First Quarter 2013 Update!

The quarterly blog is a little bit later than usual as I am always willing to defer the writing of the quarterly blog in favor of spending the time required for an existing investment in the portfolio or for the analysis of a promising new investment. As a result, these blogs occasionally get delayed, particularly, as one might expect, in the first quarter of 2013.

On risk adjusted basis the portfolio outperformed the major market indexes  including the S&P/TSX COMPOSITE INDEX,  A Wealth Preservation Index,  and a North American Balanced Index for the first quarter of 2013. The relative outperformance versus the Index can be attributed to asset allocation and security selection. Asset allocation contributed mainly to the  outperformance,  I decided to overweight US stocks since 2012,  current positions include COCA COLA CO, PAYCHEX INC, MCDONALDS , ELI LILLY & CO, PROCTER GAMBLE CO,  Johnson & Johnson and MERCK & CO INC to name a few. From an asset allocation perspective, I am maintaining a significant underweight in bonds.

Eli Lilly and Co

 

Eli Lilly and Co. is a leading maker of prescription drugs, offering a wide range of treatments for neurological disorders, diabetes, cancer and other conditions. Animal health products are also sold. Foreign drug sales accounted for about 46% of total revenues in 2012. Based on positive clinical developments in several important pipeline assets targeting diabetes, cancer and Alzheimer's disease, the stock has outperformed the S&P 500 Index and most of the Big Pharma stocks over the last year. Lilly recently filed ramucirumab for stomach cancer, and empagliflozin for type 2 diabetes, with three more Phase 3 assets to be submitted later this year. Relative to its size, Lilly holds a disproportionately high amount of potential blockbusters in Phase III development.  I continue to like the stock due to a robust catalysts profile relative to peers, pipeline optionality , and reasonable valuation.

 Portfolio Update

During the quarter, I eliminated the portfolio position in Chorus Aviation and added to the portfolio position in Enbridge Income Fund Holdings Inc.

 Chorus Aviation

Chorus Aviation is Air Canada's regional carrier providing domestic and transborder flights to Canadian and U.S. destinations. Chorus Aviation was formed in January 2001 when Air Canada combined its four regional carriers into one. Chorus Aviation operates as a separate business with its own management and union contracts..

 

I eliminated the portfolio position in Chorus Aviation in early January and took some modest profits including reinvested dividends.  Even though Chorus continues to generate healthy cash generation and sufficient free cash flow to more than adequately fund the $0.15 quarterly dividend, I became concern about  the upcoming decision in the arbitration relating to the benchmarking provisions within its Capacity Purchase Agreement  with Air Canada and decided to take a modest profit after a run up in the stock in January 2013.