Fear and expectations drove equity markets in 2011, as investors fled in droves. Typically they withdrew from investing in smaller-to-intermediate growth stocks, and ran to larger dividend paying stocks, driving the valuations of many companies, such as utilities, to what we feel are excessive. Concerns, fuelled by the credit downgrades and potential debt defaults in European countries, such as Greece and Italy. The front pages of the newspapers also told us about the overthrowing of governments in the Middle East, as well as the “Occupy” protest around the world.

Fund Performance

The year 2011 will forever be remembered as the year of protests. In the Middle East and North Africa, from Tunisia to Egypt, Libya and Yemen, the Arab frustrations took to the streets to protest decades-long autocratic rule. In the Western World, streets were filled with those voicing concern over austerity measures, frustrations over capital market excesses, as well as government inabilities (unwillingness) to do the right thing. Beyond the press headlines, the protests did succeed in overthrowing four governments, a number likely to grow higher.

The fourth quarter of 2011 finally gave equity investors a break from the double-digit losses of the third quarter. The Fund rose approximately 1.5% during the quarter, compared to a 3.1% return of the S&P/TSX Composite Index (TSX), while the loss for 2011 came to -3.2%, compared to -8.7% for the TSX.

An Extremely Frustrating Year Comes To An End
2011 will go down as one where macro events trumped many fundamentals and the bifurcation was probably the most extreme since I have managed money. Let us highlight some of our observations and frustrations.

Commodity Process Versus Underlying Equities