Sorry Friends, My Real Job Has Been Getting In The Way Of My Blogging!

It has been a busy week with all sorts of new and returning client activity. I think that this can be taken as a sign of things to come.

Old style, buy and hold, passive portfolio management is no longer cutting it for many investors because we are in a low growth, low return environment and our more tactical approach is gathering lots of interest.

Greater economic minds than mine agree: 

http://www.barrons.com/articles/bill-gross-the-past-40-years-are-a-unrepeatable-gray-swan-1464901708

The problem is, that getting those returns that many have enjoyed over the past 40 years or so have become somewhat elusive and to keep the levels of risk and volatility down in a passive portfolio approach is getting significantly more difficult and does not justify the returns (or lack thereof) anymore.

There are 2 options: 1) increase the level of risk that your passive approach will have (wider swings in gains and losses of portfolio value) or 2) take a more tactical approach and at the same time, reduce the potential risk and volatility.

What helps you sleep better at night?

If  portfolio A with 5% cash generates a 2% total return (over the course of a year) or portfoliuo B with 25% cash (for defensive / opportunity purposes) generates the same 2% return over the same time frame, which has the stronger risk-adjusted return?

You guessed it, portfolio B!

So sometimes, having more cash, can in fact be strategic.

In time, how you utilize that cash (and when) is also strategic. So we are finding that folks who want to get the strongest risk-adjusted returns are finding their way to our style of thinking and investing.

I call it "good busy" (when I have less time for writing). But I am having lots of positive discussions around the style of more active portfolio management and how that is adding value to client portfolios. That is what people want these days and so they should, because the days of 7% average annual returns over multiple years may be behind us as the years of low growth / low return tend to be lingering.

If you want to discuss this in greater detail or provide any feedback: scott@highrockcapital.ca

If you would like to receive this blog directly to your inbox:

bianca@highrockcapital.ca

Thrilled!

...and excited and touched by all of the support that surrounded  the New Circles fundraising event in which we took part on Monday (US Memorial Day, with US markets closed).

http://newcircles.ca/get-involved/events/golf-classic

I came accross New Circles a number of years ago through a colleague who participated in the "Holiday Angel" program (http://newcircles.ca/get-involved/seasonal-giving/holiday-angel-program ) and invited us to donate alongside. 

The outpouring of thanks that we received (letters from little children and their parents) were so full of gratitude that it touched me deeply and I decided that I wanted to be more involved. So we did: at the personal level and the corporate level.

In a nutshell, New Circles provides a wonderful avenue of support for those in need of clothing, so that they can focus on the necessary resources to properly shelter and feed themselves (especially new Canadians who have need of winter things, etc.).

And they do it in a way that allows those families to shop for those clothes (free of charge) in a dignified way, in an appropriate store-like setting.

I have taken a few of my Friday mornings over the last few months to help sort clothes and believe me, the quality of those previously "gently loved" outfits are truly like new (or they are donated elsewhere). It is remarkable how much really good stuff they are able to draw.

Beyond clothing, New Circles also offers skills training, social programs (language tutoring) and youth programs to help integrate these folks into the community.

All the of the staff and volunteers that help out also offer an excellent example of how a community can come together in all races and creeds to assist those that are in need.

I cannot put into words how uplifting that can be.

So when founder Cindy Blakely approached me to thank me for our contributions, all I could say to her was: "no Cindy, thank you for giving me the opportunity to rub shoulders with people like you. It is utterly inspiring!"

I love your feedback, please keep it coming!

scott@highrockcapital.ca

If you would like to receive this blog directly to your inbox:

bianca @highrockcapital.ca

US Recession Watch:

Stronger Economic Data Increases Chance Of Higher Interest Rates

I have suggested on a number of occasions recently, that we felt a US recession was an increasing probability and although economic data from the beginning of the 2nd quarter is coming in at levels that are better than expected, this is only adding to that probability.

Let me explain:

As the US Federal Reserve sees their mandates of full employment and price stability (inflation target of 2%) being realized and expectations of 2nd quarter growth now close to 3%, they have little, if any official justification for holding off on raising interest rates.

When they raise interest rates, they will be raising the cost of servicing debt, debt levels that have been growing on a global scale:

and...despite all the talk of de-leveraging in the post 2008-2009 economy, US debt levels are fast approaching 2007 levels:

Auto loans and student loans have been leading the way.

The impact on the economy of a December rate hike saw US growth in Q1 2016 decline significantly. The consumer (2/3 of the economy) was "hunkered down". As the storm passed, the consumer has re-appeared, but they are funding purchases (of autos and restaurant outings) with debt that is vulnerable to increased costs of servicing when interest rates rise.

If and when unemployment levels rise because corporations continue to be unable to generate profit growth (and they are forced to cut expenses), this will exacerbate the problem (as I have also suggested, recently: 

When unemployment levels rise and intersect with their 36 month (3 year) moving averages, it has signalled recession in the past 3 out of 3 times.

Rising debt costs and higher unemployment do not make for economic strength and more importantly, do not make a good case for stocks that at the moment are already over-priced.

Thank you for all the great feedback, please keep it coming!

scott@highrockcapital.ca

If you would like to receive this blog direct to your inbox:

bianca@highrockcapital.ca

Fees And Costs

If you were able to discern your portfolio's performance relative to the benchmarks from yesterdays blog, how did it stack up?

If you found that you were under-performing or even keeping up with the benchmark (especially over the longer-term), then it may be time to assess exactly what it is you are paying for with your fees and especially the hidden / embedded costs built in to ETF's and mutual funds.

Here are (what I consider to be) some of the key services that you should be looking for in the fees and costs that you incur:

1) Are you getting a financial plan and investing strategy that is specifically tailored to your needs?

• As I have said many times and will continue to say (sorry for being boringly repetitive), you cannot have a proper investment strategy until you define your goals and the time  frame in which you wish to acheive them. In order to do that you need a plan.
• Beware the strategy that tries to force the round peg into the square hole.

2) Are you getting active or passive money management (or a combination of both)?

• If you are getting active money management (from a discretionary portfolio manager), you may be paying a higher fee, which is acceptable as long as they are providing you with better than average returns (added value).
• If you are getting passive management (a diversified group of ETF's, for example), are you getting active regular re-balancing? 
• The difference between discretionary and non-discretionary portfolio management is that portfolio re-balancing is automatic (with discretionary management), but has to be discussed first with non-discretionary advice.
• This can have a significant impact on the timing of any buys and sells and can be instrumental in getting the re-balancing done appropriately and strategically (and fairly for all clients).

3) Are you getting the appropriate amount of communication?

• Weekly updates
• Quarterly reports
• Semi-annual reviews (and plan monitoring, appropriate asset allocation adjustments, strategy modifications, etc.)
• Or do you have to initiate the communication?
• Do you get direct access to the portfolio manager (if you want to address specific concerns)?

Lots of things to think about when assessing what service you receive vs. the price that you pay. 

But most importantly, ask yourself: Is this a good client experience? Am I getting good (or just mediocre) stewardship for my financial future? 

It baffles me how some folks get hooked in to signing up and then are just left to drift in the hope of something better in the future (promises unfulfilled). Actually makes me kind of angry when I hear stories like that.

I say "Client First"!

Thanks for all the recent feedback friends, glad I can be of some help. Keep it coming....

scott@highrockcapital.ca

If you would like to get this blog direct to your inbox:

bianca@highrockcapital.ca

Measuring / Comparing Portfolio Performance

It should not be a mystery.

So you requested that your advisor (or their assistant) send you a portfolio summary (hopefully consolidating all of your "household" accounts) and it includes a "Monthly Equity Growth Graph", something like this sample portfolio:

(click on the graph to enlarge if you wish)

The rates of return in this particular situation are as of May 24, so for comparison purposes you want to pick your benchmark return dates to match the return dates on the chart.

The longer term "annualized rate of return since inception" (from September 13, 2012) should be matched with benchmark returns from the indexes you choose for the same dates.

For our purposes we use the MSCI All Country World Index (ACWI) for equity assets (2500 companies from 23 developed countries and 23 developing countries) and the Canadian Bond Index (XBB).

• From September 13, 2012 to May 24, 2106, the ACWI had a total return (including dividends re-invested) of 6.87%, annualized (source: Bloomberg TRA, daily).

• For the same dates, XBB had a total return of 3.55%, annualized (source: Bloomberg TRA, daily).

If you have a 60% equity and 40% fixed income portfolio:

• 60% of 6.87% = 4.12%
• 40% of 3.55% = 1.42%
• Total Return of the benchmark 60% ACWI / 40% XBB = 5.54%
• Don't forget to allow for fees / costs, say 1.0% for example.
• For comparison purposes, the portfolio rate of return of 7.70% (after fees) "beat" the benchmark of 4.54% (after fees) over the same period.

For the 1 year period (May 22, 2015 to May 24, 2016):

• 60% of - 7.65% (ACWI, source Bloomberg TRA, daily) = -4.59%
• 40% of  3.17% (XBB, source Bloomberg TRA, daily) = 1.27%
• Total 60/40 benchmark return = - 3.32% 

For comparison purposes, the portfolio rate of return of -0.37% (after fees) "beat" the benchmark of -4.32% (after fees) over the same period.

I hope that this helps you all to be able to determine how your portfolios are doing and... to justify the fees that you are being charged. Need help, let me know.

And...as a reminder: historical performance is in no way a guarantee of future performance. Although at High Rock we do work our butts off to try to get the best risk-adjusted returns that we possibly can because we invest our money in the same models as our clients. 

Feedback always appreciated...

scott@highrockcapital.ca

If you would like to receive this blog directly to your inbox:

email bianca@highrockcapital.ca

Financial Markets: It's All About The Fed! (And Your Advisor)

As it is my job to understand what is driving financial markets and try to put a short-term perspective to price swings and buying and selling opportunities and how they might have implications for longer-term portfolio strategy, I sat down to read the minutes from the latest Federal Open Market Committee (FOMC) / Fed meeting.

It is here, if you want to have a go....

https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20160427.pdf

The financial markets are no doubt focused on whether their might be a June interest rate increase (they next meet on June 14-15). The fact that it was  "still on the table" was a surprise, apparently. Personally, I think that it is always on the table, because they do want a "normalization" of rates and they do have a rather optimistic outlook, in general, about future economic growth.

When the proverbial "punch bowl" of monetary accommodation is pulled away (and we had just a glimpse of it yesterday), volatility will jump. Too many investors and traders have been lulled into complacency by the global central bank mantra that volatility is the enemy.

Volatility is inevitable, if interest rates are going to be normalized, just like it was when everybody "flipped out" in the summer of 2013 in advance of the potential secession of QE3 (remember the "taper tamtrum"?).

But it provided a great buying opportunity, especially for bonds. This time, it will be stocks.

So we think it is wise to have more cash in your portfolio to take advantage of the upcoming buying opportunity (and to avoid the inevitable melt-down of now over-priced equity markets).

You can, if you wish, just ride it out, or if you want a more active (and caring) approach (real portfolio management), let me know (it might just cost you less in fees, but may just help portfolio performance too).

Your feedback is always greatly appreciated, but there are some Q and A that I can no longer post on the blog because it apparently upsets some people (who don't like controversy), however, keep it coming, because I can and will respond privately: 

scott@highrockcapital.ca

If you would like to receive this blog directly to your inbox:

bianca@highrockcapital.ca

Asset Allocation : 

Are You Positioned Appropriately?

There is only one way to properly develop a portfolio strategy: First and foremost you need to prepare a wealth forecast. Without doing so, without understanding the goals and objectives that you are trying to achieve and the time horizon over which you want to achieve them, you will not be able to consider all the variables that will go into building the portfolio strategy that is appropriate for you. 

I have written about many folks that I have worked with or work with now who have had great success saving and growing their wealth. The common denominator amongst them all is that they had a plan that was turned into a strategy that was followed, monitored and amended (when necessary).

Few families have the exact same goals that they wish to fulfill over the course of their lives. Which means that very likely, they will not require the same investing strategy either. 

Determining an appropriate asset allocation as part of your investing strategy comes down to a broad array of options, but the bottom line is finding the best (most appropriate) risk-adjusted returns for your specific situation.

It also needs to be re-visited when different asset classes become more or less volatile, because volatility is a determining factor in the risk adjustment. We have talked about preferred shares a good deal recently. They are no longer the safe and stable asset class that they once were perceived to be (see the chart below). Active portfolio management should and will make the appropriate adjustment to a specific asset class that now displays a greater degree of volatility. You may no longer have the appropriate weighting in your allocation (depending on your specific goals, risk tolerance and time horizon). 

(click on the chart to enlarge)

This is what you pay a portfolio manager to look after for you. Ensuring that you have the best possible returns for the risk that you are taking (and there is always going to be risk if you are trying to get returns better than just putting your money in a Government of Canada issued t-bill).

And, always, please remember that any historical returns are in no way representative of future returns (although we are always working our very hardest to get the best possible and hopefully better than average risk-adjusted returns for our clients)!

Today is webinar Tuesday for our High Rock clients where we will discuss what is happening in the global economy, financial markets and the world of wealth management. Which includes developments that may lead us to make some important decisions in the management of our portfolios and asset allocation. It is part of why we are different and better.

We do post a recorded version on our website, for those who may be interested following the presentation, at or about 5pm EDT: http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html

I would love your feedback:

scott@highrockcapital.ca

And... if you would like to receive this blog in your inbox, please send an email to:

bianca@highrockcapital.ca