Download Commentary by Skylands Capital LLC, Sub-Investment

Perinvest Harbour US Equity – Q2 2014
PERINVEST HARBOUR US EQUITY
Q UARTERLY R EPORT Q2 2014
Perinvest Harbour US Equity is a Sub-Fund of Perinvest (Lux) SICAV, an open-ended investment company organized under the
laws of the Grand Duchy of Luxembourg as a "Société d'Investissement à Capital Variable". Perinvest Harbour US Equity aims to
maximize the return on investment over the medium to long term. Under normal conditions, the Sub-Fund mainly invests in
shares from companies in the US. The Sub-Fund may use derivatives to reduce its exposure to various investment risks (hedging),
for efficient portfolio management, but not to directly seek investment gains.
The investment manager uses economic data, onsite visits and management calls to determine the level of investment in
companies that appear to have the potential for growth.
The Sub-Fund is designed for investors who understand the fund’s risks and who have an investment horizon of 3 to 4 years
minimum.
Commentary by Skylands Capital LLC, Sub-Investment
Manager of Perinvest Harbour US Equity
Perinvest Harbour US Equity (Class A) gained 5.2%1 last quarter.
While the market continued its slow climb last quarter, Perinvest Harbour US Equity benefited from a
strong performance by its longstanding investment in railroads and an acquisition announcement of its key
holdings: Covidien. The Union Pacific Railroad, currently the largest holding, gained 6.8% last quarter. The
portfolio’s other key railroad holding, Norfolk Southern, performed similarly with a second quarter return
of 6.6%. Recall from previous quarterly report that the railroad industry has pricing power following three
decades of industry consolidation. Next, in June Medtronic announced it would acquire medical device
company Covidien, offering a 29% premium to where the stock had been trading. Covidien was particularly
impactful because it was a top 10 holding.
Given that the portfolio is well diversified, there were many other holdings that had a material impact on
last quarter’s performance. Examples on the positive side include:
 Apple (+22% for the quarter) continues to post strong results allaying fears that Samsung will
capture their market share.
 Exact Sciences (+20%) is on the cusp of launching its new colon cancer screening product, which is a
less invasive alternative to colonoscopies.
 Amerco (+25%), the parent company of U-Haul, continues to see the gap between its stock price
and stellar financial results converge.
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Cumulative returns over 3 months. Other returns of the same share class are presented on page 3 of this report. Past
performance is no guarantee of future performance.
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Perinvest Harbour US Equity – Q2 2014
Last quarter’s laggards included:
 ITT Education (-42%) which reported disappointing new student enrollment,
 AM Castle (-25%) which is experiencing increased competition for specialty metals,
 World Wrestling Entertainment (-58%) which gave back the 75% gain booked in the first quarter
when it reported new TV broadcast contracts that failed to match the market’s lofty expectations.
Outlook
The economy has been stubbornly lethargic since the recession six years ago, only posting 2.1% annualized
GDP growth compared to long-term trend growth closer to 3.0%. This is particularly disappointing
considering the best GDP growth is typically found in the immediate aftermath of recessions as the
economy is snapping back. This recovery has clearly not followed the historical pattern. Compared to
previous post-war recessions, the speed and depth of the 2008 recession likely had a bigger impact on
consumer, investor and business leader confidence than is typical. Second, the economy has had to absorb
several tax increases during this recovery, including higher tax rates on income, dividends and capital gains,
and a host of new taxes tied to Obamacare. Finally, new legislation, such as Obamacare and the Dodd
Franck Act, combined with a hostile regulatory atmosphere, has stifled new hiring and investment. When
visiting management teams, regulatory overreach is often cited as an impediment to growth.
However, the news is not all bad in Washington for the economy and investors. The Federal Reserve has
taken interest rates to near zero and has kept them there for almost five years. Money is free. This is an
enormous stimulant to economic activity. The financial bar for evaluating growth initiatives, including
acquisitions, is much lower when money is free. Consumers also benefit from lower mortgage rates and
auto payments. And outside of Washington, the energy renaissance, innovation and an entrepreneurial
spirit still present in many pockets of the American culture also support a better economy.
Fortunately, the economy’s pulse finally seems to be getting better. This view is formed in part by
interviewing hundreds of management teams across industries and geography. This is not only a
quantitative assessment, but is supported by increased capital spending budgets, expanded share
repurchases, and higher merger and acquisition activity. Further, given Perinvest Harbour US Equity
investments in railroads, the fund manager tracks railroad car loadings on a weekly basis. Historically, this
has been a good indicator for the economy. In recent months, railroad traffic has been surprisingly strong.
In fact, last quarter railroad volumes were up 6.8%, and so far this year traffic is up 4.7%. This level of
growth is highly unusual. And what is not transported by train, is likely hauled by truck. According to
Internet Truck Stop, average truckload rates are 11.9% higher than this time last year. Evidence is
mounting that 5 years of free money, fading memories of the financial crisis, and a cessation of additional
tax hikes and burdensome legislation, may enable the economy to reach escape velocity.
A stronger economy would bolster corporate profits, which, in turn, should support further gains in the
stock market. While corporate profits have done well in recent years in spite of a lackluster economy, the
key sources of this profit growth, namely cost cutting and debt refinancings, are largely exhausted. From
here, higher profits will probably be heavily dependent on selling more goods and services.
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Perinvest Harbour US Equity – Q2 2014
NAV evolution of Perinvest Harbour US Equity A USD2
NAV EVOLUTION OF PERINVEST HARBOUR US EQUITY A
PERFORMANCE SUMMARY OF
PERINVEST HARBOUR US EQUITY
A AS OF 30/06/2014
CALENDAR YEAR PERFORMANCE OF PERINVEST HARBOUR US
EQUITY A SINCE 2011 (AS OF 31ST DECEMBER OF EACH YEAR)
Cumulated returns
June
YTD
1 year
2.8%
8.6%
20.4%
Annualized returns
3 years
Inception*
11.8%
11.6%
Returns are calculated in the reference currency (USD) and do not reflect any entry charges you might have to pay.
Past performance is no guarantee of future performance.
* The A share class has been launched on 8th December 2010.
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There are other share classes (B EUR and C GBP) and the relevant statistics are available on request and free of charge from
TreeTop Asset Management S.A. 12 rue Eugène Ruppert L-2453 Luxembourg and are also presented on our website
www.treetopam.com
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Perinvest Harbour US Equity – Q2 2014
WARNING
The present quarterly management report does not provide complete information about Perinvest
Harbour US Equity and should therefore be read before any investment together with the Key Investor
Information Document (KIID) available in French, Dutch and English, the prospectus of Perinvest (Lux)
SICAV (in English only), as well as the latest annual/semi-annual report of Perinvest (Lux) SICAV (in
English only). These documents are available on request and free of charge from TreeTop Asset
Management S.A. 12 rue Eugène Ruppert L-2453 Luxembourg, from the bank in charge of the fund
administration in Belgium: Banque Degroof NV/SA, rue de l'Industrie B-1040 Brussels or on
www.treetopam.com.
Regarding the Perinvest Harbour US Equity A USD share class (capitalisation): the Net Asset Value is
calculated on a daily basis and published in L’Echo, subscription fees are freely negotiable up to 5%, the
Stock Exchange Transaction Tax in case of redemption/sub-fund transfer is 1% (max €1,500), the minimum
subscription amount is $5,000, and the Belgian withholding tax is currently not applicable.
Although they are based on the best possible sources, the figures in this document have not been audited.
Furthermore, the present quarterly report contains opinions that should not be considered as investment
advice.
Distributor:
Investment Manager:
TreeTop Asset Management S.A.
Perinvest (UK) Limited
12 rue Eugène Ruppert
L-2453 Luxembourg
8 Waterloo Place
London SW1Y 4BE
Tel : +352 26 36 38 22
Fax: +352 26 18 75 97
Tel : +44 20 7451 1480
Fax: +44 20 7451 1489
www.treetopam.com
www.perinvest.com
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