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

April 4, 2017

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

Watch The Video

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.

Get in touch

Long/Short Commentary Q1 2017

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

It was a dramatic difference from how this quarter began versus last year.  Recall, in January of 2016 the TSX was down 6.73% compared to this year finishing up 0.85% as the markets continued to rally in part by Trump’s proposed policy changes.  We are pleased how the Fund performed versus its benchmarks.  For the quarter the Long/Short Fund posted a solid +5.52% return handily beating the S&P/TSX (+2.41%) and the TSX Small Cap Index (+1.47%).  Outperformance for the Fund was primarily driven by our Technology, Consumer Non-Cyclical, and Industrial weightings which we will discuss more in detail further.
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It was a dramatic difference from how this quarter began versus last year.  Recall, in January of 2016 the TSX was down 6.73% compared to this year finishing up 0.85% as the markets continued to rally in part by Trump’s proposed policy changes.  We are pleased how the Fund performed versus its benchmarks.  For the quarter the Long/Short Fund posted a solid +5.52% return handily beating the S&P/TSX (+2.41%) and the TSX Small Cap Index (+1.47%).  Outperformance for the Fund was primarily driven by our Technology, Consumer Non-Cyclical, and Industrial weightings which we will discuss more in detail further.

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

Q1 2017 YTD 2017 Since Inception
Jemekk Long/Short Fund 5.52% 5.52% 184.44%
S&P/TSX Composite 2.41% 2.41% 158.15%
S&P/TSX Small Cap Ind. 1.47% 1.47% 66.00%

*Benchmarks quoted in Total Returns

The markets continued to show strength in Q1 picking up where Q4 ended.  The TSX was positive for each month in the quarter led by gains from the Technology, Materials, and Consumer Discretionary sectors and the underperformance for the index was almost entirely from the Energy side.  WTI was down nearly 6% for the quarter caused by a combination of negative build numbers, further uncertainty of OPEC production plans and increasing crude inventories in the US.  The Small Cap Index continues to underperform as investors bid up more liquid and established companies.

From a macroeconomic standpoint, we agree there is a lot to be worried about.  For instance, the US markets are hitting new all-time highs and we are in year 8 of a bull market and market experts are the first to point out the average bull market lasts on average 9 years.  The PE ratio for the S&P 500 is above its average range suggesting the market is overvalued.  The Fed announced its first rate hike of the year (we are expecting two more) which directionally is negative for equities.  Shifting to political factors, the agenda for the Trump administration remains uncertain.  There are pockets of the market that will be affected materially if some of Trump’s polices come to fruition.  One example is the ‘Border Tax Adjustment’, that will significantly hinder companies that rely heavily on importing.  But not all of Trump’s polices read negative.  One such policy is to reduce corporate taxes which will result is a massive windfall for American companies.  However, now execution is in question given the recent failure of the healthcare repeal from the Trump administration.

The Fund started the year at 92% net long and stayed as such exiting the quarter at 95% net long.  This number will be taken down as we layer on new hedges that were rolled off at quarter end.  You might be asking why are we at the high end of our historical range for exposure given the negative backdrop highlighted above?  Well, not all is negative in the markets and definitely not all sectors.  There have definitely been some recent policy setbacks but we believe tax reform and deregulation are in the works which will benefit select areas of the market.  Overall, we are still constructive on the market as earnings have improved and both the M&A and IPO space remain active.  We also believe there is a paradigm shift occurring in the market from passive to active management and we are working diligently to unearth great opportunities.  Events in the quarter that led to the outperformance are as follows:  we had two stocks that got taken out (RDM Corp. and Halogen Software Inc.); we had gains from a breadth of sectors namely Technology (Shopify), Consumer Non-Cyclical (GreenSpace Brands), Industrials (New Flyer Industries), and Precious Metals (Junior Gold stocks).  Energy on the other hand was a drag on the Fund with losses from names such as Spartan Energy and Seven Generations.  Below we highlight a new name for the Fund:

Cargojet Inc. (CJT) – A new addition to the Fund this year, Cargojet is the dominant provider of overnight air cargo in Canada but also provides services globally.  With a fleet of 21 aircrafts, Cargojet operates in three segments: (1) Core Domestic Overnight (~83% revenues); (2) Aircraft, Crew, Maintenance and Insurance (~12% revenues); and (3) Charter (~5% revenues).  Following we lay out our investment thesis:

  • Strong Free Cash Flow Generator – Cargojet’s capital expenditures stepped up materially upon winning the Canada Post Contract including start-up costs launching the transformational initiative (CPC was a game changer deal won in 2017 by CJT with an estimated value of $1b over 7 years). With these one time costs behind them, mgmt. can now focus on overall company optimization and see FCF improving significantly in the near term.  Specifically, we expect mgmt. to prioritize its FCF towards dividend growth as the current yield is only 1.65% (on March 20th the company surprised the street by increasing the dividend by 10% another signal of the strength in FCF) and de-levering.  The company currently has a FCF yield of approximately 11%.

 

  • Barriers to Entry – Cargojet is one of the rare companies we have come across with a natural monopoly commanding a 90% market share in domestic overnight cargo. Canada’s unique geography being vast and sparse has created an opportunity for CJT and the company as such moved quick and has established first mover advantage.  We believe the competitive moat for CJT runs deep given its customer base, network advantage, and large fleet size.  CJT holds key contracts such as UPS, CPC, and TransForce – it would be next to impossible for a competitor to replicate their model.  CJT also services its customers extremely well, to date, CJT has never lost a contract.

 

  • E-Commerce Tailwind – Cargojet is also experiencing an uptick in business from the proliferation of online shopping. E-commerce is still only 10% of total US retail and this figure is lower on a global basis however these numbers are expected to grow as we are witnessing a secular shift to online shopping which bodes well for CJT.  Canada Post states that “Eight out of 10 Canadians shop online and they’re buying more items more often each year.  Canada Post delivers two of every three parcels they order.”  The ‘Amazon Effect’ is no secret and without argument disrupting brick and mortar.  Cargojet stands to benefit two ways: (1) CJT is the primary cargo provider for all the majors such as UPS, Purolator, and FedEx; and (2) Amazon has an exclusive agreement with CJT making AMZN one of CJT’s top 10 customers.

 

We look forward to seeing this small-cap company continue to expand into new geographies as well as consolidating its current markets.  This industry is still growing and after a recent meeting with mgmt. we learned capacity and asset utilization has ample room to foster this growth.

As we enter the second quarter of the year we are mindful of the material risks in the market (namely on the political front) but we also see key economic indicators signaling further strength in the economy.  Consumer spending increasing and overall consumption ticking higher.  Consumer confidence remains high and we are fast approaching earnings season which we are optimistic on.  One thing we found interesting was the market continued to rally into the new year despite weak performance of the ‘Trump Stocks’, those benefitting most from the proposed tax reform and ‘America First’ agenda.  This confirms our belief that active management is as important as ever and we as stewards of your capital are tasked with finding the best opportunities to capture alpha.

We would like to take this opportunity to share some corporate developments with you since our re-org last year.  We are pleased to add new members Peter O’Connell, Scott MacNicol and Chris Hercus to our team.  Peter joins us from the sell side of the street in various roles with 20+ years in the investment industry building relationships with institutional and retail clients.  As Managing Director Pete will be running sales for us and should significantly improve our ability to service our partners.  Scott joined the team in early 2017 as a Senior Advisor to the group bringing with him decades of sell side experience, most recently as Head Trader at TD Bank following their acquisition of Newcrest Capital.  And finally, Chris joins us as a Trading Associate from Front Street Capital and will significantly help us scale, both from a trading perspective and as importantly, in operations.

Lastly, we would like to share with you our decision to return to our roots by rebranding as Jemekk Capital Management again.  Our partners know us as Jemekk, our Funds continued to be called Jemekk and our history as Jemekk that spans back to 2004 is something we want to embrace.  Although this will take little effort from your perspective it is something we are anxious to get moving on to minimize any brand confusion created by adopting the J2 moniker.  Look for further updates from us with respect to this fairly seamless change.

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Total Return Commentary Q1 2017

We were pleased to see how this year began versus last year.  January 2016 was one of the worst starts to a year recorded posting a 6.73% loss for the TSX and almost 5% for the S&P/500.  2017 saw a much more benign start with major indices all recording gains in each month of the […]

We were pleased to see how this year began versus last year.  January 2016 was one of the worst starts to a year recorded posting a 6.73% loss for the TSX and almost 5% for the S&P/500.  2017 saw a much more benign start with major indices all recording gains in each month of the quarter continuing the rally we have experienced since Trump was elected.  We are proud to report the Total Return Fund was up 4.81% for the quarter doubling the TSX (+2.41%) but could not keep pace with the very strong performance of the S&P/500, which was up over 6%.  Outperformance for the Fund was primarily driven by our Technology, Consumer Non-Cyclical, and Industrial weightings which we will discuss more in detail further.
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We were pleased to see how this year began versus last year.  January 2016 was one of the worst starts to a year recorded posting a 6.73% loss for the TSX and almost 5% for the S&P/500.  2017 saw a much more benign start with major indices all recording gains in each month of the quarter continuing the rally we have experienced since Trump was elected.  We are proud to report the Total Return Fund was up 4.81% for the quarter doubling the TSX (+2.41%) but could not keep pace with the very strong performance of the S&P/500, which was up over 6%.  Outperformance for the Fund was primarily driven by our Technology, Consumer Non-Cyclical, and Industrial weightings which we will discuss more in detail further.

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

Q1 2017 YTD 2017 Since Inception
Jemekk Total Return Fund 4.81% 4.81% 85.26%
S&P/TSX Composite 2.41% 2.41% 52.20%
S&P 500 (USD return) 6.07% 6.07% 117.30%

*Benchmarks quoted in Total Returns

Broad based markets continued to show strength in Q1 picking up where Q4/16 ended.  The TSX was positive for each month in the quarter led by gains from the Technology, Materials, and Consumer Discretionary sectors and the underperformance for the index was almost entirely from the Energy side.  WTI was down nearly 6% for the quarter caused by a combination of negative build numbers, further uncertainty of OPEC production plans and increasing crude inventories in the US.  Toronto IPO market was active as well, welcoming both Freshii Inc. (quick serve restaurant focusing on ready-made salads) and Canada Goose (apparel company focusing on winter outerwear).  Both deals were oversubscribed signaling the strength in Canadian capital markets (note we did not play either deal).  The S&P 500 posted an impressive quarter however not from the same sectors that rallied on the back of the ‘Trump Trade.’  Stocks that will benefit from tax reform and domestic focus immediately outperformed following the election but have lagged year to date – financials however, have been the standout winner.

The significant tax cuts proposed by the Trump administration should act as a tailwind for corporations and as a boost for individuals’ disposable income and consumption.  However, so far this is all a proposal and the recent health care repeal failure from the Trump administration questions execution from the Republicans.  Turning to markets we agree there is a lot to be worried about as well.  For instance, the US markets are hitting new all-time highs and we are in year 8 of a bull market and market experts are the first to point out the average bull market lasts on average 9 years.  The PE ratio for the S&P 500 is above its average range suggesting the market is overvalued.  The Fed announced its first rate hike of the year this quarter (we are expecting two more) which directionally is negative for equities.  We believe active management is becoming more prevalent and simply chasing hot sectors is and never has been in our purview.  We aim to find the best risk/reward opportunities and produce alpha for our clients.  For example, when certain ‘Trump Stocks’ began to run we stayed clear as we saw the market pricing in too much too fast (these hot names have now lagged the market year to date).  We attempt to find value in stocks the market has not fully accounted for, as such, our Financials exposure is 6% whereas its 34% for the TSX.

While it changed throughout the quarter, net long remained flat at 80% for the Fund.  We are comfortable with this exposure but this number will be taken down as we layer on new hedges that were rolled off at quarter end.  Events in the quarter that led to the outperformance are as follows: we had gains from a breadth of sectors namely Technology (Facebook), Consumer Non-Cyclical (Premium Brands), Industrials (Uni-Select) and Precious Metals (Barrick Gold).  Energy on the other hand was a drag on the Fund with losses from names such as Spartan Energy and Seven Generations.  Below we highlight a new name for the Fund:

 Adobe Systems Inc. (ADBE) – Not just a pdf company, Adobe is a developer and marketer of computer software applications.  The company operates in two primary segments, Digital Media (Creative Applications) and Digital Marketing (Cloud Based Applications).  The de facto web based publishing company, Adobe is widely known by its household products such as Acrobat, Photoshop, and Flash.  Why own Adobe now?

  • ‘GARP’ Name – The company recently reported (3/16th) and posted a strong quarter (beat driven by outperformance internationally, increase in conversion to subscription pricing increasing ARPU) and thus we view ADBE is a Growth at Reasonable Price stock. ADBE is not ‘cheap’ on stand-alone metrics (~20x 2018 EV/OCF) but we see the company delivering in the mid-20 range on operating income, EPS and operating cash flow.  And we believe investors will chase subscription software vendors that can deliver on growth and increasing cash flows.

 

  • Adobe Summit – The company post quarter hosted its largest Digital Marketing Conference ever, with over 12,000 attendees, including 1,000 of its global partners. There were several key announcements that further excited investors.  Along with announcing product extensions, heightened integration, entry into new markets (Adobe Sensei, the company’s Artificial Intelligence and Machine Learning offering), ADBE also announced its deepening relationship with Microsoft.  Highlights include, integration between Adobe Marketing Cloud and Microsoft Dynamics, as well as Microsoft Azure hosting Adobe Experience Manager but most notably our read through is Microsoft is stepping away and clearing a path for ADBE to be the leader in cloud marketing.  We speculate the renewed partnership between ADBE and MSFT benefits both parties and builds a more competitive moat while taking a shot at Salesforce.

 Adobe has a leading position in content management/creation and analytics that provides customers with an end to end solution in web publishing.  The full product offering from Adobe is the most robust it has ever been and we believe ADBE can continue to grow ARPU and steal share from competitors.  New growth vectors such as video marketing (Adobe made a splash into this lucrative market with the acquisition of TubeMogul in December 2016) and Artificial Intelligence add to our excitement for the future of Adobe.

As Q2 begins we are faced with how best to position the Fund for the balance of the year.  We are mindful of the underlying risks in the market and identify both macro and fundamental issues.  That said, we remain constructive on pockets of the market again reiterating our push for the importance of active management and in the event of market turmoil our hedges will come into play and the nature of your Fund allows for quick exit.  We also wanted to highlight the Fund anniversary, Total Return turns 9 years old in and has only printed one negative year since inception.  A stat we are proud of and strive to continue.

We would like to take this opportunity to share some corporate developments with you since our re-org last year.  We are pleased to add new members Peter O’Connell, Scott MacNicol and Chris Hercus to our team.  Peter joins us from the sell side of the street in various roles with 20+ years in the investment industry building relationships with institutional and retail clients.  As Managing Director Pete will be running sales for us and should significantly improve our ability to service our partners.  Scott joined the team in early 2017 as a Senior Advisor to the group bringing with him decades of sell side experience, most recently as Head Trader at TD Bank following their acquisition of Newcrest Capital.  And finally, Chris joins us as a Trading Associate from Front Street Capital and will significantly help us scale, both from a trading perspective and as importantly, in operations.

Lastly, we would like to share with you our decision to return to our roots by rebranding as Jemekk Capital Management again.  Our partners know us as Jemekk, our Funds continued to be called Jemekk and our history as Jemekk that spans back to 2004 is something we want to embrace.  Although this will take little effort from your perspective it is something we are anxious to get moving on to minimize any brand confusion created by adopting the J2 moniker.  Look for further updates from us with respect to this fairly seamless change.

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