Our weighted average return in August was +1.28%, bringing our year-to-date return to +13.29%.

Going into August, we took off some risk by reducing our positions in the technology sector. We did so because we had managed to make extraordinary profits in the sector this year, and decided to focus our efforts on less crowded trades.

As such, we continued to increase our positions in base metals miners. We find this sector attractive because it is wildly under-owned and has a minute weighting in the S&P 500 index (0.1%). As a new generation of investors dreams of start-up ‘unicorns’ and ‘mining’ virtual currency, we have been taking a decidedly ‘old school’ approach and buying quality mining companies that have emerged from cyclical lows with stronger balance sheets and are poised to benefit from global economic growth.

One such example is Teck Inc. (TECK US). Up until the end of August, Teck shares had rallied 67% from their mid-June lows. The total return of the S&P 500 was 2% over this same period. What’s more, research analysts have only started updating their valuation metrics to reflect higher commodity prices, which should provide further momentum for the mining sector.

Rallies in this sector can be quite spectacular due to the fact that short to mid-term supply tends to be inelastic, resulting in massive moves to the upside in their underlying commodity prices during periods of rising demand and lack of supply. This is how cyclical sectors work, and it looks like we are just getting started. Oil prices also look to have stabilized and we are beginning to look for opportunities in this beaten down sector.

August is summer holiday season and trading volumes tend to dry up. North Korean missile testing and their ongoing development of nuclear attack capabilities rocked this relative calm, but markets quickly recovered. The devastation reaped by Hurricane Harvey also did little to unsettle equity markets.

We still see a strong conservative underpinning to capital markets as money continued to flow into investment grade bonds. US 10-year treasury notes traded at their lowest levels since last November and we continue to find it challenging to find compelling opportunities in the fixed income sector. However, we refuse to buy bonds at unreasonably low yields just because everyone else seems to be doing so. Opportunities will inevitably present themselves.

Please feel free to contact us if you would like to hear more about our investment strategies.

On the behalf our portfolio management team, I thank you for your continued trust and support!

Pauls Miklaševičs

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