Partners' Fund Quarterly Report
June 30, 2018
The Partners’ Fund invests in high-torque, early-stage companies that have the potential to generate superior returns.
Recap & Outlook
The Partner’s Fund delivered a net return of -4.5% in the first half of 2018. This compares to the TSX Venture Exchange which returned -13.0%. Our annualized 5-year return is 25.6% compared to the TSX Venture Exchange’s return of -3.4% per year over the same period. The table below provides a performance summary:
During the second quarter, the Venture Exchange continued to decline as the hangover from blockchain and cryptocurrencies bled into other sectors and dampened enthusiasm for risk assets across the board. Towards the end of the quarter, trade war fears weighed on commodity prices.
While it is unpleasant to have negative performance and volatility, this is a necessary element in our process for long-term outperformance. First, we can trade around our core positions when stock price movements don’t match fundamentals. Second, to illustrate a hypothetical example, in a market sell-off we can sell positions that are down 10% to buy positions that are down 50%. This is hugely valuable to long-term performance but ugly in the short-term.
Notable positive contributors for the quarter were Currency Exchange International Inc (TSX:CXI), H-Source Holdings Ltd (TSXv:HSI) and Sigma Lithium Resources Inc (TSXv:SGMA).
Negative performers were Posera Ltd (TSX:PAY), Avivagen Inc (TSXv:VIV), and Nubeva Technologies Ltd (TSXv:NBVA).
We have a full pipeline of ideas which are competing for inclusion in the portfolio. In addition, several of our investee companies are executing on their business plans, hitting milestones, and adding value, making a persuasive case for upgrades from starter, to core, to flagship status. To fund these new ideas and additions to current holdings, we must sell our holdings with the least potential. This Darwinian process continuously strengthens our portfolio. The extreme run-up in venture stocks towards the end of 2017 and corresponding correction year-to-date has provided us with opportunities that we are taking advantage of.
National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for disclosures.
* All returns are time weighted and net of investment management fees. Returns from the Partners’ Fund are presented based on the Class C Master series except prior to its inception in July 2011 when the Class A Master series was used. Inception returns include the 10 months from inception in March 2011. Returns greater than one year are annualized. The S&P/TSX Venture Composite Index (C$) and the S&P/TSX Venture Composite Index provide general information and should not be interpreted as a benchmark for your own portfolio return. Further details of the Partners’ Fund are available on request.
Pathfinder Asset Management Limited (PAML) and its affiliates may collectively beneficially own in excess of 10% of one or more classes of the issued and outstanding equity securities mentioned in this newsletter. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author is an employee of PAML, but the data selection, analysis and views expressed herein are solely those of the author and not those of PAML. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor PAML can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your portfolio manager, who can assess all relevant particulars of any proposed investment or transaction. PAML and the author accept no liability of any kind whatsoever or any damages or losses incurred by you as a result of reliance upon or use of this publication.