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

Investment Commentary June 30 2014

Dear Investors,

Since our last communication with you, the Fund celebrated its 5th anniversary in May. As you will see in the table below, which provides total return comparisons of the Fund against the Index, we have performed very well. Most pleasing is the fact that our returns meet the expectations of the research results we set for the Fund when we invested 5 years ago. Returns are annualized and shown gross of management fees in both US and Canadian dollars.

Annualized Performance Returns to June 30, 2014
1 Year 3 Year 5 Year
Bristol Gate (CAD) 27.4 26.5 21.4
S&P 500 Total Return Index (CAD) 26.4 20.6 16.8
Bristol Gate (USD) 25.6 22.3 23.5
S&P 500 Total Return Index (USD) 24.6 16.6 18.8

In the recent schizophrenic market environment, the Fund more than held its own advancing 8% for the six months ending June 2014 against 7.5% for the Index. As for the unexpected, interest rates declined in the first quarter pushing utilities and REITs to a strong first quarter performance. Growth stocks were sold in the first quarter and bought in the second. Energy has been an outperformer all year and coupled with financial equities has propelled the Toronto market to an all-time high. Both the S&P 500 Index and the Dow Jones Industrial Average sit in record territory.

Regarding your Fund, despite beginning-of-the-year forecasts for a weak US economy, the first quarter earnings reports of the portfolio companies demonstrated strong results. Median quarterly EPS growth, year on year, was 17.2%, on revenue growth of 5.5%. Dividend increases have averaged nearly 23%, exceeding our high expectations. All but two stocks have increased their dividends in 2014.

Selected portfolio and Index fundamentals are provided in the table below and continue to reflect attractive measures of valuation of the Fund relative to the Index as of June 30, 2014.

Holdings USD Price / EPS 2014 Average USD Market Capitalization Return on Assets Return on Equity Dividend Yield
Bristol Gate 22 16.4 $30.4 b 10.3 30.6 1.30
S&P 500 500 17.0 $36.8 b 8.08 20.8 2.05

It has been in the press recently that both dividend payments and stock buyback activity by US corporations are at record levels. Looking ahead, our analysis suggests strong dividend increases can be expected in the coming twelve months for our portfolio stocks and at the present we are fully invested.

The broad averages do sit in record territory. Yet we are ever mindful and we continue to hone our analytical approach. We will raise cash, should dividend growth flag in a given name and there is no suitable substitute, or if valuation becomes stretched. The current economic landscape suggests continued sluggish growth. Interest rates might then remain at benign levels, an environment that historically has been constructive for equities.

Notwithstanding the difficult economic environment, our portfolio companies forecast EPS growth through 2015. This outlook coupled with their solid financial characteristics will hopefully allow us to continue our record of outperformance against the Index in the period ahead.

We thank you for our trust and confidence and welcome your comments or visits at your convenience. We wish you all a great summer.


Richard Hamm
Chief Executive OfficerRichard
Peter Simmie
Chief Investment OfficerPeter

Download as word document REPORT TO INVESTORS 2Q2014