Experience. Intelligent Investing.

O C T O B E R 2 0 1 4

EXEMPLAR CANADIAN FOCUS PORTFOLIO

TINA Rescues Markets.

We have endured 2 months of market turmoil as investors worried
about the markedly slowing global economic growth, controlled
deceleration of the Chinese economy and especially the substantial
financial, political and structural issues Europeans are unable to
tackle. In the end, TINA (There Is No Alternative) came to the rescue
and equity markets recovered almost as fast as they swooned, with
a positive earnings trends help. We have also noticed that markets
were more likely to punish companies reporting poor results.
Hopefully, this is a precursor to a market of stocks, where stock
prices are better aligned with current company fundamentals. We
fully expect volatile after-shocks to continue in response to the bad
news, of which there seems to be an endless supply. Fortunately,
we have just entered the favorable year-end seasonality. Market
participants are beginning to discount next years earnings growth,
which along with TINA should result in a buoyant year-end rally.
I have taken advantage of this correction to deploy my hefty cash
hoard by adding companies exposed to the relatively healthy US
economy. In addition to gaining exposure to the best performing
global economy, I am positioning the portfolios to benefit from
F/X tailwinds. This has been my strategy for some time now and it
started bearing fruit during the Q3 reporting season, when many
companies held in the portfolios delivered better results partly
because of the F/X benefits. Currently I am mostly buying defensive
GROWTH stocks, which are able to deliver reliable results even in this
difficult environment.
At no point did I feel tempted to delve into the decimated resource
sectors, which still carry too much risk. I did some upgrading of the
energy portfolio without adding substantially to the weighting.
The withdrawal from QE is occurring at a time when slowing global
growth will require monetary stimulus in Europe and Japan, which
will reinforce the already well established rising US dollar trend.
Strong US currency is a major headwind for most commodity prices,
which need to trade at lower levels in order to reflect their underlying
fundamentals of excess supply during weak global demand. I am
hardly a commodity expert, but if the November OPEC meeting
doesnt end in agreement, we might get another chance to buy
cheap energy stocks.

October was a good test to all of our portfolios. With low exposure to
commodity sectors and active shorting, all 3 Portfolios had positive
returns:
The Hirsch Performance Fund performed the best with a 2.1% return,
as it benefited from several meaningful short positions.
The Exemplar Performance Fund had a 1.8% return. The fund had
the highest cash position coming into September, reaching 40% at
one point. I invested about half the cash hoard during October. I
found it more prudent to wait until after the earnings release before
buying some of the more controversial stocks. Sometimes the
volatility surrounding the earnings release gave me an attractive
trading opportunity.
The Exemplar Canadian Focus Portfolio had a 1.6% return. I have
eliminated Black Diamond from the portfolio between September
and early October. I like the management of BDI, but the dismal
results at competitor HNL were an indicator of deteriorating
fundamentals. As you might recall, I have eliminated a small HNL
trading position from the portfolio much earlier in the year when
it became apparent from poor guidance that management did
not have a good handle on the business. I have much more faith
in BDI management and will most likely revisit the stock when the
LNG projects become reality. I have been adding to the LINAMAR
and CALLIDUS positions during the correction, as both stocks are
illiquid and difficult to buy in a rising market. Subsequent favorable
earnings reports proved them to have been good additions.
For the second month in a row Intertain Group was the best
performing stock in all 3 portfolios, rising 23.6% in October after a
much more impressive 46.8% gain in September. No surprise: all
energy related stocks were a big drag.
Thank you for your continued interest in the Fund. For further
information, please contact your regional Arrow Capital
representative.
Sincerely,

Veronika Hirsch
Portfolio Manager

Commissions, trailing commissions, management, performance and other fees may be associated with this investment. Investors should read the offering
memorandum before investing. Unless otherwise stipulated returns are for Series A units in Canadian funds. Except as otherwise noted returns are
historical compounded total returns including changes in the unit value and reinvestment of all dividends or distributions and do not take into account
the sales, redemption, distributions or optional charges or income tax payable by the investor that may affect the compound growth rate and are not
intended to reflect the future value of the fund . Past performance may not be repeated. Offering of units in the Hirsch Performance Fund are made pursuant
to the Confidential Offering Memorandum (OM) only to those investors who meet certain eligibility or minimum purchase requirements. Important
information, including the funds fundamental investment objective is contained in the OM which may be obtained from Arrow Capital Management Inc.

Arrow Capital Management Inc.

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