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.

Gerard Ferguson on BNN’s Market Call

February 8, 2018

Gerard’s top picks on BNN’s Market Call Tonight- February 8, 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 Q4 2017

Jemekk Long/Short Fund L.P.

Q4 2017 Commentary

The TSX continued its strong momentum from Q3 marking the fourth quarter as the best performing all year. Specifically, the TSX was up an impressive 4.5% in Q4 capping the year off with a 9% return. We are pleased to report the Long/ Short Fund reversed its course from a negative Q3 print with a banner fourth quarter. Specifically, your Fund was up 7.9% for the quarter closing the year up 17%, handily beating its benchmarks. We will discuss the reasons for the outperformance below.

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Jemekk Long/Short Fund L.P.

Q4 2017 Commentary

The TSX continued its strong momentum from Q3 marking the fourth quarter as the best performing all year. Specifically, the TSX was up an impressive 4.5% in Q4 capping the year off with a 9% return. We are pleased to report the Long/ Short Fund reversed its course from a negative Q3 print with a banner fourth quarter. Specifically, your Fund was up 7.9% for the quarter closing the year up 17%, handily beating its benchmarks. We will discuss the reasons for the outperformance below.

Below is a statistical representation of the Fund to comparative benchmarks in Q4:

 

Q3 2017 YTD 2017 Since Inception
Jemekk Long/Short Fund 7.86% 17.05% 215.52%
S&P/TSX Composite 4.45% 9.10% 174.99%
S&P 500 (USD return) 4.69% 2.75% 68.10%

  *Benchmarks quoted in Total Returns

Despite posting a 9% year, the TSX underperformed most major global indices. Further, the TSX was negative until September when such sectors as Materials and Financials posted a strong Q4. In fact almost all 11 sectors were in positive territory in Q4 except Energy. It’s a similar story for year to date performance, the Energy sector was not only a material detractor but also the only one in the TSX. The weakness in Energy was also a common theme for the TSX Small Cap index and although down small in the quarter was the biggest loser for the year dragging down the index by 25%. Large gains from Tech and Industrials were able to offset the Energy losses resulting in the Small Cap index finishing the year up 2.75%. Toronto also welcomed 37 IPO’s in 2017, such as, Freshii, Real Matters, Jamieson Wellness, and Kinder Morgan to name a few. The overall market for new issues was mixed at best in terms of performance but in terms of dollars raised was a blockbuster year and as it stands now the momentum could continue in 2018.

In the US, the fourth quarter continued the torrid pace witnessed all year with the S&P 500 posting a 6.6% Q4. However, what do Korea, Japan, Italy, Germany and France all have in common? They all outperformed US markets! So, why are we mentioning this? Its because the moves in US markets are the most telegraphed and all year we have been reminded how strong US markets have been and the constant record highs they are hitting. But as we just stated, the strength in major indices is not exclusive to the US. We are experiencing a global synchronized recovery that is driving stock markets across the world higher with forward looking economic indicators such as PMI (global PMI for 2017 stood at 54 -> bullish) contributing to earnings upside across global markets. So although it seems the US markets are hitting all time highs in isolation, they are not – global economic growth prospects are improving. And to quell the bears on the quality of market returns in 2017, a greater share of returns came from fundamentals. Said differently, we are now seeing EPS growth push stocks up versus multiple expansion as has been the case in the past couple years.

The Fund entered the quarter 80% net long and remained bullish all quarter peaking at 95%, finishing the year with 87% net exposure. Given our fairly positive view of capital markets, even in the face of above average valuations, we remain confident in our exposure from both a net long and leverage (currently at 1.3x) perspective and would expect to maintain these levels going into 2018. From a Fund performance standpoint, the Q4 outperformance was primarily from a combination of an acquisition of one our names (Napec taken out) and more so from a couple stocks exposed to the burgeoning marijuana industry. From a capital structure viewpoint we chose to play this space in part via convertible debentures as to limit our downside risk. As for performance for the year the pot stocks mentioned contributed along with names highlighted in past commentaries such as Air Canada and Shopify, which was the largest gainer for the Fund in 2017. As for the detractors, the common theme all year was a weak energy tape and names such as Storm Exploration and Seven Generations hindered the portfolio.

Following our review of the quarter, we would like to introduce you to a new holding for the Fund:

Pollard Banknote Limited (PBL) – With a history dating back to 1907, Pollard entered the lottery industry in 1985 and is now the largest provider of instant win scratch tickets in Canada. We have known of the Pollard story for some time now but the large family ownership (70% held by founders) which results in lack of liquidity kept us on the sidelines. It was the INNOVA Gaming acquisition that made us decide to purchase the stock as we see ongoing M&A coupled with additional financings to increase liquidity. INNOVA was a $40mm acquisition that expanded PBL’s geographic footprint and provided the addition of gaming machines and ticket dispensers.

Scratch tickets seem ubiquitous to most but few realize the players behind them. The numbers behind them are astounding. For example, in 2015 PBL printed almost 12 billion instant tickets, 3.5 billion bingo cards and almost 1 billion pull tab tickets. PBL’s business model is straightforward, its generates 90% of its revenue from ticket shipments and the balance from charitable gaming products however with the addition of INNOVA to its portfolio the 90% concentration will go to 80%, another reason we applauded the acquisition.

There are a number of reasons why we like the company. Namely, PBL is a large player in an attractive market. Pollard commands the second largest market share out of the three major players and the contracts by nature are sticky and long dated. Furthermore, the industry has very high barriers to entry so the threat of a new competitor is low. We believe Pollard’s offering is differentiated from its two primary competitors. Specifically, the company has a unique product portfolio which includes larger potential dollar winnings and further enhanced with its LT-3 terminals from the INNOVA acquisition. These differing features keep engagement and loyalty high amongst its players. Along with growing organically we see more M&A to complement the overall growth profile for Pollard. Not only does further M&A reduce concentration risk, these deals could prove to be synergy rich as INNOVA is expected to be. And to fund potential deals it should be noted that PBL is a FCF machine currently yielding 7% and we see this only improving as the revenue base increases, capacity further utilized, and efficiencies achieved which is a testament to the strong management team. We acknowledge there are several risks to the company but we see PBL as a very well run company embarking on new growth initiatives making it a catalyst rich stock conducting business in a stable industry supported by reasonable valuation.

Overall, we are pleased with the performance of the Fund for the year. No one could’ve predicted how strong the markets were but also how little volatility was present. In fact, 2017 saw the fewest 1% daily moves in the S&P 500 since 1964. Late January of 2017 the Dow first crossed the psychological 20k barrier and at the time of writing we just crossed 25k. Although one needs to understand these 1k moves are less material on a percentage basis but nonetheless the market loves seeing these limits broken. So, where could the Canadian economy hit black ice? Risks such as wild swings to FX, newly imposed taxes to small business owners, new minimum wage requirements and the disconnect from commodity prices and underlying securities to name a few. As for the US markets, such risks as the instability in the Trump Administration, constant rhetoric of overpriced markets, inflation and growth faltering could derail the markets. However, we remain constructive on equity markets as stated earlier we are in a global synchronized recovery as central banks are now on the path of interest rate normalization along with positive earnings growth and a tax reform tailwind. That said, we are expecting a correction this year and we will act swiftly to not only protect capital but also seek opportunities that could emerge. We are keeping a close eye on the relationship between Trump, USD, and Yields. Tweets like this from Trump don’t however help: “… Actually, throughout my life, my two greatest assets have been mental stability and being, like, really smart. Crooked Hilary Clinton also played these cards very hard and, as everyone knows, went down in flames. I went from VERY successful businessman, to top T.V. Star…..”

 

Thank you for your continued support and we look forward to reporting to you at the end of the first quarter 2018.

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Total Return Commentary Q4 2017

Jemekk Total Return Fund L.P.

Q4 2017 Commentary

The TSX closed the year on a high note. Gaining half of its 2017 return in the fourth quarter alone printing an impressive 4.45%. Although back half loaded (note the TSX was negative until September) Toronto was up 9% on the year. A very different picture emerged in the US with the S&P 500 further continuing its torrid pace into Q4 up a whopping 6.64% finishing the year up 21.8%. We say different than TSX because of the lack of volatility – 2017 saw the fewest 1% daily moves in the S&P 500 since 1964 and the VIX remains at depressed levels. The Total Return Fund was up a modest 50 basis points for the quarter closing the year up 10.3%. We will discuss below the reasons for the underperformance for the quarter and the outperformance for the year.

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Jemekk Total Return Fund L.P.

Q4 2017 Commentary

The TSX closed the year on a high note. Gaining half of its 2017 return in the fourth quarter alone printing an impressive 4.45%. Although back half loaded (note the TSX was negative until September) Toronto was up 9% on the year. A very different picture emerged in the US with the S&P 500 further continuing its torrid pace into Q4 up a whopping 6.64% finishing the year up 21.8%. We say different than TSX because of the lack of volatility – 2017 saw the fewest 1% daily moves in the S&P 500 since 1964 and the VIX remains at depressed levels. The Total Return Fund was up a modest 50 basis points for the quarter closing the year up 10.3%. We will discuss below the reasons for the underperformance for the quarter and the outperformance for the year.

Below is an analysis of the Fund and some comparative indices in Q4:

Q4 2017 YTD 2017 Since Inception
Jemekk Total Return Fund 0.52% 10.32% 95.00%
S&P/TSX Composite 4.45% 9.10% 62.13%
S&P 500 (USD return) 6.64% 21.83% 149.60%

*Benchmarks quoted in Total Returns

Despite having a strong Q3, the Energy sector was the worst performing sector in Q4 and on an annual basis was not only a material detractor to the TSX but was the only down sector. Sector leaders for the TSX with a meaningful weighting include Consumer Discretionary, Industrials, and Tech. The overall breadth of the market is healthy and further illustrating to global investors Canada is not just a resource based country. Turning to the US markets, the S&P 500 along with the other major indices continued its momentum seen all year long. The leaders in the S&P 500 were Technology, Materials, and Financials whereas the laggards were namely Telecom and similar to Canadian markets, Energy.

Sector rotation has been a talked about event all year but in the fourth quarter we definitely saw this as the tax reform chatter heated up market participants, sold technology for industrials
as the latter group will be a larger beneficiary from tax reform as this group pays more taxes than tech companies generally speaking. The rotation was quick and violent and the Fund was not immune. Adobe, a holding in the Fund, experienced a 6.5% drawdown in one day for example. You don’t usually see a $90 billion dollar market cap company like Adobe down this much unless a company specific event occurs. But this was a correlation to one kind of an event meaning investors were simply hitting the sell button on all tech stocks. The US markets garner the most attention among investors for example all year we have been hearing about the constant record highs the major US indices are hitting. However, it should be noted Japan, Italy, Germany among other global markets all outperformed the US. News like this sometimes receives less attention but we highlight to show the US is not competing in isolation and we are presently witnessing a global concerted recovery that is driving up stocks.

Switching to the Fund, we entered the quarter 75% net long but throughout the quarter we slowly reduced exposure as we saw the likelihood of the tax reform passing in its original proposal as low. We exited Q4 68% net long and are now comfortable increasing exposures yet again. The Fund doesn’t have exposure to the popular marijuana stocks or some of the industrial and financial stocks in the US that performed well in December. That said, we are pleased with the performance of the Fund on an annual basis as we are not ones to chase ‘high-flyers’. The Fund took a hit on its energy book along with Shopify, which we will explain later, in the quarter but on an annual basis Shopify was the largest contributor and from a breadth perspective, aside from Energy, the Fund had gains from every sector. Given the conservative nature of the Fund (averaging 65% net long for the year with no leverage) we are pleased with how the Fund performed.

Our Technology book was by far the largest winning sector all year. Our positive stance on Tech coming into the year and exiting remains the same – bullish. The current move in tech stocks is often labeled euphoric and comparisons are drawn to the late 90’s; we wholeheartedly disagree. The basket of tech stocks held by the Fund is drastically different than the glorified stocks during the tech boom. For example, we own a mix of profitable companies who have demonstrated sustainable business models with high barriers to entry. And most importantly is valuation – the forward PE for technology stocks is ~20x now versus ~45x in 1999. Our tech weighting throughout the year hovered around 20% and our views have not changed and we continue to find compelling ideas in the sector with valuation support. We mentioned earlier Shopify was a laggard in the quarter and we would like to address why and more importantly why our positive view on the company is undeterred. In the first week of October a short report came out on SHOP which sent the stock plummeting and since then the stock has almost gained back all of its losses. We don’t take short reports on our stocks lightly and dug into the short thesis and walked away dismissing the short attack rendering the arguments baseless – the author has been silent ever since.

In our commentaries we like to introduce a new name or theme but given the above we would like to reiterate our commitment to Shopify. We have seen Shopify grow from a relatively unknown Canadian company to a global e-commerce solution on its way to becoming the de-facto location to set up an online business. The execution of the platform in 2017 was nothing short of extraordinary and as such the stock was up 120% in the year and we don’t see the powerful growth and market share increase slowing down anytime soon. Shopify had some key milestones in 2017 but namely surpassing 500k merchants and achieving profitability in Q3 rank the highest. Why are we still so bullish on SHOP despite its massive run? We believe the company is still in early innings of dominating the e-commerce industry and SHOP has now not only become the market leader but only scratched the surface for its total addressable market. Building an end-to-end platform rivaled by no one else allowing for businesses to have an online presence faster and run more efficiently. Most importantly, a marquee management team known for innovation and building an ecosystem that truly is a win/win scenario – i.e. Shopify Capital a financing solution in which SHOP extends working capital only after internal vetting to ensure payback thereby helping small business owners grow their inventory. We recognize SHOP has risks like every other company but when the primary risk people point to is valuation, we believe there is much more to it than simply valuation.

Looking into 2018, we anticipate further improvement in the economic backdrop for global growth and finally some inflation to set in. The improving macro picture and an expectation that monetary policy will remain reactive to market volatility should drive stocks higher. Despite the political rhetoric, there are a lot of positive events occurring, such as nearly all global manufacturing PMI’s are expanding and EPS expectations are double digits for the next two years (12.5% for 2018 and 10% for 2019). We see a mix of themes driving stock returns (not just tech) providing more opportunities for active managers to capture alpha. If we solely focus on the fundamentals of the market and ignore the outside noise, stocks should continue its upward trajectory albeit at a slower pace than we saw in 2017. Although we remain constructive on overall market dynamics we do acknowledge there could be some ‘too much too soon’ returns on certain sectors and prepared to see a correction in 2018. When this occurs, we will act fast and accordingly and from our experience we know several money making ideas will present themselves. We are keeping a close eye on the relationship between Trump, USD, and Yields. Tweets like this from Trump don’t however help: “The Stock Market has been creating tremendous benefits for our country in the form of not only Record Setting Stock Prices, but present and future Jobs, Jobs, Jobs. Seven TRILLION dollars of value created since our big election win!”

Thank you for your continued support and we look forward to reporting to you at the end of the first quarter 2018.

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