February 3, 2012
Dear Fellow Unitholders,
2012 is off to a good start, as encouraging economic data out of the U.S. is outweighing problems in Europe. Artificially low interest rates are playing a significant role, as investors look for alternatives to low yielding GICs and government bonds. Some of this money is flowing into the Canadian high yield bond market and we expect this asset class to continue to grow as investors come to recognize the opportunity for a substantial increase in yield.
With governments continuing to struggle to contain deficits, global economic activity will remain anemic.
Steinberg Value Equity Fund
The ongoing market gyrations are creating opportunities for us. The market decline during the past year has left investors skittish about equity markets, which has resulted in a number of excellent companies trading at depressed prices. Several of our most recent purchases contributed to our strong performance this month, which are up significantly from the time we purchased them – Lintec (up 8%), Alcoa (up 8%), Allstate (up 20%), Koninklijke Philips (up 14%) and Yokogawa Bridge Holdings (up 29%). We believe they all remain highly undervalued at their current prices.
JC Penney was another strong performer, up 18% during the month, as its new CEO (formerly Senior VP for retail at Apple) has quickly reinvigorated the company by radically changing the stores and business model. Our position in Overseas Shipholding Group has unfortunately been underperforming, as the highly cyclical shipping industry fights problems of oversupply. However, as an industry leader, we believe they are well positioned and will be in great shape when the cycle turns.
Despite the economic uncertainty, we are optimistic that the companies we own will deliver great returns.
Steinberg High Yield Fund
We made a number of purchases in our fund over the past couple of months and our research effort is paying off. We sold our holding in Paramount Resources, which performed well but no longer offers much upside. We purchased several new bonds, including: NRG Energy, Rite-Aid Second Lien notes, Scientific Games, Avis Budget and Manitowoc. We also added to our positions in Cara and Precision Drilling.
With interest rates likely to remain low for the balance of 2012 and beyond, we expect the high yield bond market to continue to offer excellent opportunities with very attractive yields.