Quarterly Letters

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.

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.

The main financial event in the second quarter was the rise of short term interest rates. As a result, the price of bonds fell but this did not result in a stock market selloff. Therefore, not much has changed since we last wrote three months ago and the equity portfolio has been unusually stable. There are two popular concerns that we would like to address in this quarter’s letter: the risk to corporate profit margins and the danger of illiquidity in some markets.

There is no dramatic difference between the strength of the US economy and that of a core European economy like Germany. However, ultra-low interest rates are magnifying the subtle differences and we are now seeing a large flow of money from Euros to the US dollar as well as the continued rise of asset prices. Avenue has started to incrementally move investments back to Canada.

We continue to believe that there are few better substitutes for our investable savings than owning quality stocks for growth and certain selective bonds for income and safety. Again, we witnessed two rapid recoveries in the stock market following volatility in October and December. Moreover, corporate share buybacks and acquisitions reinforced the dynamics of the equity bull market. However, potential big risks to North American equity investors are a potential rise in wage inflation and increased geopolitical unrest.

Avenue Investment Management has now been looking after client money for 10 years. In this quarter’s letter we will revisit our original purpose and discuss our present challenges. This will be followed by our usual discussion of the current investment climate and how we are positioning our investments for 2014.

Avenue Investment Management has now been looking after client money for 10 years. In this quarter’s letter we will revisit our original purpose and discuss our present challenges. This will be followed by our usual discussion of the current investment climate and how we are positioning our investments for 2014.

It is our belief that the American stimulative monetary policy will be coming to an end. We are witnessing an active realignment of bond and stock prices. We will do our best to describe how this impacts the various parts of our portfolio and how this creates an opportunity for additional investments.

In this letter, we discuss various topics regarding the Fed, the Canadian economy, and our thoughts on gold.