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 J2 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 7, 2017

Gerard’s top picks on BNN’s Market Call Tonight

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WHY US?

J2 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 Team

J2 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

Gerard Ferguson

Founder, Portfolio Manager

Gerard founded Jemekk Capital Management in 2004 by launching the Jemekk Long/Short Fund, which he still co-manages—under J2 Capital Management—to this day. Before setting out on his own, Gerard was a portfolio manager and VP with AGF.

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Rick Ummat

Rick Ummat

Founder, Portfolio Manager

Rick Ummat joined Gerard Ferguson at Jemekk Capital Management in 2008 as an Analyst. As a co-founder of J2 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 2016

“Given the recent rally, valuations remain stretched as the market anticipates the return to growth as Trump ‘makes America great again’.”

Q4 2016 will go down as one of the most surprising in the long list of macro driven quarters that have impacted the markets over the past several years.  In the face of a completely unexpected US presidential result coupled with an “expected” Fed rate hike, we were extremely surprised and hence not positioned properly, to see the markets exhibit the strength that they did in Q4 (S&P/TSX +4.5%, S&P/TSX Small Cap +3.1%).  As a result, after posting strong quarters in the previous two periods we were disappointed the Long/Short Fund declined 1.75% in the quarter, most of which was post the election results, which we will investigate further below.
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Q4 2016 will go down as one of the most surprising in the long list of macro driven quarters that have impacted the markets over the past several years.  In the face of a completely unexpected US presidential result coupled with an “expected” Fed rate hike, we were extremely surprised and hence not positioned properly, to see the markets exhibit the strength that they did in Q4 (S&P/TSX +4.5%, S&P/TSX Small Cap +3.1%).  As a result, after posting strong quarters in the previous two periods we were disappointed the Long/Short Fund declined 1.75% in the quarter, most of which was post the election results, which we will investigate further below.

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

Q4 2016 YTD 2016 Since Inception
Jemekk Long/Short Fund -1.75% 12.69% 169.57%
S&P/TSX Composite 4.54% 21.08% 152.06%
S&P/TSX Small Cap Ind. 3.12% 38.48% 63.60%

*Benchmarks quoted in Total Returns

In a market dominated by macro forces, Q4 provided perhaps the most surprising events yet with the US presidential election.  Americans, faced with the choice between Hilary and Trump, voted for change, radical as it may be, by electing the Republicans back into the White House.  Without pontificating on why Trump triumphed we, like most, were surprised by the results.  Heading into the election we had positioned the Fund conservatively and had sought out safety assets in the unlikely probability that the Republicans under Trump would prevail.  To quote from our Q3 commentary:

Expectations are that a Democrat win (Clinton) will result in a status quo with respect to markets, Fed activity and global relations.  However, a Republican victory (Trump) is expected to result in global uncertainty, a rally in safety assets (Gold) and a market correction… “

In fact, as the election neared, we did reduce our market longs and built up a sizeable gold position to prepare for the unexpected and felt we were properly positioned for the Republican sweep.  In retrospect, at least in the short term, that positioning has been wrong (or early) and we did not anticipate nor participate in the euphoric rally that ensued.  The expected global uncertainty and shift to safety assets has been overshadowed by the impacts on economic growth the Trump agenda are felt to deliver.  Admittedly the intentions to slash taxes and create jobs will have a positive impact on growth and earnings for many US based companies in the short term which has resulted in the rally to date.  As the Dow toys with 20,000 and many Canadian companies have had powerful moves recently we expect the euphoria to continue into Q1, but are closely watching global developments for signals to re-establish caution.

Today the Fund is running towards the high end of its typical net long exposure (92% long up from 65% pre-election) as many hedges were not replaced as they rolled off in the quarter.  Leverage is normal to slightly elevated (1.35x) although we would expect both metrics to fall as 2017 begins and focus increases on fundamentals and a return to “stock picking”.   Along this vein, below we highlight a sector that impacted the quarter and a new name to the Fund to keep an eye on going forward:

Precious Metals – A sector worth mentioning, that had been a decent contributor in the previous quarters, was the precious metals sector.  Pre-election we had built up a sizeable weight in the sector (high teens) mostly through specific names and options which initially had a strong rally (overnight) following the results.  However the rally quickly faded and the group had a significant sell-off in the days and weeks post November 8th as investors quickly focused on the economic growth policies of the incoming government and the resulting effects on interest rates (and hence the US dollar), both of which were negative for the group.  The Fed hike in December, although completely expected, didn’t help the group either and in fact provided a further leg down when Yellen signaled the intention to hike rates more aggressively than expected.  In the face of this activity we did in fact reduce our exposure to the group (currently single digits) but have not walked away entirely, instead focusing on emerging producers and explorers that will exhibit catalysts in 2017.  Eventually attention will shift to the inflationary aspects of the Trump agenda and the unquestionable global uncertainty many of his protectionist policies will create.  As such we are reluctant to abandon the group and in fact view it as a natural hedge as the government transitions in Q1.

Greenspace Brands Inc. (JTR) – A new name in the Fund this year, GreenSpace Brands is a company that focuses on developing, acquiring, and marketing natural food and beverage products in North America.  Food related companies are not new to the Fund (we are long Premium Brands Holdings and Maple Leaf Foods) however what we find unique about GSB is the natural food focus specifically grass-fed pasture-raised meat and dairy markets and the children’s organic food market.  We believe healthy eating is a theme with sustainable long term growth trends (Natural Foods industry expected to grow 14% annually until 2018).  Why do we own GreenSpace?:

  • ‘Healthy’ M&A Pipeline – GSB has proven to be a successful acquirer of natural food companies and smaller companies that lack the knowledge of achieving the next level of growth. That’s where GSB comes in; they have the platform and channel partners (relationships with Loblaws, Walmart, and Starbucks to name a few) to help smaller co’s compete against more established ones. Said differently, GSB is the solution for companies who struggle for shelf space and have limited access to capital. The market remains highly fragmented and we see GSB being a leader in consolidation.
  • Growth and Valuation – The North American natural food and beverage industry generates more than $43 billion in sales with the Canadian market more than tripling since 2006 alone. Within Canada’s domestic natural food market, approx. 48% of sales are from produce, 48% from food and beverage, and the balance in niche categories such as pet food and personal care (note, GSB has exposure to most of these markets). GSB currently trades at 1.4x EV/Sales with peers trading close to 2x, without the growth profile GSB has.
  • Diversified Product Portfolio – GSB is not overly exposed to any one market so there is no concentration risk. Specifically, GSB has the following products: organic meats (Life Choices), non-GMO all natural macaroni and cheese (Nudge), grass fed dairy products (Rolling Meadow), all natural pet food (Holistic Choice), 100% organic foods for infants and toddlers (Love Child), premium on the go snacks (Central Roast) and most recently acquired an organic juice company (Kiju Organic).

We look forward to seeing this small-cap high growth company continue to consolidate the industry, grow its brand offering and drive further profitability as scale economies are achieved.  That said, we are mindful there is a lot of execution risk and will closely monitor the position.

As 2017 begins we re-assess our positioning and exposures both from a macro and a bottom up stock picking perspective.  First to the macro.  Given the recent rally (really since mid Q1 2016) valuations remain stretched as the market anticipates the return to growth as Trump “makes America great again”.  Given we do see many of his intended policies as being pro earnings growth we are willing to overlook the high teens multiples, at least in the short term.  Rising interest rates, if they do in fact continue in 2017, is probably of more concern as multiples should contract as yields climb.  However, as we are coming off such extremely low levels for rates, this too is not cause for great concern, at least not yet.  What does concern us however is the rising tension globally, whether it be between the US and China, the US and Russia, or the US and most other countries.  Layer in election uncertainty in Europe and ongoing tensions in the Middle East we feel it is necessary to remain exposed to more liquid (ie larger) names as events play out.  Hence, we expect to reduce exposures somewhat in Q1 2017, although they will remain towards the high end of our typical ranges.  From a stock picking perspective, we continue to uncover opportunities both from the long and short side of the ledger.  Last quarter we highlighted a new name, Mettrum Health, a cannabis producer that has since been the target of a takeout offer by one of the other leaders in the industry.  Although we didn’t establish the position (and have since exited) merely for the takeout opportunity, we did highlight this potential.  We continue to scour the marketplace for similar ideas, in all sectors, and look forward to reporting on new names like GreenSpace discussed above.

Lastly, we would like to report on the Fund’s transition from Front Street Capital to J2 Capital, which was completed in Q4.  The move is now complete and from our perspective was extremely smooth.  We have talked to many unitholders and feel that there was little or no impact from a client perspective and we have begun the process of re-establishing growth at J2 Capital with the addition of new bodies and further infrastructure.  We look forward to reporting on this as the year unfolds.

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Total Return Commentary Q4 2016

“Given this uncertain backdrop, stock picking and liquidity should remain at a premium.”

Capital markets wrapped up an eventful year on a strong note in Q4 2016 (S&P 500 +3.8%, S&P/TSX +4.5%) continuing the powerful recovery experienced since mid-first quarter when many participants felt the beginning of rate hikes was signaling the end of the bull market.   Clearly the highlight and the most surprising event in the quarter was the presidential election not only for the result (Trump victory) but for the market reaction to this change in control.  Although we were by no means the only participant to be surprised by the strong market reaction, we were disappointed the Fund (-2.1%) did not benefit as we felt we were positioned for the uncertainty of a Trump victory in the quarter.  Although we do not want to be swayed by short term reactions, clearly the environment for capital markets environment has changed post November 8th, which we discuss in some detail below.
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Capital markets wrapped up an eventful year on a strong note in Q4 2016 (S&P 500 +3.8%, S&P/TSX +4.5%) continuing the powerful recovery experienced since mid-first quarter when many participants felt the beginning of rate hikes was signaling the end of the bull market.   Clearly the highlight and the most surprising event in the quarter was the presidential election not only for the result (Trump victory) but for the market reaction to this change in control.  Although we were by no means the only participant to be surprised by the strong market reaction, we were disappointed the Fund (-2.1%) did not benefit as we felt we were positioned for the uncertainty of a Trump victory in the quarter.  Although we do not want to be swayed by short term reactions, clearly the environment for capital markets environment has changed post November 8th, which we discuss in some detail below.

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

Q4 2016 YTD 2016 Since Inception
Jemekk Total Return Fund -2.13% 7.63% 76.76%
S&P/TSX Composite 4.54% 21.08% 48.61%
S&P 500 (USD return) 3.82% 11.96% 104.88%

*Benchmarks quoted in Total Returns

The two events that determined the direction of the markets the past quarter were the U.S. election and the Fed’s intentions with respect to rising interest rates.  First Americans, faced with the choice between Hilary and Trump, voted for change, radical as it may be, by Donald Trump to the presidency.  Without pontificating on why Trump triumphed we, like most, were surprised by the results.  Heading into the election we had positioned the Fund conservatively and had sought out safety assets in the unlikely event that the Republicans under Trump would prevail.  In fact, as the election neared, we reduced our longs and built up a sizeable gold position to hedge against the unexpected and felt we were properly positioned for the Republican sweep.  In retrospect, at least in the short term, that positioning has been wrong (or early) and we did not anticipate nor participate in the euphoric rally that ensued.  The expected global uncertainty and shift to safety assets has been overshadowed by the impacts on economic growth the Trump agenda are felt to deliver.  Admittedly the intentions to slash taxes and create jobs will have a positive impact on growth and earnings for many US based companies in the short term which has resulted in the rally to date.  In addition to the surprise the election dealt, after raising rates in December (expected) the Fed signaled a more aggressive path to rate hikes in 2017 than we anticipated which further fueled the sell off in our safety assets (golds) before finding a bottom into year end.   Surprisingly the view of the Fed didn’t disrupt the market rally as it had the previous year, but rather fueled markets higher on the view that the Fed sees a quicker recovery than most market participants.

With respect to the Jemekk Total Return Fund, we entered the third quarter at the higher end of our normal ranges (80% net long with some leverage) but had begun to aggressively reduce exposures as we approached the election (below 70%).  Post the election we initially stuck with our precious metals overweight (Franco, Silver Wheaton etc.) as we expected a flight to safety (gold) and a negative market reaction.  In retrospect that caution was unwarranted and thus we were not positioned properly for the unbridled enthusiasm that ensued.  As the quarter ended and 2017 begins we find exposure levels creeping higher (80% net long again) as hedges rolled off in December and have not yet been re-established.  We would expect our exposures to fall again as Q1 rolls on and we weigh the benefits of the pro-growth Trump agenda against the global uncertainty many of his protectionist and inflationary policies will result in.  Given this uncertain backdrop, stock picking and liquidity should remain at a premium.  Below we explore a sector that impacted the quarter and a new name that we expect to contribute to the Fund in the year ahead: 

Precious Metals – A sector worth mentioning, that had been a decent contributor in the previous quarters, was the precious metals sector.  Pre-election we had built up a sizeable weight in the sector (high teens) mostly through specific names and options which initially had a strong rally (overnight) following the results.  However, the rally quickly faded and the group had a significant sell-off in the days and weeks post November 8th as investors quickly focused on the economic growth policies of the incoming government and the resulting effects on interest rates (and hence the US dollar), both of which were negative for the group.  The Fed hike in December, although completely expected, didn’t help the group either and in fact provided a further leg down when Yellen signaled the intention to hike rates more aggressively than expected.  In the face of this activity we did in fact reduce our exposure to the group (currently single digits) but have not walked away entirely, instead focusing on emerging producers and explorers that will exhibit catalysts in 2017.  Eventually attention will shift to the inflationary aspects of the Trump agenda and the unquestionable global uncertainty many of his protectionist policies will create.  As such we are reluctant to abandon the group and in fact view it as a natural hedge as the government transitions in Q1.

Waste Connections Inc. (WCN) – The third largest solid waste company in North America, Waste Connections is the result of the merger between Waste Connections and Progressive Waste Solutions (BIN).  The waste industry in North America generates ~$70b in revenue annually with waste volumes expected to grind higher based on three key macroeconomic trends: (1) housing starts to tick higher; (2) increase in business formation; (3) uptrend in retail sales.  However not all waste companies are created equal.  Compared to its primary competitors (Republic Services and Waste Management) we believe WCN will outperform because of its focus on less competitive exclusive markets gives it a better margin profile, overall returns, and pricing and volume growth.  Why do we own the stock?:

  • Robust M&A Pipeline – Despite still digesting the transformative BIN merger, there are still several deals that could be completed that would have a positive impact on WCN’s fundamentals. WCN has the balance sheet and the management team to be the leader in waste consolidation. To start off 2017 WCN announced the acquisition of Groot Industries. Groot is a $200mm revenue company and should add approx. $1.50 in incremental equity per share for WCN. We see several more of these bolt on acquisitions going forward.
  • Deal Synergies – We see upside to the synergy guidance from management for the BIN acquisition. Specifically, we see the lift coming from volume acceleration, price increases have been implemented and evidence of operational improvements, which is a testament to the superior management team at WCN.
  • Quality – WCN has best in class metrics be it organic growth, free cash flow conversion (from 2011-2015 WCN had FCF conversion from EBITDA of ~50% versus its comps of low 30%), and overall margins. Management team is second to none in terms of capital allocation. If the deal pipeline is not as attractive as once thought, FCF will go towards buying back shares, de-levering, and/or increasing the dividend.

We view WCN as a unique core holding for the Fund.  Rarely do we find a stock that offers, quality metrics, growth, and a warranted valuation.  Meaning, although WCN trades at a 10% premium to its peers, we believe it should trade higher because of the aforementioned and on a longer term basis WCN should be valued on P/FCF (due to its high FCF conversion) than traditional metrics such as EV/EBITDA and when valued on a FCF basis WCN trades at a discount to its peers.

As 2017 begins we re-assess our positioning and exposures both from a macro and a bottom up stock picking perspective.  First to the macro.  Given the recent rally (really since mid Q1 2016) valuations remain stretched as the market anticipates the return to growth as Trump “makes America great again”.  Given we do see many of his intended policies as being pro earnings growth we are willing to overlook the high teens multiples, at least in the short term.  Rising interest rates, if they do in fact continue in 2017, is probably of more concern as multiples should contract as yields climb.  However, as we are coming off such extremely low levels for rates, this too is not cause for great concern, at least not yet.  What does concern us however is the rising tension globally, whether it be between the US and China, the US and Russia, or the US and most other countries.  Layer in election uncertainty in Europe and ongoing tensions in the Middle East we feel it is necessary to remain exposed to more liquid (ie larger) names as events play out.  Hence, we expect to reduce exposures somewhat in Q1 2017, both through reducing some of our long names, but also by establishing new short positions and adding hedging exposure via options.  As inauguration day approaches we think it is paramount to remain small and nimble and expect the Fund to shift quickly as events unfold.

Lastly, we would like to report on the Fund’s transition from Front Street to J2 Capital, which was completed in Q4.  The move is now complete and from our perspective was extremely smooth.  We have talked to many unitholders and feel that there was little or no impact from a client perspective and we have begun the process of re-establishing growth at J2 Capital with the addition of new bodies and further infrastructure.  We look forward to reporting on this as the year unfolds.

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