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2 Queen Street East, Twentieth Floor, Toronto, Ontario M5C 3G7
Third Quarter 2010 Review
Head Office / Toronto
Client Services
English: 1-800-563-5181
French: 1-800-668-3528
Alan Radio, Chief Investment Officer
Cambridge Advisors
Major stock markets surged during the third quarter as investors regained confidence in the
worldwide economy. Most markets, including Canada, achieved double-digit gains, despite a
pullback in August. Europe, Asia (excluding Japan) and emerging markets had a particularly
strong September, as fears of a “double-dip” recession all but disappeared.
Despite the renewed market strength, there remained a dislocation in the market between equity
fundamentals and stock prices, driven by investors seeking higher yields than those offered by
bonds. Nonetheless, our strategy remained focused on a continuing economic recovery, with an
emphasis on companies that have been leaders in their areas and have demonstrated solid earnings
through much of the recessionary period. These companies have made gains based on earnings
leverage rather than leveraging their balance sheets.
Canadian equities continued to benefit from the country’s strong economy relative to that of many
other countries, and from the perceived strength of its banking system. This confidence was
somewhat undermined by uncertainty about the health of the U.S. economy, to which Canada’s
fortunes to an extent are tied due to the significant trade between the two countries. In keeping
with expectations of economic growth, Cambridge Canadian Equity Corporate Class held
significant positions in energy, industrials and information technology. While these sectors
underperformed some others, notably materials, during the period, we believe this positioning
bodes well for the fund for the coming quarters. The materials sector was boosted by the
disclosure of a bid by international mining giant BHP Billiton for Potash Corp., one of Canada’s
largest companies by market capitalization.
We reduced our Canadian bank holdings, adding U.S. financials such as JP Morgan Chase and
State Street to the portfolio. The fund was more than 30% invested outside Canada, up about five
percentage points from the end of the previous quarter. The biggest individual positive
contributors to performance were National Bank of Canada, Magna International and Keyera
Facilities, while Goldcorp and ISE were the biggest detractors.
Cambridge Canadian Asset Allocation Corporate Class adhered to a similar equity strategy,
although it had a higher weighting in energy stocks than the equity fund. Energy stocks
represented more than one-quarter of its equity assets, substantially higher than three months
earlier. We added key holdings in related areas, notably Interprovincial Pipeline and Pembina
Pipeline. Energy trusts are among the fund’s income-producing holdings, which we favour over
Third Quarter 2010 Review
fixed-income investments in today’s continuing low-interest rate environment. The fund slightly
underperformed its benchmark (which comprises 60% Canadian stocks and 40% bonds).
Contributing to performance were Keyera Facilities, National Bank of Canada and Magna
International, while Manulife Financial and Goldcorp were the biggest detractors.
Overweight positions in energy and industrials helped Cambridge Global Equity Corporate Class
slightly outperform its benchmark. Financials also remained an important component, with stocks
in this sector dominating the top holdings, along with energy issues. Among our key additions
were Noble Energy and Wells Fargo. We increased our emphasis on U.S. companies with solid
earnings and cash flow, and growth opportunities. The biggest individual positive contributors to
performance were Autoliv, OGX Petroleum (which was sold at a profit during the period), and
Abcam, while ITT Educational and Comtech were the biggest detractors.
We are optimistic that economies in many regions will continue to grow this year and into 2011.
In general, cash levels on corporate balance sheets are at a very high level, which demonstrates
there is good value in the market, and the potential for mergers and acquisitions.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund
investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change
frequently and past performance may not be repeated. This commentary is provided as a general source of
information and should not be considered personal investment advice or an offer or solicitation to buy or sell
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