When combined with traditional bond and equity assets classes, we construct portfolios designed to perform on an absolute basis.
Our goal is to earn positive returns for our clients each year, as opposed to being benchmarked to a particular stock market index such as the TSX. For our medium risk profile, we target average returns that are 2-3 percentage points higher (net of all fees) than the long term average return for a balanced portfolio, defined as 40% bonds and 60% equities, while targeting a volatility level that is significantly lower than that offered by a traditional balanced portfolio.
Many firms specialize in one particular asset class or sector, such as Canadian Equities, or Real Estate, etc. We take a wealth management approach and assume that we are managing all the clients’ assets. As a result, our portfolio is broadly diversified across many asset classes such as stocks and bonds, as well as hedge funds, real estate and private equity. In fact, we look at the portfolio from the investor’s point of view in that we consider any and all types of investments, not just public stocks.
In our efforts to earn positive returns each year, and to keep volatility low, we must look beyond traditional investments. As such the portfolio typically contains a high percentage of alternative investments such as hedge funds, private equity, private mortgages, managed futures and real estate and private debt
We start by looking at the Global Macro picture and try to develop themes that will lead us to focus in on particular markets or sectors (Uranium, Health Care, China, for example). We then do fundamental analysis on the particular securities that pique our interest. For investments that are smaller cap, and/or longer term, much more emphasis is put on fundamental analysis. For trading positions, the impetus is more event driven, and less focused on fundamentals.
Most traditional portfolios are diversified by sector, and somewhat by region, but ultimately have a substantial weighting in equity markets, which can become highly correlated during economic downturns. We truly diversify, not only amongst sector and region, but by asset class as well. We include commodities, real estate, hedge funds, and private debt and private equity.
As opposed to a “Buy and Hold” approach, we are continually monitoring our positions, and will trade around them to add value.
One of the ways we try to achieve absolute returns and reduce volatility is by having the ability to “long” or “short” positions. Being able to go short means that we have opportunities to profit from companies or sectors falling in price over the medium term, while also being able to reduce volatility through hedging in the short term. Concentration Wealth is usually created through owning equity in assets that are experiencing a long-term growth path, whether it be in shares of public or private companies, real estate or other assets. When we find an exceptional idea that we have a high degree of conviction in, we concentrate our allocation in that position, usually up to 5% based on cost. Value We perform fundamental research on our holdings such as reading annual reports, building financial models, speaking with management, and with analysts to try and uncover the intrinsic value of the company. We then look for opportunities where we can buy at a market price that represents a significant discount to intrinsic value.