Starting To See Opportunities

Michael Rudd, CFA | President, CEO and Portfolio Manager

After several weeks of continued volatility, equity markets have pushed below June levels and are now crossing lows for the year. It is obvious to everyone that stock prices are lower, and we are officially in bear market territory: major markets in North America, Europe and Asia all down more than 20%. Indeed, equity prices for the majority of the companies that we follow closely are more than 20% lower than their highs for the past year and a number of them are half as much as they were at their peak. Fixed Income markets have also been quite volatile with 10-year US Treasury rates moving from 1.51% at the start of the year to 4.20% today. 2-year US Treasury rates have also moved, rising from 0.73% in January to 4.48% today and the 10 year has inverted 28 basis points relative to the 2 year.

We present Figure 1 which is a screen capture from our Core 150 valuation model (with the company names removed to protect the innocent). We wanted to discuss a major change that we have seen in this report. Our model takes our estimate of what we think the companies that we own and follow are worth, and compares them against the current stock market price. Green indicates varying degrees where the stocks are below our buy price and red is the opposite. Blue represents opportunities for high long-term return over a hurdle that we would consider owning the companies in larger positions.

For many years, this model has had a lot of red in it, indicating that stock prices were high compared to our opinion of what the companies were worth. During this time, we found it very difficult to find companies that we both wanted to own and had good, long-term upside. Now, for the first time in years, there is “lots of green and blue” opportunities. We have also grouped the companies by industry so you can see there are groupings of red, green and blue. This means that some industries have become attractive while others still require time.

“This means that” we are not sure it is time “to go shopping” yet but this is a positive development. As we have mentioned before, at some point (hopefully in the near future) there will be great chance to set the portfolios up with high quality companies that have excellent potential upside. This should serve us well for years to come.


Pathfinder Asset Management Ltd. | Equally Invested™
1450-1066 W. Hastings Street, Vancouver, BC V6E 3X1
E info@paml.ca | T 604 682 7312 | www.paml.ca
Sources: Pathfinder Asset Management Limited

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 full disclosures.

*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).

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 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.