Experience. Intelligent Investing.

N O V E M B E R 2 0 1 5
The Exemplar Canadian Focus Portfolio had a
postive return of 1.59% for the month of November,
bringing the YTD performance to 6.65% vs. -5.42%
for the S&P/TSX.
This is the last commentary for 2015, one of the
most challenging years I EVER had to navigate in my
long career. I have decided to forego a postmortem
for fear that whatever conclusion I share with you
today will most likely turn out wrong by next
week, if not by tomorrow before noon. Whatever
Chair Yellen does and says on December 16th will
clearly determine the course markets take for the
remaining trading days of this year.
For those of you who remember, earlier this year I
predicted Yellen would begin to normalize interest
rates at the September FOMC meeting. Knowing
interest rates needed to be raised while the U.S.
economy was strong, I took into consideration
her penchant for seeking consensus (it really is
procrastination), and realized September was the
very last meeting Yellen could change policy while
allowing markets ample time to digest the move
before year end. It was a practical call on my part
- I thought all women were practical. Having had
ample opportunity all summer to pull the trigger,
could Yellen act a mere week before Christmas?
Would Yellen make such an important decision
merely days before many large institutions have to
close books for trading? This would undoubtedly
magnify the already elevated intra-day volatility
both before and after the meeting, as institutions
try to position portfolios for potential policy
change just weeks before year end in a market
progressively drained of liquidity with each passing
week. I concluded a rational person would never
wait until the December meeting.
If Yellen raises rates on December 16th, she will
send markets on a roller coaster. Considering how
unpredictable markets have recently become, I am
not even going to bother predicting the outcome

EXEMPLAR CANADIAN FOCUS PORTFOLIO

of that roller coaster ride. That is the reason the
Exemplar Canadian Focus Portfolio has over 40%
cash.
There are two groups of bright commentators with
very differing views on the future. One group thinks
the U.S. economy is on the verge of a recession and
thus stocks will shortly swoon into a bear market.
Others are of the opinion that we have entered a
slow patch in the middle of a very protracted cycle.
The second group is not very enthusiastic about
near term market prospects either, but instead of
a bear market they are just predicting a difficult
one. As if anyone really needed another difficult
year! My opinion fits in better with the latter group.
That is the reason I have chosen cash, rather than
a massive short position to defend the portfolios
against current malaise. However, I plan to be at
my desk for the next couple of weeks just in case
prospects for a Santa Claus rally improve.
I would be remiss if I did not mention the latest OPEC
meeting as having been on the right (meaning
short) side of the energy trade, which certainly
contributed to the outperformance of the Fund.
After a lengthy debate, OPEC rejected the idea of
limiting production to control oil price and gave
carte blanche to its members to keep pumping
without imposing any production ceiling. Most
comments I have read concluded that OPEC lost
control of the market at this meeting. I think the
exact opposite is true! OPEC has managed to regain
control. It is my view that the Saudis will continue
to defend their market share until sufficient pain
causes large producers to agree on a new quota they
can successfully monitor. It is impossible to predict
when, if ever that might happen, but certainly not
before the June 2016 meeting. Probably not even
before the June 2017 meeting. In the meantime, a
low oil price will stimulate demand and discourage
supply and given sufficient time might come close
to balancing the market. As they say: the answer to
a low oil price is a low oil price.

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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N O V E M B E R 2 0 1 5

EXEMPLAR CANADIAN FOCUS PORTFOLIO

Having covered the XEG short position which I

had on most of this year, I prefer to be putting on
energy pair trades going forward. I will be looking
for events to help me set up these pair trades. My
contention has been that investors (spurred on by
the media) were far more concerned with missing
the bottom than avoiding losses. My experience
tells me that the nadir in energy stocks will not
be made until investors give up trying to find the
bottom. We might have to get used to an energy
environment that is lower for longer.
Thank you for your continued interest in the Fund.
For further information, please contact your regional
Arrow Capital Management representative.
Sincerely,
Veronika Hirsch
Portfolio Manager
Arrow Capital Management Inc.

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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