Experience. Intelligent Investing.

M A Y 2 0 1 5 EXEMPLAR CANADIAN FOCUS PORTFOLIO

The Exemplar Canadian Focus Portfolio had a positive return
of 2.67% for the month of May, bringing the YTD performance
to 6.17%.
Entering 2015, investors had low expectations for the
resource-reliant Canadian economy. Canadian portfolio
managers have been increasing their exposure to the U.S.
markets for several years already. They have overweighted
U.S. equities to capture the much better prospects for the
U.S. economy and benefit from appreciating U.S. currency.
But the consensus view didnt pan out in the early months
of this year, as the American consumer stayed home to avoid
the bitterly cold weather. He also decided to save his fuelrelated windfall to the annoyance of investors who expected
him to spend it! Recently reported improvements in housing
and exceptionally strong car sales would suggest that the U.S.
consumer was temporarily cutting back so he could splurge
on a brand new BMW!
Whatever the explanations might be for the poor economic
growth in the first quarter, I firmly believe that the U.S.
economy will re-accelerate, and combined with better growth
in a broadening number of European countries, will result in
an increasingly synchronized global recovery for the balance
of this year. Better global economy will eventually encourage
investor rotation from bonds to more economically sensitive
stocks. But first we have to get through the summer months.
Rising interest rates on the expectation of a Fed rate hike this
fall put currently fully valued equities at risk of profit-taking as
we head into the seasonally weak and illiquid summer period.
As I expect increased volatility rather than a major sell-off,
selling my favorite positions seems too drastic of an action.
So I have been focusing more on pair trades, by adding a
short against an existing long position. The most successful
such trade so far has been shorting overvalued CP against an
existing CNR long position.

disappointing Q1 and 2016 guidance by KORS, I bought a

small trading position. Not wanting to take on more consumer
exposure in a very disappointing retail environment, I offset
KORS long with a Coach (COH U.S.) short position, buying a
stock with a suddenly depressed valuation, while shorting
one with a much higher P/E. I am aware that predicting EPS
for either of these stocks is tricky at this juncture, so I relied on
my own personal preference for the KORS brand.
Other pair trades which have worked recently:
CIX vs. IGM
RY vs. BNS
LUN vs. TCK/b
ALK US vs. WJA
The last few months have been unusual for the number and
variety of profitable short positions. DEERE is the one short
whose profitability remains elusive. I might have to give up
on it!
I will continue to look for suitable pair trades until markets
digest the inevitable rate hike and start anticipating the last
phase of the current bull market. I have been predicting an
unusually long economic and market cycle, and am convinced
markets have several good years ahead before I have to start
positioning the portfolios for the inevitable BEAR.
Wishing you a great summer. For further information,
please contact your regional Arrow Capital Management
representative.
Sincerely,
Veronika Hirsch
Portfolio Manager
Arrow Capital Management Inc.

Hershey (HSY U.S.) has worked well as a short against a group

of U.S. consumer stocks. After a huge sell-off following a very

Unless otherwise stipulated Exemplar Portfolio returns are net of all fees, in Canadian dollars, reflect class F shares and assume
reinvestment of all distributions. Commissions, trailing commissions, management fees and expenses all may be associated with
Exemplar Portfolio investments. Please read the full prospectus before investing. Except as otherwise noted the indicated rates
of return are the historical annual compounded total returns including changes in share or unit value and the reinvestment of
all dividends or distributions and do not take into account the sales, redemption, distribution, or optional charges or income tax
payable by the unitholder or shareholder that would have reduced returns. Exemplar Portfolios are not insured or guaranteed by
Canada Deposit Insurance Corporation (CDIC) or any other insurer. Exemplar Portfolios are subject to risks of loss of capital and
income and their values change frequently. Past performance may not be repeated. Shares of the Portfolio are highly speculative
and involve a high degree of risk. You may lose a substantial portion or even all of the money you invest in a Portfolio.
36 Toronto Street, Suite 750 Toronto, Ontario Canada M5C 2C5 Tel: 416.323.0477 Tel: 1.877.327.6048 Fax: 416.323.3199 www.arrow-capital.com

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