Suffice to say, we’ve been watching our funds quite closely these days.  We want to make sure that our managers are doing what they do best and are sticking to their investment disciplines.  Following recent calls with the managers of our equity funds, I thought it would be useful to provide a brief update on their current thinking.  Below are some of my notes from the calls.  

CGOV (Equity Fund)

- Valuations are at ‘generational lows’ for many stocks.
- Tax-loss selling could hold the market down, but CGOV is optimistic from these levels.
- None of the businesses in the portfolio depend heavily on customers’ access to the credit markets – e.g., Tim Hortons, Shoppers, and Compass – and all generate free cash flow.
- Sony was sold and replaced by Nintendo.  Wii is in high demand and is sold out everywhere.  In this type of market, Nintendo is the more attractive company to own.
- Nokia was sold and replaced by Research in Motion.  RIM has been on their radar screen for a while.  The stock is now trading at 10-12X earnings and represents great value.  With a new product ramp-up, strong market position, and low valuation, the stock has attractive upside potential.
- They have been adding to a number of existing positions, and the cash level now stands at approx. 3-4% (down from roughly 7% at the end of September).

Wutherich & Company (Small-Cap Equity Fund)

- Small-cap stocks are as cheap as they’ve been in a number of years.
- Stocks with the least liquidity are suffering the most from panic selling.
- There’s been incredible pressure on some very good companies.  For example, Gennum and Evertz are both in a solid financial position with no debt, lots of cash and ‘in-demand’ products.
- Hanfeng Evergreen was added back to the fund following a steep drop in its share price.  The stock represents excellent value (especially at the sub $5 level), and the Chairman of the Board and CEO have recently been buying shares.
- Sterling Shoes and Flint Energy Services are two troubled stocks that are being re-evaluated.
- The cash position is sitting around 11% and is being deployed opportunistically.

Edinburgh Partners (Global Equity Fund)

- Global markets are still experiencing heavy selling and volatility remains high.
- Financial stocks remain the biggest risk and opportunity.  As a sector, these stocks are very cheap, but it is still difficult to get any short-term clarity on what their assets are worth.  However, even with depressed assumptions, the survivors will make money over the next five years and if valuations return to normalized levels, share price increases will be substantial.
- Telecoms and pharmaceuticals have been performing well.  These stocks continue to be a large part of the fund (roughly 40% combined).
- That said, selective ‘defensive’ telecom and pharma positions have been reduced with some of the proceeds being reinvested in new, more ‘offensive’ holdings (China Mobile, Fanuc, Nokia, UBS, Aviva).
- The emerging markets are starting to look more attractive.
- The cash position has been brought down to approx. 4% (from 8.5% at the end of September).

We’ll report back in early January, as usual, with more detailed commentary in our Quarterly Report.