Experience. Intelligent Investing.

J U N E 2 0 1 5
The Exemplar Canadian Focus Portfolio finished the first
half of the year with a solid performance of 5.56% vs.
0.91% for the S&P TSX.
June was quite a volatile month for the markets with
the turmoil in Europe over a possible Greek exit from
the Euro. In the end, the markets gyrated but essentially
ended up in the same place. Our Fund weathered the
volatility quite well and we went into this situation
with a good amount of cash to take advantage of any
compelling opportunities as a result of the volatility.
We are reasonably pleased with our performance in the
first half of 2015 and think we are well positioned for the
back half of the year.
Entering 2015, investors had low expectations for the
resource-reliant Canadian economy. Canadian portfolio
managers have been increasing their exposure to
the U.S. markets for several years already. They have
overweighed U.S. equities to capture the much better
prospects for the U.S. economy and benefit from
appreciating U.S. currency. But the consensus view
didnt pan out in the early months of this year, as the
American consumer stayed home to avoid the bitterly
cold weather. He also decided to save his fuel-related
windfall to the annoyance of investors who expected
him to spend it! Recently reported improvements
in housing and exceptionally strong car sales would
suggest the U.S. consumer was temporarily cutting
back so he could splurge on a brand new BMW!
Whatever the explanations might be for the poor
economic growth in the first quarter, I firmly believe
the U.S. economy will re-accelerate, and combined with
better growth in a broadening number of European
countries, will result in an increasingly synchronized
global recovery for the balance of this year. Better global
economy will eventually encourage investor rotation
from bonds to more economically sensitive stocks. But
first we have to get through the summer months. Rising
interest rates on the expectation of a Fed rate hike this
fall put currently fully valued equities at risk of profittaking as we continue through the seasonally weak and
illiquid summer period.
As I expect increased volatility rather than a major selloff, selling my favorite positions seems too drastic an

EXEMPLAR CANADIAN FOCUS PORTFOLIO

action. So I have been focusing more on pair trades, by
adding a short against an existing long position. The
most successful such trade so far has been shorting
overvalued CP against an existing CNR long position.
Hershey (HSY U.S.) has worked well as a short against
a group of U.S. consumer stocks. After a huge sell-off
following a very disappointing Q1 and potentially 2016
guidance by KORS, I bought a small trading position.
Not wanting to take on more consumer exposure in
a very disappointing retail environment, I offset KORS
long with a Coach (COH U.S.) short position, buying
a stock with a suddenly depressed valuation, while
shorting one with a much higher P/E. I am aware that
predicting EPS for either of these stocks is tricky at this
juncture, so I relied on my own personal preference for
the KORS brand.
Other pair trades which worked in the last few months:

CIX vs. IGM

RY vs. BNS
LUN vs. TCK/b
ALK U.S. vs. WJA

The last few months have been unusual for the number
and variety of profitable short positions. DEERE is the
one short whose profitability remains elusive. I might
have to give up on it!
I will continue to look for suitable pair positioning
until markets digest the inevitable rate hike and start
anticipating the last phase of the current bull market. I
have been predicting an unusually long economic and
market cycle, and am convinced markets have several
good years ahead before I have to start positioning the
portfolios for the inevitable BEAR.
Wishing you an enjoyable rest of the summer. For
further information, please contact your regional Arrow
Capital Management representative.
Sincerely,
Veronika Hirsch
Portfolio Manager
Arrow Capital Management Inc.

Unless otherwise stipulated Exemplar Portfolio returns are net of all fees, in Canadian dollars, reflect class F shares and assume
reinvestment of all distributions. Commissions, trailing commissions, management fees and expenses all may be associated with
Exemplar Portfolio investments. Please read the full prospectus before investing. Except as otherwise noted the indicated rates
of return are the historical annual compounded total returns including changes in share or unit value and the reinvestment of
all dividends or distributions and do not take into account the sales, redemption, distribution, or optional charges or income tax
payable by the unitholder or shareholder that would have reduced returns. Exemplar Portfolios are not insured or guaranteed by
Canada Deposit Insurance Corporation (CDIC) or any other insurer. Exemplar Portfolios are subject to risks of loss of capital and
income and their values change frequently. Past performance may not be repeated. Shares of the Portfolio are highly speculative
and involve a high degree of risk. You may lose a substantial portion or even all of the money you invest in a Portfolio.
36 Toronto Street, Suite 750 Toronto, Ontario Canada M5C 2C5 Tel: 416.323.0477 Tel: 1.877.327.6048 Fax: 416.323.3199 www.arrow-capital.com

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