Quarterly Newsletter

This block is broken or missing. You may be missing content or you might need to enable the original module.

2010 Q1 Newsletter
March 31, 2010

Global economies recovery continued and strengthened in the first quarter (Q1) of 2010. Growth increased its pace in the Asian economics leading China to raise interest rates to contain its growth to 10% per annum. As well, the Canadian economy created significant new jobs and growth in the first quarter. In March, the United States economy created 162,000 jobs reversing a two year decline in the United States labour market. This is the single best indicator of a turnaround in the American economy.

Equity markets were positive in the first quarter with a rollercoaster movement. Markets rose on overall economic recovery but events such as potential defaults in Dubai and Greece rattled equity markets temporarily. This overall action is best described in the market as “climbing a wall of worry”. The overall result was solid gains for equity markets. Confidence gradually gained a hold on businesses as well as investors through the first quarter.

There were strong gains in commodity prices particularly oil and metals such as copper and iron ore. Our portfolios remain weighted to income producing equities and trusts with sustainable growth.

Performance Returns

LDIC Inc. performance was 4.7% in the first quarter. This was nearly double the 2.5% gain on the S&P TSX. The American markets performed closer to LDIC performance in Q1 but the rise in the Canadian dollar erased any gains as measured in Canadian dollars.

Top 10 Holdings

Our top 10 holdings showed progress with six up, three near flat and only one, Armtec Infrastructure down significantly. Overall the top 10 returned 5.03% during the first quarter. Our best performers were Brookfield Properties 22% and Penn West Energy 16%.

Major Portfolio Exits

We exited three equity and trusts positions in the first quarter.

Allied Properties

We sold Allied Properties REIT for a solid gain after purchasing it in 2009. We sold Allied to reduce our overall allocation to REITs to make room for higher yielding business trusts. In addition to our desire for higher yield and following the company’s 2009 fourth quarter financial report, we saw a further
increase in vacancies.

Power Financial

We exited our position in Power Financial during the quarter given our concerns with their United States investment management arm Putnam Investments originally purchased from Marsh & McLennan Companies in 2007. Given the volatile environment of equity markets we believed it could be a drag on Power Financial’s share price.

Yamana Gold

We exited our position in Yamana Gold during the quarter given its poor share performance of -14.8% versus -5.3% TSX Global Gold index; gold bullion flat year-to-date and poor corporate performance. The company has failed to increase reserves year-over-year and growth prospects appear muted. We chose to keep our weighting in gold and switch to IAMGOLD and Redback Mining. We believe these two intermediate producers will outperform Yamana Gold given their attractive growth profile of 40% over the next four years and their strong balance sheet of cash.

Major Portfolio Additions

We added two new major holdings in the first quarter. Both are in the forest products sector, currently undervalued and likely to benefit from economic recovery.

Canfor Pulp Income Fund

Canfor Pulp Income Fund operates three market pulp mills in Western Canada with a combined annual capacity of roughly 1 million tonnes. Over the last few quarters pulp prices have been described to have undergone a textbook V-shaped recovery rising from their low in May 2009 to US$880/metrictone in February with a further increase just announced in March. Global inventories continue to be low and we believe prices are likely to keep rising as restocking takes place. Canfor Pulp has great leverage given it is the largest pulp producer in North America and the third largest globally; the company has a conservative balance sheet with debt to equity of less than 0.2x and pays a 14% yield that is sustainable given its less than 50% payout ratio.

Norbord Inc

Norbord Inc. is an international producer of wood-based panels. The company is the second largest producer of oriented strand board (OSB) in North America with a market share of roughly 15%. In addition to its OSB, Norbord manufactures particleboard, medium density fiberboard (MDF) and hardwood plywood. Pricing is coming back to OSB recently; from $170 per thousand square feet to $225 per thousand square feet. One reason for this price improvement is the supply side is better at managing capacity. Eight hundred lumberyards closed in the past two years, drawing inventory out of the system. The United States housing industry activity is picking up. Norbord has diversified customer mix of 10% wholesale and 35% pro-dealers (45% directly housing related and 55% non-housing related). Forty percent of sales are to big box stores and 15% to industrial users. Their biggest customers are Home Depot & Lowes.


We are encouraged by the progress of economic recovery. Our outlook remains cautiously optimistic that further gains will occur in equity markets in the second quarter and beyond. With growth in employment and economic activity, governments will begin to reduce stimulus measures. As well, central banks will begin to increase interest rates to reduce the potential for inflation. We expect modest interest rate increases beginning mid 2010. The progress of recovery will depend on stimulus and low rates being maintained long enough to restore confidence and economic growth.

We have shifted to positions that will benefit from the economic recovery in Canada which, appears to be strongly underway. We will continue to make adjustments to our portfolios to ensure our clients benefit from the overall economic recovery. We will continue to hold positions in energy, infrastructure
and metals. We will add in forests products and possibly technology as we identify promising companies. Our caution is reflected in the weighting of our holdings to income producing companies.

We continue to favour Canadian equities over United States equities due to currency risk. However, we do not expect a great deal further increase in the relative value of the Canadian dollar.


Michael Decter
President and CEO