JULY 2017

CAPITAL INVESTMENT FUND

  • -1.1549% (Class A)
  • -1.0245% (Class F)

OPPORTUNITIES FUND

  • +1.5349% (Class A)
  • +1.5332% (Class F)

The summer has been pretty busy for us at Ross Smith.  In addition to launching Canada's first cryptocurrency/bitcoin investment fund, the Ross Smith Cryptocurrency Investment Fund (RSCF), we're also starting to see spreads widen in what we believe is a very irrational market.  Even so, our methodologies for assembling the portfolios in both the Ross Smith Capital Investment Fund (RSIF) and Ross Smith Opportunities Fund (RSOF) have remained unchanged.

RSIF is down 0.47% on these widening spreads, which we're excited for the future opportunity in, while RSOF is up 1.53%.

A short paper detailing more of our philosophy in the RSCF will be available on our website shortly so please check back in a few days!

Additionally, Julian has a great commentary this month on the RSIF and RSOF, below.

Sincerely,

Christopher Preston, CEO

Capital Investment Fund

The Capital Investment Fund declined -1.1% for the month of July.  The Fund’s multifactor strategy declined -0.3% for the month, while the structured product and relative value strategies fell -0.5% and -0.2% on general arbitrage spread widening.  We expect these trends to reverse in August as the catalysts to closing the NAV discount on certain structured products occur.  The volatility strategy was profitable for the month, despite near record low volatility.  


 In 2016, the market-neutral multifactor strategy suffered as the substantial rally in low-quality, overvalued “story” stocks hurt our short portfolio.  The outperformance in our long portfolio did not fully offset this.  We believe the unique conditions that presented challenges for the multifactor portfolio have passed.  If being long a basket of undervalued, high quality companies while being short overvalued, low-quality companies reverts to its historical outperformance, then the multifactor strategy should continue to recover and perform well on a go-forward basis. 

Opportunities Fund

The Opportunities Fund gained 1.5% for the month of July.  The merger strategy added 0.9% as several deals closed, including Mood Media, WesternZagros Resources and Ceiba Energy Services.  The Fund also benefited from share price appreciation in General Communication stock.  The relative value strategy gained 0.5%, led by subscription receipt and warrant investments.  Gains of 0.7% in the special situations strategy included positive contributions from Loral Space and SiriusXM.  The liquidation portfolio declined 0.5%, despite there being no underlying fundamental changes to the Fund’s holdings.  The high yield strategy was flat as the Fund has reduced exposure to this area given lack of opportunities. 

Despite numerous deal closings, and the subsequent harvesting of profits by the Fund, we remain in an environment ripe with event-driven opportunities for the enterprising investor.  Significant M&A activity has presented attractive risk arbitrage spreads while additional deal activity has resulted in numerous securities to trade inefficiently on a relative value basis.  The Fund remains fully deployed, largely allocated to mergers, relative value and special situations (including spin-offs, acquisition candidates and share repurchases).  We have steered capital away from the high yield and liquidation strategies due to a dearth of opportunities.  However, we continue to monitor the space and remain ready to pounce once credit spreads widen and a new distressed debt cycle begins.

Julian Klymochko, CFA 

Trout Taylor