November 2018

Nov 20, 2018 | Brendon Boothman


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Recently our firm, RBC Dominion Securities, hosted some of the top investment managers from around the world.  A part of our team's process includes due diligence on investment managers so we attended this conference taking the opportunity to get up close and personal to meet with several of the managers currently used in our strategies and also several others. Here is a short list not including all but to give you an idea:   

  • Walter Scott                                  Edinburgh, Scotland                    AUM $87 Billion                                     
  • Beutel Goodmann                       Toronto, On                                   AUM $41 Billion
  • RP Advisors                                Toronto, On                                   AUM $5    Billion
  • Connor Clarke & Lunn                Vancouver, BC                             AUM $77 Billion
  • Polar                                            Toronto, On                                  AUM $3.3Billion
  • Saratogo                                      Saratoga, California                     AUM $2.2Billion
  • Harding Loevner                          Bridgewater, New Jersey             AUM $66 Billion
  • Aristotle                                        Los Angeles, California               AUM $12 Billion

The management styles differ in many ways, value vs growth, Canadian vs US, alternative investments, fixed income etc.  This has allowed us to receive a lot of information from a number of sources in a short time period.  This information will allow us to review our current strategies and make changes where/when necessary.  I’ll attempt to summarize a few of the highlights for you. 

Market Cycle - We are currently in the longest business cycle on record as you will see in the chart to the right. The long run has created anxiety for investors questioning how long can it continue to go? Nobody is able to accurately answer that however; it is interesting to know the early stage of this cycle was the longest in history. Further to this the middle stage of this cycle was the longest in history. So, a good estimate would be to say the end of this cycle will be, the longest in history…?

 

 

Investors Home Bias – how comfortable are you investing your portfolio into global equities? As you will see in the chart to the right, Canadians prefer to invest money in their home country, second only to Australia. But why is that exactly? Global equities don’t necessarily come with more risk and the majority of the biggest companies in the world are domiciled outside of Canada. In fact, institutional investors have taken a different approach.

Here is a summary of two of the largest pensions in Canada and how they have approached diversifying assets. You will notice the low exposure to Canadian equities, inclusion of real assets and alternative investments to diversify risk.

Canada Pension Plan – as of March 31, 2017

Fund Size: $316.7 Billion

Asset Mix: 55.4% Equity / 21.5% Fixed Income / 23.1% Real Assets

  • Canadian Equity 3.3%
  • US/EAFE Equity 27.9%
  • Emerging Markets 5.7%
  • Private Equity 18.5%
  • Fixed/Global Bonds/Mortgages 21.5%
  • Real Estate 12.6%
  • Infrastructure and real assets 10.5%

 

 

Ontario Pension Board – as of Dec 31, 2016

Fund Size: $24.4 Billion

Asset Mix: 51.5% Equity / 25.4% Fixed Income / 23.1% Real Assets

  • Canadian Equity 9.2%
  • US/EAFE/Emerging Equity 33.1%
  • Private Equity 3.9%
  • Fixed/Global Bonds/Mortgages 30.5%
  • Real Estate 18%
  • Infrastructure 5.1%
  • Hedging 0.2%

 

 

 

 

ESG & Responsible Investment – ESG means integrating environmental, social & governance (ESG) factors into the investment process to identify those that may impact a company’s valuation.  This means you need to look beyond the financial statement to better identify risk & opportunity.  Research shows that well-governed companies tend to have lower cost of capital & lower risk, better operational performance & long-term share price performance. 

In summary, there are a number of factors to consider when deciding how to invest your money.  Our team will continue to focus on determining which factors should be given higher consideration and ensure your investment strategy is aligned with your goals and objectives. 

Regards,

Brendon Boothman, CFP, CIM

Vice President & Associate Portfolio Manager