Investment

Markets keeping you up? Try this different goals-based investing approach

Published

2 years ago

November 21, 2022

There is a rapidly growing portfolio management approach that eliminates benchmarking altogether through something called planning-led, goals-based investing. Photo by Getty Images/iStockphoto

One of our biggest complaints about the Canadian investment industry is that it is still heavily influenced by inherent behavioural flaws such as encouraging benchmark chasing based on the performance of the hottest segment of the market.

However, there is a rapidly growing portfolio management approach among registered investment advisers in the United States that eliminates this kind of benchmarking altogether through something called planning-led, goals-based investing.

The first step in this philosophy is to determine what specific investment return is required to meet a client’s financial goals and objectives, which are derived from what we call an advanced wealth plan.

A portfolio is then custom designed with diversification among asset classes, regions and sectors according to ability and the willingness for risk. Near-term volatility is managed and minimized via strategy diversification, which accounts for important considerations such as risk drag and return patterns.

For this to work, the client must be satisfied with not fully participating in the market upswings in order to minimize participation during market corrections. The goal is to set a target mean return for the portfolio while tightening the distribution curve of the portfolio’s variability of returns as much as possible.

Obviously, the higher the target return, the larger the width of this distribution curve — after all, there is no such thing as a free lunch — but it should be less variable than owning the broader market for equity investors or a traditional 60/40 portfolio for balanced investors.

The point is one must be completely agnostic about investing styles, such as value versus growth, new world (technology) versus old world (energy and commodities), and bonds versus stocks. Instead, the focus is on achieving these target returns while minimizing portfolio risk as much as possible.

We made the switch to this approach approximately four years ago and haven’t looked back. We get a much more consistent investment return profile, which aligns with our client base that understands the philosophy and process.

For example, our overweight in 20-year Treasuries really helped offer material downside protection during the March 2020 meltdown, and our replacement of this 10-to-15-per-cent weighting with energy positions did the same this year.

We have also taken down our fixed-income exposure to the lowest allowable levels and replaced it with structured notes instead of going into more volatile equities or, worse, illiquid privates.

For example, last week we underwrote a five-year note with the Bank of Montreal on Canadian Natural Resources Ltd., Enbridge Inc., Keyera Corp., Pembina Pipeline Corp. and TC Pipelines LP that if in 12 months these stocks collectively have risen above zero per cent, it will be bought back and closed out, but with a 17.5-per-cent coupon. If not, it will roll over to year two where it will pay a 35-per-cent coupon and close out if these stocks collectively have risen above zero per cent.

The totality of our goals-based strategies has resulted in our internal balanced fund protecting against all the downside in this year’s correction, while most of our peers were down more than 10 per cent. Over the past five years, our fund has been able to achieve its annualized goals-based target of five to seven per cent while our peers struggled to post an annualized 3.5 per cent.

We think this planning-led, goals-based approach will start to gain a lot more momentum with others, especially if both equity and bond markets continue to fluctuate based on various interpretations of the interest rate outlook.

Instead, it might be better to step away from all this bother and get a good sleep at night, knowing your goals are not dependent on near-term market moves or, worse, what everyone else is doing.

Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc, operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning.

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Economy

Energy stocks help lift S&P/TSX composite, U.S. stock markets also up

Published

2 days ago

September 17, 2024

Anne Joseph

TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.

The S&P/TSX composite index was up 34.91 points at 23,736.98.

In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.

The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.

The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.

The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.

This report by The Canadian Press was first published Sept. 17, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX gains almost 100 points, U.S. markets also higher ahead of rate decision

Published

5 days ago

September 13, 2024

Anne Joseph

TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.

“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.

In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.

The S&P/TSX composite index closed up 93.51 points at 23,568.65.

While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.

Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.

But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.

Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.

“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.

“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.

A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.

It would also be “counter to what they’ve signaled,” he said.

More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.

“That’s going to be more important than the size of the cut itself,” he said.

In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.

“Here, the labour situation is worse than what we see in the United States,” he said.

The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.

The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.

The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.

— With files from The Associated Press

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX composite down more than 200 points, U.S. stock markets also fall

Published

2 weeks ago

September 6, 2024

Anne Joseph

TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.

The S&P/TSX composite index was down 239.24 points at 22,749.04.

In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.

The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.

The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.

The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.

This report by The Canadian Press was first published Sept. 6, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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