Cash, $US And Non-Correlated Assets In Portfolios Helped To Mitigate Volatility in Q1

The benchmark by which we measure our and our client's portfolio performance, a fully invested, balanced and globally diversified mix of the All Country World Index (ACWI), the S&P/TSX and the Canadian Bond Index, finished the first quarter of 2018 with a negative return of about -3/4% (data provide by Bloomberg monthly TRA, Total Return Analysis).

The severe increase in stock market volatility (chart above) and the inability of bond holdings to provide adequate coverage for the losses on stocks and equity ETF's were the main proponents of this negative return for "balanced" portfolios.

As Canadian investors our portfolios are consolidated and reported in Canadian dollars ($C), some of the sting of owning assets denominated in $US would have been reduced by the strength of the $US vs. the $C over the quarter by close to 3%.

This improved the global portion of the portfolio (ACWI) from a negative return of about -0.5% ($US terms) to a positive return of close to 2.5% ($C terms). Mitigating the loss on the benchmark portfolio by close to 1%.

At High Rock, we have advocated for sometime that equity markets were expensive, so we have had underweight (relative to being fully invested) exposure to equity markets, especially the US. However, we continue to hold $US denominated money market assets, so our portfolios were able to not only avoid a good deal of the stock market meltdown, but still benefit from the stronger $US / weaker $C.

We have also advocated that, from a defensive stance, owning non-correlated assets (High Yield bonds and / or certain types of Preferred Shares) can help mitigate some of the volatility in times when the old-style stock / bond correlations are not providing the protection that they have historically (when interest rates were higher).

Needless to say, our style of portfolio management with its more tactical approach was fully tested over the first quarter of 2018 and considerably beat the benchmark (after fees and costs). Depending on your asset allocation structure, most portfolios finished in positive territory.

While we will always be more focused on longer-term returns and the ultimate attainment of our client's future goals, it is nevertheless heartwarming to see that our focus on our first priority of risk mitigation and protecting client capital passed another major test, the second since we began our High Rock Private Client Division a little over three years ago.

And as you all should know, historical performance is no guarantee of future returns, but as you also know, at High Rock we work darn hard to get the best possible risk-adjusted returns as we possibly can.