A History
of Delivering

After more than a decade, our flagship fund’s track record speaks to the superior risk-adjusted returns and tailored portfolio management we have been providing discerning Canadian investors

Jemekk Long/Short Fund

A multi-strategy approach for maximizing returns.

Serving investors since 2004, the Jemekk Long/Short fund is an all-cap portfolio with a multi-strategy approach designed to deliver superior risk-adjusted returns in all market conditions.

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Jemekk Total Return Fund

A refined approach aimed at greater preservation.

The Jemekk Total Return Fund is designed to leverage the strategic rigor and bottom-up approach of our Long/Short Fund, but with a more conservative, mid- to large-cap stance designed for lower overall volatility.

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Our Philosophy

We treat your money like our own, and we leave no stone unturned when looking for investments worthy of your attention.

At Jemekk Capital we continue our long tradition of focusing on the two pillars of investing; growing capital and protecting capital. We accomplish the first principle through our multi-strategy approach by focusing on bottom-up research to identify opportunities. For the second—protecting capital—we manage risk through judicious use of hedging and options-based insurance protection, in addition to the benefits achieved through strategic diversification.

Each of our funds has its own clear style and strategy; however, each stay focused on the core goals of protecting and growing capital within the context of each fund’s mandate.

Frank Mersch on BNN’s Market Call

February 8, 2018

Frank Mersch on BNN’s Market Call – June 15, 2018

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WHY US?

Jemekk Capital Management is a Canadian-based, employee-owned, private investment management firm with the aim of providing consistent, positive, absolute returns for its clients. We’ve designed our firm—and our investment strategy—to stand out to bring a sensibly different option to a market saturated with “me too” offerings.

Small = nimble

In Canada's relatively small securities markets, equities can rise and fall on relatively low volumes . With a small, engaged team and right-sized portfolios, we can investigate and respond decisively and quickly, taking advantage of our small size where larger funds may face liquidity challenges.

Sensibly different

From Nortel to Blackberry to Valeant, Canadian investors find themselves exposed to outsized risk when the index inevitably becomes imbalanced.  While our funds may invest in familiar companies, we typically demonstrate high 'active share' — a metric that reflects how different our portfolios look from the index.

Service without layers

Ultimately, the real value of working with a smaller firm is that the people you engage with are the people who actually work with your investments, every day. We invest alongside you, we value and depend on your business, and we're committed to clear communication and our mutual success.

Our Investment Team

Jemekk Capital Management is a Canadian-based, employee-owned, private investment management firm with the aim of providing consistent, positive, absolute returns for its clients.

Gerard Ferguson

Founder, Portfolio Manager

Gerard founded Jemekk Capital Management in 2004 by launching the Jemekk Long/Short Fund, which he still co-manages to this day. Before setting out on his own, Gerard was a portfolio manager and VP with AGF.

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Rick Ummat

Founder, Portfolio Manager

Rick Ummat joined Gerard Ferguson in 2008 as an Analyst. As a co-founder of Jemekk Capital Management, Rick co-manages the Jemekk funds in tandem with Gerard, bringing his bottom-up stock analysis skills to the team.

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Investing with us is easy…

Our funds are available to Canadian accredited investors. We simplify the process as much as possible, we communicate each step with clarity and transparency, and we’re right beside you throughout the process.

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Long/Short Commentary Q1 2018

As we entered the new year bullishness on equity markets seemed at all highs and 2018 was going to follow the same path as 2017 especially with the tailwind of the tax cuts in the US. Fast forward three months and we find the narrative has changed dramatically as global equity markets struggled with concerns surrounding rising interest rates and trade disruptions. The TSX was not immune to this tough quarter in fact the TSX was the worst performing index out of the G7 nations. In the face of this difficult quarter we are pleased to report the Jemekk Long/Short Fund up was up 3.34% materially outperforming every major index. We will discuss the reasons for the outperformance below.

Jemekk Long/Short Fund L.P.

Q1 2018 Commentary

As we entered the new year bullishness on equity markets seemed at all highs and 2018 was going to follow the same path as 2017 especially with the tailwind of the tax cuts in the US. Fast forward three months and we find the narrative has changed dramatically as global equity markets struggled with concerns surrounding rising interest rates and trade disruptions. The TSX was not immune to this tough quarter in fact the TSX was the worst performing index out of the G7 nations. In the face of this difficult quarter we are pleased to report the Jemekk Long/Short Fund up was up 3.34% materially outperforming every major index. We will discuss the reasons for the outperformance below.

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Jemekk Long/Short Fund L.P.

Q1 2018 Commentary

As we entered the new year bullishness on equity markets seemed at all highs and 2018 was going to follow the same path as 2017 especially with the tailwind of the tax cuts in the US. Fast forward three months and we find the narrative has changed dramatically as global equity markets struggled with concerns surrounding rising interest rates and trade disruptions. The TSX was not immune to this tough quarter in fact the TSX was the worst performing index out of the G7 nations. In the face of this difficult quarter we are pleased to report the Jemekk Long/Short Fund up was up 3.34% materially outperforming every major index. We will discuss the reasons for the outperformance below.

Below is a statistical representation of the Fund to comparative benchmarks in Q1:

 

Q1 2018 YTD 2018 Since Inception
Jemekk Long/Short Fund 3.34% 3.34% 226.07%
S&P/TSX Composite -4.52% -4.52% 162.56%
S&P/TSX Small Cap Index -7.73% -7.73% 55.10%

  *Benchmarks quoted in Total Returns

The TSX had a terrible start to the year. When looking at sectors, Technology was the only positive posting an impressive 10% due predominantly from Shopify while the worst performing sectors were Health Care and Energy continuing its path of underperformance from last year. The TSX Small Cap Index performed worse with all 11 sectors down in the quarter the bulk of which from resource stocks. But we are not throwing in the towel on Canada yet. There are several reasons to be constructive on Canadian equity markets such as the EPS estimates for the TSX have been increasing; stocks in Canada are cheap relative to global peers and discounting too much in our opinion; and the outperformance from the US markets versus Canada is set to narrow. The outlook for oil is polarizing. Compelling arguments can be made by the bulls and bears, and we acknowledge the disconnect from WTI and energy stocks but cannot time when this valuation gap closes. We believe the Bank of Canada will remain accommodative and the Fed continuing its path of interest rate hikes which could hurt the Canadian dollar. The result of a weakening loonie is a positive for many Canadian sectors including energy. We aren’t saying we are going all in on energy by any means, but it is one sector which appears left for dead trading at attractive multiples – we are monitoring the energy complex carefully.

In the US, the first quarter began strong continuing where it left off in Q4/17, until volatility reemerged in February. A common theme from our commentaries last year was the surprising amount of complacency and lack of volatility in the markets. This came to an abrupt stop this quarter. The volatility index hovered around 10 throughout 2017 and spiked nearly 4-fold in the first days of February. The selloff in equities was initially driven by fears of potential inflation and rising interest rates but more recently rhetoric around a possible trade war. The market is not favorable to tariffs and threats of trade wars as this brings more regulation which we are beginning to already see – the Trump Administration blocked the Qualcomm/Broadcom merger and talks of breaking up the so called Internet monopolies. Strong global PMI’s were one reason to be bullish on equity markets but a risk to the global growth story is the developing trade war between the US and China. This has become front and center and investors are taking note by raising cash and lowering their beta to the market (another headwind for Technology stocks). Volatility is back, and investors need to alter expectations and understand the low vol market is being replaced where a single tweet from Trump, be it related to tariffs, NAFTA, or a personal attack on Jeff Bezos, can set the tone for the trading day.

The Fund entered the quarter 87% net long and exited at 78% as we took note of the risks entering the market and reduced our exposure. As always, we remain nimble and focused on market fundamentals and political friction when assessing our risk appetite. The first quarter of 2018 proved to be difficult and this is reflective in the poor index returns. However, the Fund posted a solid number on a relative basis from a breadth of sectors namely Consumer Non-Cyclical (The Stars Group and Pollard Banknote) and Technology (GrubHub and HubSpot). As for the detractors, the marijuana names took a breather and weakness in the Energy complex.

There was also an M&A transaction that highlights price discovery of a comparable we own. Specifically, we introduced HubSpot to you in Q3/17 as a holding and we remain long but acknowledge the high sales multiple on the stock. However, in March Salesforce.com announced the acquisition of MuleSoft (a comp to HUBS) for 12x 2019e Sales and this bid up the whole SaaS complex outlining the strategic nature of some of these assets. This takeout multiple is 5 turns higher than where HUBS currently trades at.

Following our review of the quarter, we would like to introduce you to a holding we first bought in January last year:

Andrew Peller Ltd (ADW.a) – With a history dating back to 1961, Andrew Peller is Canada’s largest publicly traded wine producer and marketer of wines with a 10% share of total consumption. ADW offers a full range of products (wine, cider and whisky) across the spectrum from value to premium brands. The company has demonstrated it can grow organically and inorganically (17 acquisitions since 1995) and M&A continues to be a key focus. The footprint for ADW spans across Canada including wineries in B.C., Ontario and Nova Scotia. With respect to distribution, the company has multiple outlets to sell their brands. You can find Peller owned wines at restaurants, liquor stores and a newly introduced channel, grocery stores, along with any of their 101 corporate owned retail locations under the flagship banner, The Wine Shop.

In September of last year ADW announced the acquisition of three B.C. wineries for $95mm. We like the transaction as the acquired assets are growing faster than the current portfolio (6-7% CAGR vs. 4%) and EBITDA margins are much more attractive resulting in a lift for ADW (33% vs. 13%). Management has stated these wineries are already performing above expectations. In terms of acquisition strategy management believes its early days for the consolidation of the Canadian wine industry and sees a clear multi-year pathway of growth. But even assuming no further M&A the current assets set the stage for future growth and management has clearly demonstrated its experience in driving margins and creating cross platform products(Wayne Gretzky wine and whisky products).

There is a lot to like about the Andrew Peller story. We have confidence management can continue to integrate new assets and further drive unit economics and margins through its premiumization strategy. Early traffic numbers from grocery store sales read positive. We feel the company deserves a scarcity premium due to its competitive advantage from its size and unique positioning in the industry and being a public company. And from a demographic perspective, ADW fits nicely with our theme on tracking how Millennials spend their money. An area where we spend a lot of time.

Overall, we are pleased with the performance of the Fund relative to other major indices. Navigating through the first quarter unscathed was no easy task. Volatility did a 180 as markets swung violently and we stayed on course and remained disciplined. At Jemekk we are constantly asking ourselves are the markets expensive? Said differently, are we being rewarded for the amount of risk we are assuming? As of now, our answer is no. The markets are not expensive. However, nor are they overly cheap. Despite the recent volatility, the global macro backdrop remains positive for stocks. We believe all signs are pointing to a late stage environment, but the cycle is still progressing albeit some inflationary signals are surfacing. We remain constructive on the markets but Q1 has showed us how fragile this market is and the material risks that are beginning to arise. Companies will begin reporting Q1 numbers in the coming weeks and we believe the reporting season will be positive and the market will again shift its attention to fundamentals. This year will be a difficult one for passive investors but shaping up to be an ideal market for those active managers like ourselves.

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Total Return Commentary Q1 2018

Jemekk Total Return Fund L.P.

Q1 2018 Commentary

The market could not have ended the quarter more differently than it began. Specifically, momentum from Q4/17 continued through January with US markets hitting all time highs at an alarming rate. For example, the returns in January alone were almost at the year end targets for some analysts. And then concerns around inflation spiked volatility and caused North American markets to sell off hitting correction territory in February. The first quarter was a difficult one with both the Dow (-1.96%) and S&P/500 (-0.76%) negative, however the Nasdaq (2.6%) managed to stay in the green. The TSX had a terrible quarter being down more than any other developed nation. Taking all this into account we are pleased with how the Jemekk Total Return Fund performed being able to buck the trend and print a positive quarter. We will discuss the reasons for the outperformance below.

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Jemekk Total Return Fund L.P.

Q1 2018 Commentary

The market could not have ended the quarter more differently than it began. Specifically, momentum from Q4/17 continued through January with US markets hitting all time highs at an alarming rate. For example, the returns in January alone were almost at the year end targets for some analysts. And then concerns around inflation spiked volatility and caused North American markets to sell off hitting correction territory in February. The first quarter was a difficult one with both the Dow (-1.96%) and S&P/500 (-0.76%) negative, however the Nasdaq (2.6%) managed to stay in the green. The TSX had a terrible quarter being down more than any other developed nation. Taking all this into account we are pleased with how the Jemekk Total Return Fund performed being able to buck the trend and print a positive quarter. We will discuss the reasons for the outperformance below.

Below is an analysis of the Fund and some comparative indices in Q1:

Q1 2018 YTD 2018 Since Inception
Jemekk Total Return Fund 1.00% 1.00% 96.95%
S&P/TSX Composite -4.52% -4.52% 54.80%
S&P 500 (USD return) -0.76% -0.76% 147.71%

*Benchmarks quoted in Total Returns

The only positive sector in the TSX was Technology (led by Shopify) and ex-Health Care, Energy was the largest detractor continuing its weak performance from last year. Energy stocks have performed poorly, and we don’t know when that will end. But we do acknowledge the increasing disconnect between WTI and stock performance and are monitoring this trend closely as we could see a potential upside surprise from this group especially with valuation in its favour. Inflation, which might as well be a four-letter word in this environment, is another indicator we are watching closely. From our analysis we do not see inflation being a material issue for Canadian markets in the short term. Inflation in Canada has been 60 basis points below its US counterpart and although signs point to it grinding higher it’s not expected to be significantly above the 2% threshold. Higher energy prices and minimum wage increases will lift inflation in Canada but at a tepid pace. However, a potential NAFTA breakup would be negative causing inflation to increase at a faster pace.

A recurring theme in our commentaries last year was the complacency in the markets and the lack of volatility. That all came to an abrupt end. Let’s breakdown what happened in each month. January: all three US markets continued their torrid pace from Q4 and made new all time highs notably the Nasdaq being up 7% in January alone. February: the VIX index, which had hovered around 10 in all of 2017, spiked nearly 4- fold shattering the tranquility witnessed last year centered around concerns of inflation which caused the major indexes to lose more than 10% in nine trading sessions. The Dow and S&P/500 entered correction territory for the first time in two years and the 10 year yield hit a four year high. March: Nasdaq rebounds making new all time highs but this doesn’t last as investors now question the valuation and regulatory headwinds of tech stocks and its sustainability to lead the market. The technology sector was overdue for a pullback and we see this as healthy. The group has become an area for people to hide in causing the FANG stocks to be 14% of the S&P/500 alone! Overall the stellar performance of the US indices finally hit a downdraft as investors focused on risks such as inflation, NAFTA and global trade wars. The ongoing debate of Growth vs. Value continues and even more so as the market is searching for new leadership (consensus is Energy and Financials). We wrote in our last commentary the market is due for a correction and that is exactly what happened – albeit at a violent clip. The reversal has made investors recalibrate and understand we are no longer in a low vol environment. There are serious potential risks emerging but beneath the uncertainty over Trump politics on protectionism the economic outlook remains robust and as we are expecting an overall rosy earnings season as companies are set to release Q1 numbers in a few weeks, aided in part by the tax overhaul in the US.

The Fund entered the quarter defensively with a 68% net long exposure and exiting at 66%. We didn’t get caught up with the rapid increase in the markets in January and chase returns. We stayed steadfast and disciplined and pleased to report we outperformed all major indices.

Gains from technology (Adobe and Shopify) and a takeout of Primero Mining (Fund was long the convertible debt) helped the Fund whereas detractors came predominantly from the resource book and marijuana names. The Fund performed as its meant to – capturing some upside and limiting its downside in what we characterize as a highly volatile quarter.

Following our review of the quarter, we would like to introduce you to a new holding as of Q4/17 and a contributor to the Fund’s performance this quarter:

IAC Interactive Corp. (IAC) – Led by Barry Diller, IAC Interactive is a conglomerate with majority stakes in highly sought after assets and from our perspective trading at a puzzling valuation disconnect. Our thesis is a simple one, we are bullish on IAC’s disruptive companies and the play on Millennials (IAC owns 82% of Match Group and 87% of ANGI Homeservices), future monetization events from other assets held such as Vimeo (Video SaaS business) as the management team has a great track record of creating shareholder value and strong focus on capital allocation. IAC is responsible for some notable companiessuch as Expedia and Ticketmaster.

We acknowledge conglomerates should trade at a discount however the valuation gap for IAC is far too wide in our opinion. For instance, at the time of writing the ownership percentage in Match and ANGI alone is 20% above the market capitalization for IAC before even considering all the other assets and $650mm in cash. To us, this simply doesn’t add up. Our own sum of the parts valuation yields a price of around $200 a share, ~30% above where IAC is trading now.

Let’s take a closer look at the primary assets of IAC: (1) Match Group is the largest dating site company with notable assets such as match.com and its flagship app Tinder. We believe that Match’s profitable financial profile and underpenetrated global opportunity along with its highly scalable applications make Match an attractive company; (2) ANGI Homeservices is the leader in the US home services market. An industry that is large and growing. We believe this is a great solution for Millennials as home ownership is increasing with this cohort and ANGI being a digital marketplace connecting homeowners with home service professionals. The home improvement business is a $400b annual industry and we see a shift in marketing spend more online as younger more tech savvy homeowners seek professional help; (2) Vimeo which unfortunately gets lost in IAC’s other video assets is an application with 280mm monthly users that allows video creators to monetize their work. Vimeo gets zero value right now and applying some industry growth rates and multiples its not hard to reach a $1b valuation for this asset.

IAC has a sterling track record of creating shareholder value and we are confident this trend will continue. We have a positive outlook on both Match and ANGI and comfortable owning IAC as a passive investment vehicle in these companies and having a free call option on the remaining assets which could be monetized at a material valuation. Potential catalysts include: a tax-free distribution of the stake in Match, M&A for one of the subsidiaries (i.e. Match buying Bumble) or at the parent level (IAC has $650mm in cash and could also use its balance sheet), or a sale of one its assets bringing in further cash to deploy (i.e. Vimeo). Stay tuned.

Concerns about tariffs, rising rates, inflation and above average valuations have overshadowed good data such as higher corporate earnings and strong global economic growth. The first quarter has taught us several different things, most importantly the fragility of the markets. This year will be much more of a trading environment and stock picking will take center stage as complacency in the markets is no more which results in a tough market for passive investors but bodes well for active managers such as ourselves. We view earnings growth as the single most important factor for equities and view the recent pullback in markets as healthy and see it as a buying opportunity as we head into earnings. That said, the rhetoric around rising rates and inflation are material but we don’t believe will kill the bull market.

We also wanted to announce the 10 year anniversary for the Total Return Fund. We are very proud of the performance we have delivered to our unitholders over the past decade and although the timing of the launch of the Fund wasn’t the most opportune (months before the throes of the financial meltdown) we can proudly say during its tenure the Fund has only experienced one down year (2008) and we remain as committed as ever to generating alpha for our investors

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