North American equity markets were mixed in July. In Canada, the S&P/TSX Composite declined by 0.25%; while in the U.S., the S&P 500 was up by 1.93%. Year to date, the S&P/TSX Composite Index is down by 0.94%, and the S&P 500 has increased by 10.34%.
The Canadian Value Fund reduced its net market exposure to +91% (beta adjusted net exposure= +82%) in July and was down 1.86% on the month. The loss in July can be attributed to holdings in the funds, communications, and consumer cyclical sectors being down, meanwhile holdings in the financial, consumer non-cyclical, and industrial sectors were up. At the end of July, the Fund was net long in Canada (+75%) and net long in the U.S. (+16%). Overall, approximately 75% of the Fund was invested in Canada and the remaining 25% in the U.S.; while gross exposure stood at approximately 120%. The Fund’s largest weightings are consumer non-cyclical at 25%, financial at 24%, and energy at 11%.
The Canadian Value Fund experienced a modest decline for the month of July as Canadian equities in general were down on the month. The majority of the Fund's weakness was attributable to several larger holdings that underperformed for no fundamental reason other than general market apathy. These positions include Richards Packaging, BSM Technologies, and Tricon Capital. The Fund's better performing positions during the month include Pollard Banknote, Westshore Terminals and Century Communities.
We remain cautious in our outlook for North American equities over the short to intermediate term. Valuations are rich particularly in light of where earnings growth expectations are. As such, we are focusing our efforts in finding companies that are trading at more reasonable valuation metrics than the overall market and offer better earnings growth potential as well. Easier said than done of course, but we have identified several interesting investment opportunities that fit this criteria which we hope to add to the portfolio in the near future. When looking at our existing positions we feel quite comfortable with both the valuation metrics that they're trading at and their fundamental prospects and feel that the Fund is appropriately positioned given our cautious view.
Since inception the Canadian Value Fund has generated annualized returns of 6.51% as compared to its TSX benchmark comparable of 5.93%; and has experienced modest volatility of 11.82% versus 12.42% for the S&P/TSX Composite Index.