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Quarterly Commentary and Outlook

Equity markets continued to demonstrate high volatility in December. Canadian and the world indices measured by MSCI EAFE were down while US markets rose slightly on the month. Continued global uncertainty regarding the US economy and Eurozone have tempered equity returns and increased market volatility. We believe that this uncertainty and volatility will persist for the foreseeable future. However given our long term outlook we find equities more attractive at current levels than fixed income securities. As such we will continue to maintain an overweight position in equities and an underweighted position in bonds relative to the benchmark.

Trades for the Quarter (in line of a certain strategy)

At the onset we had not identified suitable individual securities for purchase but, given our volatile outlook we initiated a portfolio that tracks the benchmark with an overweight position in stocks and underweight in bonds in order to take advantage of our forecasted equity outperformance.

Fund Performance

December was the inaugural month of Fund management. Our initial thesis for the beginning of the year was equity market outperformance despite recent volatility. The portfolio was positioned to reflect this by overweighting equity at the expense of fixed income. As a result, slight underperformance relative to the benchmark was observed and attributed mainly to a lacklustre return in the MSCI EAFE and the Canadian stock index. Nonetheless, we expect our overweight position to reap benefits over the next 12-18 months as equities bounce back. As of December 31, 2011, the fund’s Asset Mix is 70% equity and 30% bond as showed at right.

For the quarter ended December 31, 2011 Rhino Asset Management has a negative 0.19% absolute return, and relatively underperformed the benchmark by 42bps. The underperformance of the benchmark is mainly attributed to our investment strategies, overweight equity and underweight bond and bond...