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Wutherich & Company October 2010 Newsletter

by wilwutherich on November 12, 2010 · 0 Comments
Monthly Message
October was another strong month for the major market indices. The S&P 500 was up 3.8%, the DJIA up 3.2%, the NASDAQ up 5.1%, the S&P/TSX up 2.7% while the BMO Small Cap Index was up 5.6%. The Wutherich & Co. Composite was up 1.8% during the month.

While we have handily outperformed the S&P/TSX over the last twelve months, we have handily under-performed the BMOSCI over this same time frame. We attribute this to the extraordinary performance of junior mining names in Canada. Though the strength in the Canadian indices was broadly based it was the mining stocks which provided the biggest kick, especially for the small cap index. With many commodity prices returning to very high levels, the gains in these stocks may be warranted but we are wary of the rapid ascent that the junior mining stories have taken in the past two years. A rising tide raises all ships, even ones with no cargo in their holds. As with other powerful bull markets in the past that are concentrated in only a handful of sectors, the good the bad and the indifferent all rise toward the stars. We find it hard to imagine what commodity prices might be five years out and are not inclined toward extrapolating from the top of the curve. Consequently, we think it is very important to be selective in the names that we look at and focus on companies that have stable or growing earnings, healthy balance sheets and strong franchises that they should be able to exploit profitably for many years to come. In our opinion, there are few junior mining companies that make the grade. That being said, to avoid being dogmatic in our approach, we do look at them from time-to-time in hopes of finding some that fit our criteria.
The following table illustrates the performance of the Wutherich & Co. Composite to the present:

(unaudited, since Sep.30/01)*
Month 1YR 3YR 5YR Inception
Wutherich & Co. 2.7% 21.8% -3.1% 3.1% 14.2%
BMOSCI-wtd 2.3% 34.3% -0.2% 5.7% 11.9%
TSX 1.9% 12.7% -1.5% 5.1% 8.9%
Wutherich & Co. Factsheet
Company Objective
Our goal is to seek prosperity for our clients through participation in stable, growing companies in North America, led by strong management teams that we consider our partners for the next five or more years.
Investment Philosophy
Our style can be described as concentrated, disciplined, long-term growth stock investing. The focus is on established companies that generally have a demonstrated track record in revenue, cash flow or earnings per share growth, with strong managements and solid balance sheets. The current emphasis in the portfolio is on the equity of small to medium capitalization companies, defined roughly as $50 million to $5 billion in market capitalization. The portfolio may include large capitalization companies if the right elements are there. Stocks are bought with a keen eye to valuation, so you’re not likely to find many high multiple stocks here. The portfolio will likely maintain a significant percentage in foreign securities, providing exposure to investment returns outside of Canada.
Portfolio Composition (as a percentage of net assets)
Canadian Stocks 79.17%
Energy 17.51%
Financials 5.30%
Information Technology 0%
the Communications and Media 5.02%
Consumer 10.12%
Healthcare 5.15%
Industrials 21.81%
the Materials 5.01%
Telecom 0%
Transportation 9.25%
Utilities 0%
the Real estate 0%
U.S. Stocks 16.55%
Communication Services 5.36%
Energy 5.66%
Specialty Retailers 5.53%
Cash and Others 4.28%
Performance
(unaudited, the growth of $100,000 invested as at sep. 30/01)*
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Your account with us
Wutherich & Company is an independent investment counsellor. We do not hold assets for our clients, but simply exercise trades over your account as per an agreed upon investment policy statement and portfolio management agreement. Your account is held at TD Waterhouse Canada Inc. in your name. Withdrawals from that account can only be sent to you at your designated bank account and/or address of record. Wutherich & Co. may also do withdrawals from your account to satisfy any fees that may apply to your account. All accounts are cash accounts. Unlike hedge funds, we do not use leverage or derivatives to manage your money. We are not a fund company – if you are a private investor with us, your account will mirror the Model Portfolio but your investments are not pooled.
Other Facts
Annual fees are 1.5% of assets on a quarterly basis in arrears, plus applicable taxes.
Institutional clients qualifying for a segregated fund account would be charged 1% for the first $10 million and 0.5% for the next $40 million.
Fees on any accounts over $50 million would be subject to negotiation.
Minimum account size is $150,000.
Investments are 100% RSP eligible.
*The Wutherich & Co. performance shown here is of a composite which combines the performance of all of the accounts managed by Wutherich & Co. that have been invested according to the Wutherich & Co. Portfolio throughout their history. These accounts vary greatly in the size of assets that they contain and whether or not fees have been deducted directly from the accounts during their history.

BMOSCI-wtd = BMO Small Cap Index, Total Return, weighted. This index is currently the most comparable to the Wutherich & Co. portfolio due to its average market capitalization, though it may differ greatly in its sector weightings;

TSX = S&P/TSX Total Return Index. Due to its large capitalization nature and substantially different sector weightings, this index may not be considered comparable to the Wutherich & Co. Portfolio.