Are you on track in 2016? Are you tired of surprising risks and too much volatility?

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This investment solution is an innovative asset management platform from Canaccord Genuity’ s In-house investment counsel called Global Portfolio Solutions (GPS).   The program has been running in the UK since January 2011 and has won numerous awards, including the Defaqto 5 Star Award, and the Gold Standard Award from the British Parliament for Discretionary Portfolio Management. The same template is being applied in Canada and was launched in late 2014.

 

This is a fundamental change from traditional portfolio management which focuses on returns first, and risk second. Our belief is that avoiding the worst days in financial markets is far more important than participating in the best days. . GPS utilizes a proprietary quantitative risk management framework (first and foremost, protect capital) combined with fundamental discretionary portfolio construction and management.

 

The unique risk management features of GPS uses our proprietary Market Stress Indicator (MSI), and Portfolio Optimizer to mitigate the difficulties in getting true diversification that has been the core of basic assumptions of the Modern Portfolio Theory over the past  50 years.  The MSI measures the level of asset price correlation amongst 24 different global asset classes. In times of market “stress”, increased asset price correlation tends to precede negative and volatile markets. The MSI is able to perceive these changes in correlation in real-time, thereby acting as a warning. If the MSI notes increased asset price correlations, GPS portfolios will dynamically change course, re-weighting portfolios away from asset classes that are coming under pressure and/or becoming more volatile.

 

While the MSI measures market stress and correlation, the Portfolio Optimizer sets the maximum allowable amount of volatility for each portfolio, and helps to choose portfolio holdings. For example, GPS Portfolio 4 seeks to cap risk at a 6% annualized threshold (measured by standard deviation), and will maintain at least 30% exposure to cash and fixed income at all times. Portfolio 5, being one level higher in terms of risk/reward, will have a maximum annualized volatility of 9%, with 20% exposure to cash and fixed income at all times. This makes the portfolios easy to compare, and allows clients the ability to choose a portfolio that suits their risk tolerance.

 

Check out the GPS program at the following link if you are serious about getting on track and achieving your goals.  There's no time like the present.

 

www.canaccordgps.com

Chasing Dividends

Investors are challenged to find sufficient income as bond yields are historically low.  Many strategists are projecting an initial US interest rate hike this year which might lead to higher interest rates in the US.  In Canada it appears most analysts expect the Bank of Canada on hold well into 2016.  As a result, investors turn to dividends as they seek income.  However, not all dividends are safe!  Some companies pay out dividends that exceed their cash flow which can be a temporary or more permanent condition.  When you factor in virtually all businesses require some amount of reinvestment to maintain and/or grow their business it becomes clear that a dividend should be less than what total cash flow is minus maintenance capital and a bit of a cushion.  Financial Statements don't make this very easy to identify which requires deep analysis.  For example, consider the oil and gas company that in 2014 received $100/bbl for their oil and in 2015 received $45/bbl.  They might have had a hedging program to soften the decline in revenue but has it now expired?  One must determine is the cash flow from production at $40/bbl enough to fund any dividend without incurring significant amounts of debt?  What are your alternatives for income?  Give me a call and we can discuss some options that are appropriate for you.

Shareholder Yield

Investors are constantly bombarded by a multitude of investment strategies and a combination of using each of them.  One strategy that has proven effective over time is that of Shareholder Yield.  It consists of 3 components: Dividend Yield, Share Buybacks, and Debt Repayment.  Focusing on securities with these characterisitics outperform relative to using just one of these strategies.  Simplistically, the combined Shareholder Yield return often indicates companies that have a strong focus on capital discipline.  It also tends to indicate companies will be less volatile in stressed markets.

I am a strong believer in this as an investment strategy.  I view this as foundational to achieving long term investment goals as its' a strategy that works in all markets.  When you consider an Index holds securities that are not focused on these fundamentals and many investment strategists and managers attempt to capture the investment trend with the most momentum of the day it can quickly lead an investor to wonder about the quality of their portfolio.