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

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

Published

6 days 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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Economy

S&P/TSX composite up more than 150 points, U.S. stock markets also higher

Published

2 weeks ago

August 29, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.

The S&P/TSX composite index was up 171.41 points at 23,298.39.

In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.

The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.

The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.

The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.

This report by The Canadian Press was first published Aug. 29, 2024.

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

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Investment

Crypto Market Bloodbath Amid Broader Economic Concerns

Published

1 month ago

August 5, 2024

Harry Miller

The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.

The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.

Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.

The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.

Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.

Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.

Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.

Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.

The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.