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!  

If you would like to receive this blog or Paul's blogs directly to your inbox...

No comments: