Exemplar Canadian Focus Portfolio

Fund Commentary

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www.exemplarfunds.com

September 30, 2014

What a difference a month makes! It wasnt too long ago that business media was actively talking about high equity valuations and lack of volatility pointing out how unusually long its been since we had a meaningful correction. In reality, the overvalued small caps had already started their descent
in late summer, while the media was focused on major U.S. Indexes which were still making new highs until the middle of September. We had discussed
in a previous commentary how the IWM (Russell 2000) ETF short position we were putting on at the time was a good fit for the volatile mid-caps in our
portfolios. We were also pointing out at the time how many mid-caps (in our portfolios) had started swooning after missing market expectations. By the
middle of October, all Indexes were in full retreat and Im sure by the end of this month, most will have achieved the 10% correction the media felt was
necessary to cleanse equity markets of excesses.
Our position has always been that we are experiencing a mid-cycle correction. We had been eliminating smaller cap positions and hoarding cash while
waiting to figure out which stocks would be favored by markets for the latter part of the cycle. This search led us to the U.S. consumer. With gasoline prices
15% lower than a year ago and a rising U.S. dollar, this has meaningfully increased U.S. consumers purchasing power. In addition, further deterioration of
the already weak global economies should have the net effect of keeping U.S. interest rates low for much longer than previously contemplated. In fact,
some commentators believe that rate increases may fall off the table entirely for 2015. So for now, we are comfortably adding to our exposure, to the U.S.
consumer and to the relatively healthy U.S. economy in general, while shying away from exposure to economies outside North America. A strong U.S.
dollar keeps us away from the decimated oil patch and other industries reliant on commodities.
We see too many headwinds facing the energy sector, even though we do expect oil stocks to rally at some point and valuations to normalize. The sector
will have to fight against the seasonal build in crude inventories and a strong U.S. currency. World oil consumption is expanding at the slowest pace since
2009, as economic growth outside North America sputters. Uncharacteristically, Saudi Arabia has been defending its market share rather than the oil
price. Is it a coincidence that Brent below $90/barrel dims the outlook for Russias budget revenue, about half of which derives from the energy industry?
How ambitious will Putin be at $75 Brent?
Our portfolios fared much better than the Canadian Index as we had accumulated a nice cash hoard, especially in the Exemplar Performance Fund. Even
though many of our mid-cap holdings began correcting during early summer, we did have some winners left in the portfolios for September. Intertain
Group was by far the best performing stock in September, rising 46.8% in anticipation of an acquisition announcement. Shortly after month-end,
management revealed the accretive acquisition of a fully-integrated global online casino. Expectations are for the company to remain acquisitive and
complete a transformational deal (a la Amaya) within the next quarter.

Thank you for your continued interest in the Fund. For further information, please contact your regional Arrow Capital representative.

Sincerely,
Veronika Hirsch
Portfolio Manager

Unless otherwise stipulated Exemplar Portfolio returns are net of all fees, in Canadian dollars, reflect class A 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.
Arrow Capital Management Inc.
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