to add to our forestry holdings over the next several months. We have reduced some energy and related positions to allow forestry investment.

Income Trusts

The recent Federal Budget included some restrictions on the holdings of business income trusts by pension funds. These changes do not limit pension fund ownership of energy royalty trusts or real estate investment trusts. The 1% limit on pension fund ownership of business trusts will likely cause a more buoyant market for energy and real estate trusts. We will be quite selective, as we have been to-date, in choosing business trusts. Our holdings of energy trusts are positively affected by this development.

Smaller Growth Companies

Some of the smaller companies that I noted in our previous newsletter have exhibited volatile share price behaviour. This price movement reflects the conflicting opinions of analysts and the release for public trading of previously restricted stock. We will gradually reduce of holdings in such companies as TM Bioscience, Environmental Management Services, Sino Forest, Boyd Group, and Advanced Research Technologies. Not all accounts hold these securities based on risk tolerance.

Conclusions

We remain confident that the balance of 2004 will prove to be positive for the portfolios we manage. The combination of low interest rates and fiscal stimulus will support economic recovery. The long-term impacts of a massive, growing Chinese economy and the resource requirements generated will be important to our investment choices.
Canada’s economic prospects are excellent so long as we can slow the rise of the Canadian dollar against the currencies of our competitors. We will endeavour to continue to select companies with an ability to outperform in the current and prospective economic circumstance.

Sincerely,

Michael Decter
President and CEO