AUGUST 2017

CAPITAL INVESTMENT FUND

  • -0.09% (Class A)
  • -0.01% (Class F)

OPPORTUNITIES FUND

  • -0.49% (Class A)
  • -0.43% (Class F)

 
This month is very special to us at RSAM.  In the coming days we will be announcing something very unique and quite frankly exciting.  Normally you might find our updates interesting but not necessarily something that causes you to pick up the phone and call.  This month will be different.  I fully expect many of you to actually pick up the phone and call!

In the coming days, you will begin to learn about a new investment vehicle called the Ross Smith Enhanced Index.  Through technology and plain hard work we have come up with a wonderful method to take any index investment and then "enhance" that return.  I think/know that you will love it. Until then, thank you for your continued support!

Sincerely,

Allan Ross, Chairman

Capital Investment Fund

The Capital Investment Fund declined -0.1% for the month of August.  Arbitrage spreads recovered from last month leading to a gain of 0.6% in the structured product strategy.  The volatility arbitrage strategy declined -0.5% as the Fund exited its position as a risk-mitigation measure given the brief but rapid increase in volatility during the second week of August.  The multifactor strategy declined -0.2% while the relative value arbitrage portfolio was roughly flat.  
 
Despite numerous geopolitical rumblings and stretched equity and bond market valuations, market volatility continues to linger at record lows.  The abnormally low volatility environment has a dampening effect on structured product volumes given the lack of need for immediate liquidity.  Once market volatility normalizes, RSAM will reaffirm its position as the structure product market’s liquidity provider which should cause volumes (and trading profits) to revert back to historical levels. 

Opportunities Fund

The Opportunities Fund declined -0.5% for the month of August.  Spreads tightened on multiple deals including Veresen / Pembina Pipeline, Trilogy Energy / Paramount Resources and OneREIT, which contributed to the 0.5% gain in the merger strategy. Dell Technologies tracking stock and Laurentian Bank subscription receipts led the monthly gain for the relative value portfolio, which gained 0.5%.  The special situations portfolio declined -1.6% as sentiment soured on multiple spin-offs and acquisition candidates.  The whittled-down liquidation portfolio added 0.1%.  The Fund continues to allocate little capital to the high yield strategy given the poor opportunity set, even in distressed equities.
 
Given robust and attractive M&A activity in Canada, the Fund continues to allocate more than half of its capital to the merger strategy.  RSAM remains choosy on deals in the US, which tend to exhibit much greater efficiency.  The Fund is currently long 8 deals in Canada and 3 in the US (none internationally). The Canadian dollar is up over 10% YTD and nearly 13% (in USD terms) since its May lows, which presents challenges to geographically-diversified Canadian investors such as the Fund.  Despite this incredible rally in the loonie, we remain comfortable with our exposure and our dynamic and balanced currency hedging strategy.

Julian Klymochko, CFA 

Trout Taylor