Thursday, May 25, 2017

Is It Ethical?


In our Our Voluntary Code of Conduct for the Stewardship of Your Wealth under the heading Investment Management:

We are governed by the CFA (Chartered Financial Analyst) Institute’s Code of Ethics and Standards of Professional Conduct 

A Chartered Financial Analyst / CFA is the "most respected and recognized investment management designation in the world".

The CFA Program "provides a strong foundation of advanced investment analysis and real-world portfolio management skills".

Obtaining the designation requires a rigorous, approximately 900 hours of study and three, separate six hour exams.

More importantly, a practicing CFA charter holder is required to abide by the Code and Standards or face disciplinary sanctions:

"The CFA Institute Code of Ethics and Standards of Professional Conduct are fundamental to the values of the CFA Institute and essential to achieving its mission to lead the investment profession globally by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society. High ethical standards are critical to maintaining the public's trust in financial markets and in the investment profession".

So not only do we (at High Rock) have our own code of conduct, but we are held accountable legally (discretionary portfolio management vs. non-discretionary financial / investment advice) and bound by the CFA Institutes's Code and standards. 

We certainly do not take this lightly.

It is why we don't just stick ourselves and our clients into a basket of ETF's that represents a single solution for everyone: a "one size fits all" type of investment portfolio. That's the easy way, when you have so many clients that you can't manage to give them enough individual attention.

That would not be putting the client first. That would be putting the "business operation" first. That, in our opinion, is not ethical.

There is an alternative to banks, investment dealers (brokers or financial advisors) and robo-advisors and at High Rock we are challenging the "old-school" way of thinking and leading the way forward with low cost, transparent, ethical, and fiduciarily responsible client-friendly planning and investment strategy.


Wednesday, May 24, 2017

No Surprises From The Bank Of Canada


As we suggested in our weekly client webinar yesterday, current core consumer price data will hold the BOC's policy interest rate at 1/2% as the key data remain below the bank's 2% target.

For those of you who have debt, it remains best to continue to keep it at a floating rate (which is based on prime and is set based on the Bank of Canada's policy interest rate) if it makes sense for your personal situation: this is something that you should of course discuss in more detail with your Certified Financial Planning (CFP) professional. 

If you need one, let me know, I know a really good one.

We (at High Rock) have been focusing on debt and interest rates as a key theme for 2017. CBC reported yesterday that a Manulife Bank survey has suggested that when interest rates do rise:  

"Almost 3/4 of Canadian homeowners would have difficulty paying their mortgage every month if their payments increased by as little as 10%".

That would be a $200 increase on a $2,000 monthly payment.


This is certainly something that has raised red flags at the Bank of Canada and should definitely be of concern to policy makers and lenders that when it does come time to raise rates that the fall-out could be particularly severe.

This is why we have to keep a close eye on the Bank of Canada's core rates of inflation. Should they start to elevate above the 2% target level, the BOC may have little choice over the necessity to raise interest rates as their mandate specifies that their job is to maintain price stability. Raising rates and tightening monetary policy is the tool that they will use to counter inflationary trends (if and when they begin to appear).

What will happen if they have no choice but to raise rates should leave anyone with significant equity tied up in their homes feeling a tad squeamish. The report from Manulife highlights this. If you can't afford your mortgage payments, the banks become less friendly. If close to 3/4 of homeowners can't afford their mortgage payments, it will not be pretty.

For the moment, Canadian interest rates will remain where they are (and the good news is that debt servicing at current levels remains affordable), but we need to be vigilant on the inflation indicators and Bank of Canada monetary policy for what may come next.

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Tuesday, May 23, 2017

There Is Still Plenty Of Punch Left In The Punch Bowl (For The Moment)


So, you may be wondering: why is it that volatility (which spiked last Wednesday) is so quick to drop back to it's lower levels in spite of all the uncertainty surrounding the global financial markets and the Trump administration?


The simple answer is liquidity (and the perception of liquidity). Which is all controlled by the central banks.

What is scary about liquidity is that once the central banks decide to reduce liquidity (pull the proverbial punch bowl away from the party) the reality of the next era for financial markets may be not so pretty (or fun).

Those that have been using the down days to add to equity positions will be using the up days to lighten up.

So the reality of the "Trump" trade (as it has been so nick-named) is really a function of the continued "easy" monetary policy at the US Federal Reserve, despite their continued threats to raise interest rates (warning shots) on multiple occasions over the course of this year and into next year.

However, until all the other central banks: European Central Bank (ECB), Bank of Japan (BOJ), Bank of England (BOE) and Bank of Canada (BOC) all decide to join in to tighten monetary policy, there will continue to be plenty of liquidity available.

The enormous risk in the financial markets is the very inelastic follow-through that could occur when liquidity is curtailed (global monetary policy tightened) because all asset classes (save for cash) will become correlated and the selling could be significant.

All central banks have a mandate to create price stability (keep inflation at or near a 2% target). Thus far (except in the UK, because of the post-Brexit depreciation of the Pound), inflation has remained subdued. It is widely expected to pick up (especially in the US) as economic growth picks up. So mounting pressure will come to bear on the central bankers.

As a case in point: in the world's second largest economy, China,  monetary policy tightening (draining of liquidity) to counter the enormous growth of debt in that country has had its impact: slowing economic growth in April and sending the Shanghai Composite down some 7%.


The party is alive as long as the punch bowl remains. When it is removed, everyone will be heading for the exits (all of them) in a hurry.

We will talk about this and lots of other influencing factors for the decisions that we make in the management of our and our client's money on our weekly webinar today. You can tune in to the recorded version, at or about 5pm EDT today.

There is an alternative to banks, investment dealers (brokers or financial advisors) and robo-advisors and at High Rock we are leading the way forward with low cost, transparent and client-friendly planning and investment strategy.

Join us!

Friday, May 19, 2017

Lower Cost Of Living For Canadians (Apparently)

April consumer price index rose 1.6% (over the last 12 months) vs. 1.7% in March.

It depends on what you consume:



But it also depends upon where you live:


If you purchased men's clothing in Ontario in April, they experienced the largest decline in 12 months. Nova Scotia had the biggest decline in fresh vegetable prices in the last 12 months.


If you know what you spend and what you spend it on, it becomes material in working out the increase and / or decrease in your cost of living (year over year) which impacts the "real" return on the growth of your net worth.

If you can get an average annual return of 6% (after fees) on your assets (over multiple years) and your average annual cost of living is 2%, then your real return is 4% and you should be able to compound that growth nicely over time.

Those kind of returns won't happen without taking some risk. The "risk free" rate of return (90 day Government of Canada T-bills) yields about 1/2%.

How you take that risk becomes extremely important. 

Even balanced portfolios (depending on the balance and diversification) were sideswiped on Wednesday of this week: The benchmark indexes that we use, the All Country World Index (ACWI) ETF gave up a little over 1.5%, while the Canadian Bond Index (XBB) ETF added about .85%. Which means that a ( fully invested) 60% equity / 40% fixed income portfolio gave up about 0.56%. That is a pretty big swing considering that the same 60/40 combination only garnered a 3.35% (before fees) return over the 2 years ending March 31st, 2017 (see table below).

Everybody can make their own comparisons, but even that kind of volatility can become unnerving. That is why we (at High Rock) focus so much on risk. 

We can tell each of our clients what their return per unit of risk is. 

Can your advisor tell you that?

Ask him / her.

If you have to take risk to beat the cost of living, best to understand what risk you are taking:


There is an alternative to banks, investment dealers and robo-advisors and at High Rock we are leading the way forward with low cost, transparent and client-friendly planning and investment strategy.




Tuesday, May 16, 2017

Stock And Bond Market Correlations:
They Are Just Not As Reliable As They Used To Be


The thesis for passive portfolio management stems from a long held view that bond prices are inversely correlated to stock prices and that over longer time periods: a balanced portfolio of stocks and bonds is a safe place to keep your hard earned savings.

The basic idea was that in times of higher stock market volatility, you would get a cushion out of the "flight to quality" that pushed bond prices higher as stock prices tumbled. At the same time, in years when bond yields had a 5 handle on the coupon, you were also able to receive a nice stream of income when they were not adding the price cushion: you were paid to own them.

Times have changed.

As inflation and interest rates have fallen, so too have bond yields so you are just not getting paid the same to own them. That also doesn't give you the same kind of cushion if and when stock prices get volatile.

January 2016 was a prime example. Balanced investors got a pretty hefty scare seeing their balanced portfolios clipped by 7-10%.

A year later, the 2 year returns are looking a little better, but not back to an annualized 5% average return. 

And if over-priced equity markets take another tumble?

The bond portion of your "balance" is not going to have the same shock-absorber effect as it might have had in earlier times.

So while everybody is feeling like their portfolio is looking awfully good at the moment, there is going to be a time when this complacency becomes a problem.

As portfolio managers, our job is to be "ahead of the curve", which basically means that we are anticipating the next major move. It is why we are always calculating risk metrics, so that we know how our portfolios will react to the next big shock.

Buy and hold, passive and robo strategies do not take these things into consideration. All of their strategies are based on old-school investing techniques. Its part of the reason that ETF strategies have become so successful and are all the rave at the moment. Certainly they took investors out of the hands of the over-priced mutual fund world, but they did not take investors out of the world and risk of potential volatility.

Volatility has not gone away, it is just lurking, ready to catch investors off-guard just when they become most complacent.

Given the nature of changing correlations, this could be a rude awakening for many.

We discuss this stuff with our clients every Tuesday in our weekly client webinar , which we post in a recorded format on our website. Feel free to tune in after 5pm EDT.

There is an alternative to banks, investment dealers and robo-advisors and at High Rock we are leading the way forward with low cost, transparent and client-friendly planning and investment strategy.

Join us!



Friday, May 12, 2017

"Just Keep Doing What You Are Doing"


For each of our clients and client families we make certain that we "chase" them down for a review at least once every six months. Sometimes they really don't have a need to see us, but for us it is important to try and keep up with any changes in their lives that might render a change in investment strategy.

Importantly, they talk directly with me, the guy who signed them up (or Paul, our CFA and Portfolio Manager or Bianca, our CFP professional or a combination of all three of us). So many of our newer clients have come to us complaining that they never got to speak to their advisor (other priorities perhaps), but are relegated to a junior member of the staff.


We will always:
Make ourselves available for ongoing reviews, updates and anything else you may want to discuss 

You won't get that with a large advisory practice (unless you have priority, which means you that you are a multi-million dollar client) and you certainly won't get that with with a Robo-advisor.

At High Rock, you get to speak with who you want, when you want because we believe in the importance of the relationship.

As I stated earlier, some clients we have to chase: Bianca has a standing instruction not to let a particular client off of the phone when he calls to advise on the amount of his monthly deposit because otherwise I can't get him to set up an appointment.

Then there was the review that I had this morning that gave me the title for my blog. It happened at the end of our discussion on how we had rebuilt her portfolio back in 2015 (because it was previously in a "one size fits all" type of portfolio before moving over) into a very specifically tailored portfolio. Yet another of Our Voluntary Code of Conduct for the Stewardship of Your Wealth points under the Financial Planning heading:

We will always:
Treat each individual client and / or client family independently of other clients in tailoring their investment strategy specifically to them 

We turned it around nicely, avoided the volatility in 2016 and have her well ahead of her target for this year. Others who had similar portfolios (same advisor) were crushed in 2015-2016 and are just getting back to break-even now. As I tell many of them, the unfortunate thing is that they just don't fully grasp the risk that they are carrying.

And in a non-discretionary advisory relationship, the advisor has no legal reason to be held accountable (if the initial transaction was deemed suitable at the time of the trade).


But we (High Rock) are held legally accountable because our discretionary portfolio management makes us a fiduciary.

So we will "just keep doing what we are doing" because it works for our clients.

Thursday, May 11, 2017

Finding Value Part 2: Home Trust Notes


If you have not read Paul's blog : More On Home Capital, I would highly recommend it. It is an important example of our  (High Rock) Voluntary Code of Conduct for the Stewardship of Your Wealth, under the heading Investment Management :

We will always: 
 Act with skill, competence and diligence to have a reasonable, adequate and disciplined basis for all of our investment decisions

As I stated in my Monday blog "finding value then becomes one of the important ingredients to a stable long-term rate of growth".

As I write this note, the S&P 500 is down about 1/2% from close to its all time highs yesterday. In the grand scheme of things that is not enormous and in a balanced portfolio with 60% equity, if bond prices are basically unchanged, then a .30% decline is not much to worry about.

However, if (as will happen sooner or later) you get a 10% correction (and you are fully invested), your equity portion is going to drag your total portfolio down by 6%. Hopefully the fixed income portion (40%) will provide some cushion. But as we stress each week in our Tuesday webinars (ad nauseum), the historical correlations have not necessarily been performing as they have historically and that could be a problem for those who hope that they will.

When we began our High Rock Private Client Division, a little over 2 years ago, we brought a third, more tactical component into the mix for this very reason.


To take advantage of opportunities that we found through our diligence which would add value, but reduce risk.

The Home Trust Notes were just one of many that we have utilized. We owned Rona when Lowes bought them at about 2X what we paid for the shares, Paramount Energy which about tripled in just a few months after energy prices hit bottom in early 2016 among a number of other names (Perpetual Energy, CVR Energy, Air Canada, Great Canadian Gaming, Pine Cliff Energy, Canexus and a very well-timed preferred share switch) that have propelled the tactical model's performance (not every trade works out necessarily as planned and past performance is never a guarantee of future performance, although at High Rock, we work very hard to
find and take advantage of these opportunities).

You see friends, you don't necessarily have to be fully invested in equity markets to achieve decent returns and it truly does help lower your risk profile when you carry an overweight amount of cash equivalent assets waiting for some of these opportunities / anomalies to present themselves. A little patience perhaps may be required, but in the end, it works.



There is a reasonable, transparent and low cost alternative to getting better risk-adjusted returns (in a fiduciarily responsible way) and at High Rock, we are bringing this to our private clients.

Join us!  

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