Quarterly Letters

Q2 2024 Quarterly Letter
Avenue Investment - Logo

Q2 2024 Quarterly Letter

To begin this quarter’s letter, we will start with a discussion of Adam Smith’s foundational economic theory on trade. We will highlight how our current globalized economy has created structural trade imbalances that are having a significant impact on financial markets.

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1024 576 Avenue Investment Management
Q1 2024 Quarterly Letter
Avenue Investment - Logo

Q1 2024 Quarterly Letter

In 2019 the Avenue team became increasingly focused on the high level of government debt in the United States and we sought to understand the likely path forward over the ensuing years for both monetary and fiscal policy given such an environment. We believed the choice of monetary and fiscal policy would ultimately have a large impact on both the level of inflation and interest rates, which would significantly impact asset prices. At that time, we kept an open mind about what the path ahead would look like. Five years later our view is becoming clearer: investors should expect to be in a prolonged period of higher interest rates with higher levels of inflation.

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1024 576 Avenue Investment Management
Q4 2023 Annual Letter
Avenue Investment - Logo

Q4 2023 Annual Letter

In this year-end letter, we wish to extend a particular thank you to all our clients. The close of calendar year 2023 marks the 20th anniversary of the founding of Avenue Investment Management.

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1024 576 Avenue Investment Management
Q3 2023 Letter
Avenue Investment - Logo

Q3 2023 Letter

While we have confidence that over time our investments in high quality businesses will appreciate in price, there are also going to be periods when prices are weak. And it is in weak markets where we find opportunities and build the portfolio for future returns.

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1024 576 Avenue Investment Management
Q2 2023 Letter
Avenue Investment - Logo

Q2 2023 Letter

We would like to start this quarterly letter by acknowledging that we are in an extraordinary period of financial change and extremes. What has not changed is Avenue’s strategy which we call quality investing, and we believe it is more relevant than ever. Our strategy is designed to be a universal approach to get us through both good and bad stock markets. The first principle is to identify what are the best stand-alone compounding businesses throughout the stock market. Second, we do our best to be patient and invest when these businesses are trading at a fair price.

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1024 576 Avenue Investment Management
Q1 2023 Letter & Case Study
Avenue Investment - Logo

Q1 2023 Letter & Case Study

At Avenue, we are staying calm and analytical and working hard to make sure we can stay invested while avoiding areas where profit margins might be under pressure. As the economic landscape shifts, there are many new opportunities as other investors pull back.

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1024 576 Avenue Investment Management
Q4 2022 Letter
Avenue Investment - Logo

Q4 2022 Letter

At Avenue we believe we have entered into a period of scarcity like we have not experienced for some time. We face scarcity of capital, energy, food and labour. While this will be a challenge for all investors, we believe there is an opportunity to invest in what we think of as resilient quality businesses that can take advantage of scarce resources while also avoiding businesses where profits may decline.

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1024 576 Avenue Investment Management
Q3 2022 Letter
Avenue Investment - Logo

Q3 2022 Letter

The saying, ‘stay the course’ has a long military history but it is Ronald Reagan who repurposed ‘stay the course’ as a catch phrase for resetting the economy post 1970s inflation. At Avenue, we have a strategy that incorporates bad markets as well as good and we plan to come through this current weak period stronger than when we started.

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1024 576 Avenue Investment Management
Q2 2022 Letter
Avenue Investment - Logo

Q2 2022 Letter

We will get through this financial market weakness remembering that the last few years have been a positive environment for investors. But right now, it seems like all prices need to find a new level. While we anticipated that 2022 would be a year of financial market headwinds, investors are faced with almost too many problems all at the same time.

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1024 576 Avenue Investment Management
Q1 2022 Letter
Pericles, 494 to 429 BC, Athens

Q1 2022 Letter

“The key is not to predict the future but to prepare for it.” – Pericles, 494 to 429 BC, Athens This famous quote from Pericles was made in the context of readying the Athenian people for the unpredictability of war. During the last two months we are witnessing what seems like a throwback to a past where despots were intent on brutal conquest. This behaviour seems completely irrational within our globally integrated world of business and finance.

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250 379 Avenue Investment Management
Q4 2021 Letter
Investment Management Service - United State GDP Chart

Q4 2021 Letter

In our Q4 Letter, we will start by giving our view on how financial markets are interpreting the possibility that the Omicron variant will evolve to being endemic. This past year, 2021, was the second year where the virus drove central banks and governments to dramatically increase liquidity, resulting in consumer price inflation. We will discuss our view that regardless of inflation, longer term interest rates can only go up so much. The big theme for 2022 is the deceleration of liquidity as central banks tighten and governments no longer hand out cheques. Liquidity has been the main driver of the financial markets so pricing of all assets will be affected. This is why we have worked hard over the past quarter to build resiliency into Avenue’s equity portfolio.

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254 254 Avenue Investment Management
Q3 2021 Letter
James Grant

Q3 2021 Letter

We will start this quarter’s letter with our view on how the lingering pandemic is having a significant effect on the operations of all corporations. The economy and the stock market are changing at a fast pace, and we have seen our equity portfolio turnover increase this year. As well, we have made an incremental shift back to Canadian companies for the time being because we are finding better opportunities here. We will also discuss the bond portfolio and how we have protected it against the uptick in Consumer Price Inflation (CPI).

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2055 1412 Avenue Investment Management
Q2 2021 Letter
Investment Management Service - US CPI Inflation Chart

Q2 2021 Letter

In this quarterly letter we would first like to discuss Avenue’s view of inflation, which has quickly become the main topic for investors. Leading from our view on inflation is our broader thinking about how nothing is normal in our current financial world. But we believe we need to get used to it; we are living in a new normal. Our conclusion continues to be that we have to stay invested, but more than ever it matters what we own and it certainly will always matter how much we pay for our investments. Lastly, we would like to give an update on the Avenue Tail Hedge portfolio now that we have been incorporating this strategy for a full year.

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483 362 Avenue Investment Management
Q1 2021 Letter
Investment Management Service - Interest Rates & Financial Instability

Q1 2021 Letter

In this quarter’s letter we would like to discuss Avenue’s investment strategy in relationship to the current strong overall performance of the stock market. We believe a balanced portfolio of high-quality consistent businesses is more important than ever. While interest rates may rise further, proportionally most of the move has likely already happened.

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902 609 Avenue Investment Management
Q4 2020 Letter
Investment Management Service - Investment Grade Bond

Q4 2020 Letter

If you had the good fortune last January to take a year-long sabbatical in the South Pacific, cutting yourself off from the world, you would be arriving back on an empty flight, landing into quarantine and economic lockdown. After checking in with your family and friends about their health, you might be emailing or calling Avenue to see how bad a global pandemic is for your investment returns.

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960 720 Avenue Investment Management
Q3 2020 Letter
Financial Planning - Canadian Stock Market’s

Q3 2020 Letter

This pandemic period we are living through has been described as The Great Distortion for financial markets. Central banks are intervening to support the bond market and Government spending is injecting enormous amounts of money into the economy with much of it finding its way into the stock market. We know we must own stocks now more than ever to protect our wealth, given the fragility of the financial system built on too much debt.

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2560 1703 Avenue Investment Management
Q2 2020 Letter
Investment Management Service - Bofa Global Investment Strategy

Q2 2020 Letter

In this quarter’s letter we would like to give our assessment of the many contradictions of financial orthodoxy in which we now find ourselves. The economy is in terrible shape and yet the stock market has had a strong rebound from the March 23rd low.

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959 588 Avenue Investment Management
Q1 2020 Letter
Investment Management Service - Ishare Investment Grade bond ETF Chart

Q1 2020 Letter

We have lived through an extraordinary few weeks. Across the country Canadians are now bracing for the full impact of the virus. Hopefully all our collective efforts at social distancing will pay off. Currently, we don’t know of anyone within our Avenue network who is ill with the virus, and we truly hope it stays that way. We give our thanks to all of you who are on the frontlines in the medical and support professions as you work tirelessly to keep Canadians safe.

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1500 1125 Avenue Investment Management
Q4 2019 Letter
Investment Management Service - Monthly Change in fed Balance Sheet

Q4 2019 Letter

This past year was a year to celebrate Avenue’s unique equity strategy where the foundation of the portfolio is built on limiting the risks we take, instead of trying to ‘beat the stock market’ in any given year. For 16 years we have developed our brand and place in the Canadian investment industry where when you think of Avenue, you think of stability. Investment stability is achieved by diversification of the portfolio, the stability of the underlying investments, and rigorous attention to avoid owning securities that we believe are overvalued.

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728 340 Avenue Investment Management
Q3 2019 Letter
Investment Management Service

Q3 2019 Letter

There are three distinct themes emerging that separate the world of investing and define our times.

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2560 1707 Avenue Investment Management
Q2 2019 Letter
Investment Management Service - The Canadian TSX Index

Q2 2019 Letter

We are now in record territory; a full decade of economic growth and stock market expansion has many investors fearful that we are overdue for a correction. In this quarter’s letter we make the case that the investments we hold in Avenue’s portfolios remain compelling, but at the same time we need to actively avoid certain stocks and sectors where there is excess valuation.

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1014 569 Avenue Investment Management
Q1 2019 Letter
Investment Management Service - Enbridge

Q1 2019 Letter

We have experienced good performance in the last three months in both Avenue’s Equity Portfolio and Bond Portfolio. The key reason is an extraordinary reversal in interest rates.

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800 600 Avenue Investment Management
Q4 2018 Letter
Investment Management Service - Month Treasury Yield Chart

Q4 2018 Letter

In last quarter’s letter we wrote that as interest rates rise, they will likely cause a stall in the economy given the level of consumer and corporate debt. It is always hard to predict the timing of when the market will react to a slowdown, but that reality finally happened in December. What is unusual is that this was a global phenomenon where almost all asset classes were down worldwide in 2018.

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865 439 Avenue Investment Management
Q3 2018 Letter
Investment Management Service

Q3 2018 Letter

The last three months have seen the continuing trend of gradually rising interest rates in both Canada and the US. In this quarter’s letter we will elaborate on Avenue’s bond portfolio strategy where the majority of our investments are in shorter maturity Canadian corporate bonds.

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2560 1707 Avenue Investment Management
Q2 2018 Letter
Investment Management Service

Q2 2018 Letter

In investing it is important to directly address the challenging and ever-changing economic environment head on. It was only last quarter when there was a real fear of inflation and surging interest rates. Now escalating trade wars are threatening a global recession. In this quarter’s letter we will discuss how we see these challenges playing out and what we are doing about it within Avenue’s fixed income and equity portfolios.

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1280 853 Avenue Investment Management
Q1 2018 Letter
Investment Management Service

Q1 2018 Letter

In the first quarter, Avenue’s Equity Portfolio experienced its first decline since January of 2016. The Avenue bond portfolio’s performance also had a small decline. Both portfolios were affected by the market’s reaction to rising inflation expectations as interest rates rose and the added new risk of a global trade war reduced the outlook for corporate profits. We were conservatively positioned ahead of this market move and we argue that a significant amount of the correction has already taken place.

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1280 854 Avenue Investment Management
Q4 2017 Letter
Investment Management Service

Q4 2017 Letter

2017 was a challenging year for bond investors as interest rates rose in Canada. That challenge contrasted with what was a decent year for Avenue’s equity portfolio where the return was roughly in line with our expectations. However, within the portfolio there were certainly plenty of variables which we will discuss in this quarter’s letter. Also, we would like to reaffirm how Avenue’s portfolio strategy is always looking to lower risk given our view that there are now parts of the stock market that we would describe as overvalued.

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1000 667 Avenue Investment Management
Q3 2017 Letter
Investment Management Service

Q3 2017 Letter

Avenue’s fixed income and equity portfolios historically have little turnover of the individual securities from year to year and 2017 has been no exception. However, this year has been notable in terms of big moves in interest rates, the Canadian dollar and many stock market sectors and individual stocks. In this quarter’s letter we would like to discuss where our portfolios stand in relation to these many moves.

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1280 905 Avenue Investment Management
Q2 2017 Letter
Investment Management Service - freestocks

Q2 2017 Letter

The Avenue Bond portfolio is up 1.3% for the first half of 2017 as the expectation of higher inflation and a sell-off in the bond market has not materialized. The Avenue Equity portfolio is up 1.0% for the first half of 2017. While we have not had a market pull back this year, after a good performance in 2016, the type of income producing stocks that Avenue invests in seem stalled as investors’ attention remains on technology and more specifically disruptive technology companies.

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1251 947 Avenue Investment Management
Q1 2017 Letter
Investment Management Service - stock exchange

Q1 2017 Letter

In this quarter’s letter, we would like to review Avenue’s bond portfolio strategy and performance. We will then give an update on why Avenue’s equity strategy is well suited to approaching today’s investment uncertainties. We will conclude with our view on current stock market valuation, given this has been the focus of many client questions over the last few weeks.

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1280 853 Avenue Investment Management
Q4 2016 Letter
Investment Management Service

Q4 2016 Letter

Politics and subsequent government policy normally affect the level of interest rates, the economy and the stock market gradually, over time. However, the election of Donald Trump as president of the United Sates is a rare exception where market perceptions dramatically changed overnight. In this quarter’s letter, we will discuss what are the most likely US government policy changes and the potential positive impacts on our Avenue Fixed Income and Equity portfolios going into 2017.

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1000 666 Avenue Investment Management
Q3 2016 Letter
Investment Management Service

Q3 2016 Letter

The last three months have seen the continuing trend of gradually rising interest rates in both Canada and the US. In this quarter’s letter we will elaborate on Avenue’s bond portfolio strategy where the majority of our investments are in shorter maturity Canadian corporate bonds.

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1280 713 Avenue Investment Management
Q2 2016 Letter
Investment Management Service

Q2 2016 Letter

We are experiencing a continuous stream of crises, with the latest being Brexit. The results from all these events (the Greek debt, the slowing Chinese economy and Brazilian corruption) are causing ongoing pressures to lower inflation and subdue growth, which hold down interest rates to very low yields. The world is awash in surplus money that needs to go somewhere and any income generating business, asset or higher yielding bond should become increasingly valuable. However, as investors we will always have to live with short term volatility.

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600 600 Avenue Investment Management

Q1 2016 Letter

In the first three months of 2016 we experienced a dramatic stock market sell-off followed by a rapid recovery. At Avenue, we have argued that along with low interest rates, and higher stock market valuations, comes increased volatility. Just a small change in investor perception of the future can trigger a pronounced stock market move in either direction. An important part of Avenue’s investment strategy is to be ready for the unexpected and to take advantage of it.

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150 150 Avenue Investment Management

Q4 2015 Letter

2015 was a hard and stressful year. At times it felt like mini-crisis after mini-crisis. By year-end, Avenue’s bond portfolio was up a bit and Avenue’s equity portfolio was down slightly. Low interest rates continue to be a challenge for returns in the Bond portfolio. However, the equity portfolio is faced with multiple challenges from currency, from commodities, and from investors’ perceptions of the future direction of interest rates. On the positive side, the high yielding stock investments that we favour are now at decent valuations and we believe they should offer better returns this coming year.

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150 150 Avenue Investment Management

Q3 2015 Letter

We have spent the last three quarterly letters saying that not much has changed. Now, almost every corporate bond, stock and asset is being repriced and the rate of change or volatility is up significantly. We believe this environment to be another symptom of low interest rate policies. However, this current sell-off improves our opportunities to invest in quality income-producing securities, which is Avenue’s core investment strategy.

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150 150 Avenue Investment Management
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