Welcome to Volume 11
Welcome back to the Pathfinder Investment Outlook. We are now in our 11th year writing this note for Pathfinder. We have been writing in various formats since 2007 (14 full years!). By now, you have received our year-end mandate reports. Regular readers will note that we did not make any mention of the geopolitical events that have been taking headlines in the regular and the financial press ((ex)presidential impeachment (again!), pandemic variant risk, double dip recessions and volatility impact of short squeezes, etc.). While we definitely pay attention, we do not let these narratives drive our investment process. Over the years, we have learned that the fear and greed that come from these events are usually exaggerated. Instead, we have been spending our time focusing on the earnings of the companies that we own in our portfolios.
We are currently in “mid-earnings-season” and have found the results quite interesting – a developing divergence between expectations of managers in both Europe and North America.
- Figure 1 presents Purchasing Manger Indices for the United States and Europe. Europe is dealing with a sluggish economy that we suspect is coming from aggressive mitigation measures, poor vaccination execution and concern with virus variants. The US, on the other hand, has taken a different approach and consequently managers are feeling much more confident about expectations for their businesses.
- Regular readers will recognize the aggregate sales data for North American companies noted in Figure 2. We are still in early days, but other than energy and industrials, there was revenue growth this past quarter and we are also seeing similar results in our portfolio companies.
“This means that” while corporate results in North America seem to be improving, there is potential divergence between the US and Europe. While we invest in companies that have revenue exposure outside of North America, we have historically reduced our exposure to Europe and suspect that we will maintain this for the medium-term.
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 Pathfinder Real Fund are presented based on the masters series of each fund. The Pathfinder North American Equity Portfolio and The Pathfinder North American 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 North American Equity Portfolio (January 2011), Pathfinder North American High-Income Portfolio (October 2012) Pathfinder Partners’ Fund (April 2011), Pathfinder Real Fund (April, 2013), and Pathfinder International 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.