Investment Process

Step 1: Determine the Appropriate Asset Allocation:

After I have taken the time to understand my clients and discover what is important for them, I can apply this knowledge to selecting the appropriate mix of cash, bonds and stocks/mutual funds/Exchange-traded Funds for them.

You can click here to be directed to the section of my website that details the Wealth Management approach we use at RBC Dominion Securities.

Step 2: Security Selection:

Fixed Income: The bond selection process adheres to the portfolio construction process of the RBCDS fixed income desk and attempts to maximize liquidity, credit quality, and ease of implementation and portfolio management. Corporate and government bonds are selected based on total issue size, credit rating, and market liquidity.

Stock Selection:

The underlying investment strategy uses a combination of top-down and bottom-up evaluation.

Top-down evaluation determines the allocation of stocks between all major economic sectors.

Strategy Committee comprised of our leading economists, research analysts and portfolio strategists meets quarterly to provide recommendations regarding:

  • Economic outlook, interest rates, corporate earnings and equity valuations
  • Asset allocation between equities, fixed-income and cash
  • Sector allocation between four major economic sectors – Industrial, Interest Sensitive, Consumer and Resource

Bottom-up evaluation filters stocks according to three research disciplines – fundamental, technical, and quantitative analysis.

  1. Fundamental analysis looks at factors such as a company’s competitive position within its industry, its financial statements, quality of management, and valuation to determine recommendation.
  2. Quantitative analysis uses a rules-based approach to score stocks on four factors:
    • Value: combines valuation metrics such as price/recurring earnings, price/estimated earnings, and price/normalized earnings.
    • Momentum: considers factors such as earnings momentum, revenue momentum and total return momentum.
    • Predictability is based on various measures such as total return stability, earnings stability and confidence of earnings estimates.
    • Growth considers, among other things, earnings growth, revenue growth and dividend growth
  3. Technical analysis focuses on price momentum and relative strength over two time periods – intermediate and long term.

We then use a “3-Discipline” process to identify the stocks that score best in all three research disciplines combined.

Putting it all Together

  • Individual companies are assigned a score based on these three disciplines
  • Bottom-scoring companies are eliminated from universe of stocks.
  • An Independent selection committee screens these companies to find the highest quality names
  • The end result is a list of quality companies best suited to the forecast environment.

Step 3: Buy and Sell discipline

The decision to buy, sell or hold is driven by specific criteria – effectively removing the guesswork and emotion from investing.

Specifically we look to:

  • Match the Sector Recommendations identified through the top-down evaluation. This will dictate changes in the number of positions in the portfolio to be held in each sector in the portfolio, which may require specific stocks to be replaced by ones in different industries. These changes ensure the portfolio is always structured to fit the current market outlook
  • Only hold recommended companies that have been identified through the bottom-up evaluation. Recommended companies are monitored to ensure they meet requirements and those that no longer qualify are sold from the portfolio. This ensures the portfolio always owns only companies that are highly ranked across the independent analytical disciplines. Having this discipline forces us to deal decisively with companies whose fortunes deteriorate – eliminating the emotions associated with selling losers.
  • Rebalance large positions: Typically, new portfolios are equally allocated across 20 – 25 stock positions. Over time, positions may grow to represent a greater percentage of the portfolio. Positions will be rebalanced if they’ve grown past a certain threshold to ensure the portfolio does not become overexposed to one company.

The Benefits of this approach

  • Brings a business-like approach to a task that is too often emotionally driven.
  • Forces us to deal with negative developments promptly.
  • Adapts the portfolio to a changing economic and market environment.
  • Ensures we always own quality companies that have met high standards.
  • Places emphasis on portfolio structure and not just on the individual companies within.