Bristol Gate Capital Partners Inc.
45 St Clair Avenue West Suite 601
Toronto, Ontario M4V 1K9

Investment Commentary December 2014

Dear Investors,

The past year has been one of achievement at Bristol Gate.

The US Equity Fund performed well in 2014, again besting the S&P 500 Total Return Index. The companies we own increased their dividends in 2014 by nearly 27% over 2013 levels, above our historical average of 18%, and continued to buy back substantial amounts of stock. Balance sheet metrics remain strong. Our assets under management grew from $56mm CAD dollars in assets at year-end 2013 to $240mm CAD dollars at December 31, 2014.

We hired two new sales professionals, Mike Capombassis and Pam Hastings. Mike has joined as President and will lead our sales and marketing effort. We have been working with a number of US brokers to position on their platforms while we pursue an SEC registration. Our website presentation has been improved. We continued our efforts to improve our stock selection process.

Looking ahead, we expect to introduce a new product in 2015, a Canadian Fund built and tested with the same rigour as the existing Fund.

US Equity Fund Report

The total return of the Fund, before fees, compared to the Index, for the nine months ended September 30, 3014, and for 2014 as a whole, are presented in the table below:

9 months ended
September 30, 2014
12 months ended
December 31, 2014
Fund in CAD 15.2% 29.6%
S&P 500 Index in CAD 14.1% 24.6%
Excess Return in CAD 1.1% 5.0%
Fund in USD 9.4% 18.7%
S&P 500 Index in USD 8.3% 13.7%
Excess Return in USD 1.1% 5%

At September 30, the Fund’s return was ahead of the Index by over 1%. In the fourth quarter, the market experienced sharp corrections in October and December before achieving a new high at year end. During this period, the gap between the Fund’s return and that of the Index increased. Selling–off less in a market decline and recovering faster is behaviour entirely consistent with the history of the Fund. But more than that, we were underweight in energy and energy-related stocks. Obviously, the CAD equivalent return was propelled by the drop in oil prices, which punished the loonie.

Bristol Gate recently completed its 5th anniversary of operation. One-, three- and five-year annualized total returns of the Fund, before fees, in CAD against the Index, the TSX Composite Total Return Index and the Canadian Corporate Total Return Index are presented in the following table:

One year Three Year Five Year
Bristol Gate 29.6% 31.2% 23.5%
S&P 500 Index 24.6% 25.9% 17.7%
TSX Composite Index 10.5% 10.2% 7.5%
Corporate Bond Index 16.1% 7.2% 10.2%

The Fund ranks number 1 on a 2-, 3- and 5-year total return basis against all US large capitalization funds available in Canada in a survey provided by a major Canadian bank. The ranking was compiled as of September 30, 2014.

It seems reasonable to approach 2015 with a note of caution. The current market advance is getting on in age, interrupted only by a second-half 2011 swoon. Valuations are less favourable, especially if global fixed income and currency markets have it right. The energy industry is retrenching, even in the US.

As for Bristol Gate, we are committed to owning companies with exceptional dividend growth potential and selling those companies which fail to meet our dividend growth expectations. At year end, we owned 21 stocks and one unit of cash. We do not own money-centre banks for difficulty of analysis or commodity-based companies. Our emphasis is the US consumer, notwithstanding that many of our names operate around the globe.

We thank you for your trust in us and welcome your enquiries at your convenience. We wish you and your families a happy and healthy 2015.


Richard Hamm
Chief Executive OfficerRichard
Peter Simmie
Chief Investment OfficerPeter