January 2015 Performance Commentary

The month of January was a very volatile month for equities and currencies. While the main Canadian equity benchmark rose approximately +1/2%, the various U.S. indices fell between 2.00-3.75% during this period.

During this period, three of our funds posted negative returns, while two, the ABC Fully Managed and the ABC American-Value Fund both yielded positive results. More importantly, during the first two days of February, all five ABC Funds are showing substantially improved results and appear to have turned the corner. We believe that improved performance should continue given brighter economic and business factors. In summary, we expect the five ABC Funds to post superior returns for the balance of the year.

Over the past four weeks, we have taken the opportunity to tweak our portfolios and have added a number of new, exciting holdings to our funds. For example, in the ABC Fully-Managed and Fundamental Value Funds, we added TransForce Inc., a Canadian transportation and parcel delivery company, which should benefit from a lower oil price and its significant U.S. business.

In the ABC American-Value Fund, we purchased Activision Blizzard Inc., a major American entertainment software publisher and developer. Not only is the valuation attractive, but also, like TransForce, the company has a meaningful free cash flow (FCF) yield.

The ABC North American Deep-Value Fund purchased Carriage Services Inc. (CSV), an operator of funeral homes and cemeteries in the United States. Moreover, CSV sells related merchandise such as caskets, burial vaults, and memorials. The company is a major consolidator of smaller funeral companies and continues to grow their free cash flow.

In the ABC Dirt-Cheap Stock Fund, we purchased Exco Technologies, a Canadian global producer of precision engineered tools primarily for automotive and industrial markets. Exco is debt-free, possesses a low price to earnings ratio, is free cash flowing, and is a significant beneficiary of the low Canadian dollar.

These changes are but a few highlights of what our ABC investment team has crafted for our five ABC Funds since the beginning of 2015. We continued our search for undervalued, free cash flowing common stocks, which we could add to our strong pipeline of ideas for the funds. We are very optimistic for 2015 and will opportunistically use the stock market’s volatility to advantageously add positions on dips and trim overvalued holdings on strength.

Irwin A. Michael Signature

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

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