MONTHLY LETTER DECEMBER 2016

August was characterized by the return of the ugly nancial sector and the (rela ve) demise of the beau- ful defensive sectors. We have not witnessed many months this year where we have seen bank and insurance among the top performing sectors, with health care and staples among the worst. The funda- mental explana on is that the market saw an increased probability for a FED rate hike in September. The probability of a 25bps rate hike went from 18% to 34%. Higher interest rates would be very bene cial to the nancial industry whereas the more defensive sectors would see a compression of their yield spread (i.e. the di erence between their free cash ow yield and borrowing cost).

Madrague had another good month in August, +3.13% which brings the year to date gure to +9.02%.

Sectors of note in August:

Business Services: +1.2%. We saw yet another month of outstanding performance in Business Services. We have men oned Nobina, the Swedish bus operator, in previous monthly le ers. The stock performed really well yet again in August. We believe that the company con nues to be in the middle of a rera ng phase combined with improving earnings. Another good contributor was DSV, the Danish logis cs com- pany, which reported very good results for their second quarter 2016. Opera onally, they con nued to deliver and on top of that the integra on of UTi is going faster than expected. As with Nobina we con n- ue to hold the posi on.

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