Investment Update: War in Ukraine and its Implications

Monday, March 7, 2022

The Big Picture

As everyone is likely aware, war broke out 12 days ago when Russia invaded Ukraine.  This aggression is the latest Russian action against Ukraine – something that started in 2014 with the annexation of Crimea and its support of an independence movement in Eastern Ukraine.  However, this current incursion, and in particular the attack on a nuclear power plant last week, have dramatically changed not only the investment landscape, but also the landscape for the world in general.

We received a rather uncomfortable report from BCA Research on Friday that provided their take on the events in Ukraine.  BCA may be pessimistic, but they assigned a small chance of this conflict escalating to a much broader and more dangerous war.  However, they also stated that this was irrelevant to how one’s portfolio should be constructed because if a nuclear bomb is headed your way, the make-up of your portfolio does not really matter.  Very distressing commentary, but also calming in a way as it guides you towards concerning yourself with the things you can control rather than worrying about the things you cannot.  In BCA’s assessment, they view stocks as being the place to be over the next year, but there will be some rough patches over the next 3 months.  (Source: BCA Research, Rising Risk Of A Nuclear Apocalypse, March 4, 2022)

Impact on the Financial Markets

If we ignore the unthinkable outlined above and focus on the financial perspective, the reaction since the invasion has been a shift to investments and locations that are viewed as being safe.  At a very high level, this means:

  • Moves to safer currencies: In times of crisis, there is generally a move to safer currencies such as the US Dollar, Japanese Yen, and Swiss Franc.  On the day of the invasion, these safer currencies performed the best.  Interestingly, the Australian and Canadian dollars have held up well too; distance from the war and quantity of natural resources are probably factors in this performance.  Obviously, the European currencies have done relatively poorly.

Change in Currency Values Relative to US Dollar

(Source: Pacific Exchange Rate Service, fx.sauder.ubc.ca)

  • Moves to safer assets: Not all investments have the same risks, so there has been a shift from risky assets to safer ones.  Bonds have generally done well as investors flock to snap them up. This is readily apparent in the yield on 10-year US Government Treasury Bonds where the yield dropped from about 1.98% just before the invasion to about 1.75% presently. As yields drop, prices go up.  Stocks have generally dropped although some markets have done okay; others, principally in Europe, have done poorly.

US 10-Year Treasury Bond Yield Dropped

(Source: Yahoo Finance, finance.yahoo.com, symbol = ^TNX)

  • Moves to safer locations: Obviously, being close to the Ukraine at this time is not good, so investments closest to the fighting will have the biggest risk and the biggest losses as money moves to locations farther away.

From an investment/economic perspective, the big unknown is the impact that all the sanctions that have been announced will have on investments.  Given that Russia is a large exporter of oil, natural gas, wheat, and other commodities, it is almost certain that there will be ripple effect felt around the world.  Canada is also a large exporter of these same commodities, so we will likely be somewhat shielded. On the other hand, countries that need to import these items will be much more exposed to negative effects.  Obviously, Europe is the most affected as it is the closest to Russia and has the most economic ties to it.

Impact on the Alitis Pools

Alitis’ diversified approach to investing tends to work well in these situations.  During the last major event – the initial Covid drop in 2020 – there were some declines in some investments but overall, the drawdown was limited.  This limited decline was mostly due to the diversification we employed because of the asset classes we used.  The following sections provide an overview of the expected impact on the major asset classes we use in constructing portfolios:

Real Estate

With respect to real estate, we expect events in the Ukraine to have little or no impact.  The vast majority of real estate exposure is in private deals that have no direct connection to the Ukraine or public markets.  At present, the only publicly-traded real estate holding is Dream Impact Trust (MPCT.UN) which represented the following exposures at the end of February:

  Dream Impact Trust Exposure in Alitis Pools
Alitis Private REIT 0.59%
Alitis Private Real Estate LP 0.27%
Alitis Income & Growth Pool 3.59%
Alitis Strategic Income Pool 1.44%
Alitis Growth Pool 2.49%

Mortgages

Our mortgages investments are in a similar position as Alitis’ real estate holdings with most of the assets being private and in Canada.  Current events are expected to have little or no impact on these investments.  There is some exposure to US private mortgages but, as with Canada, events are not expected have any material impact.  Some publicly-traded mortgage investments are held, but their reaction has been mixed since the invasion – one up, one down, and one about the same.  It would appear that the publicly-traded mortgage investments are generally indifferent to the situation and they still generate a nice yield.

Publicly-Traded Mortgage Investments, Returns and Yield (as of March 4, 2022)

  Return Since February 23rd Return Year-to-Date Yield
MCAN (MKP) +4.09% +12.19% 7.5%
Atrium (AI) -0.28% +0.50% 6.3%
Timbercreek (TF) -1.96% -1.04% 7.2%

(Source: Yahoo Finance, finance.yahoo.com)

Fixed Income

Fixed income has had a tough time over the last year as inflation has increased and interest rates have risen.  However in times of stress, fixed income is generally a safe haven and does well, and that is the case with events over the last week. As mentioned above, yields on US 10-Year Treasuries have dropped which has caused most bond prices to increase.  This is the reason why we like to have traditional fixed income investments in portfolios – when adverse events happen, bonds do well and provide protection for your portfolio.  If the situation in Ukraine persists, we expect bonds to continue to provide that safe haven for your portfolio.

With respect to the private debt investments we use in the Alitis Pools, they deal principally in Canada with some exposure to the US.  As such, it is not expected that these will have any material issues due to the war in Ukraine.

Equities

Obviously, publicly-traded equities are the biggest concern, as they should be when wars happen.  Generally speaking, equities have performed as follows since the invasion started:

  • European markets have fared poorly as, obviously, they are closest to the action and will be most impacted.
  • The US, Canada, and Australia have all gone up.
  • Emerging markets away from Ukraine have been mixed but have generally done okay.

As of Friday’s close (March 4, 2022), here is how various markets around the world have performed using country-specific ETFs as a proxy:

Performance of Selected Country-Specific ETFs (in US dollars)

  Return Since February 23rd Return Year-to-Date
Canada (EWC) 3.43% 0.34%
Australia (EWA) 3.30% -0.28%
United States (SPY) 2.41% -9.02%
Brazil (EWZ) 2.36% 22.19%
Mexico (EWW) -0.37% -3.00%
Japan (EWJ) -2.03% -8.60%
Korea (EWY) -2.44% -10.00%
Hong Kong (EWH) -5.43% -4.70%
United Kingdom (EWU) -8.04% -5.37%
Sweden (EWD) -10.31% -25.81%
Germany (EWG) -13.67% -21.02%
Poland (EPOL) -15.12% -23.50%
Russia (RSX) -70.29% -78.81%

(Source: Yahoo Finance, finance.yahoo.com)

Overall, Russia has obviously fared the worst with other European countries also doing poorly. (Note: after market close on Friday, trading in RSX was halted making it is essentially worthless now) It is interesting to note that four countries – Canada, US, Australia, and Brazil – have gone up over since the war started.  Our exposure to the continental European countries (Germany, Sweden, Poland) closest to Russia was a concern given the situation, so the allocation to these countries was cut by about 50% on February 15th, with the proceeds left in cash.

As for the private equity and infrastructure investments utilized by Alitis, it is expected that the impact will be minimal as, on aggregate, most of the underlying investments are in Canada and the US.

Summary

The situation in Ukraine is horrible to watch and we truly hope that this madness ends quickly.  We don’t believe that a doomsday scenario will ever come close to unfolding but unfortunately, we are likely to hear more about these potential outcomes as sensationalized news gets views and drives ratings.  All this is a regrettable byproduct of the age in which we live.

From an investment perspective, however, the Alitis Pools are positioned to ride through the turbulence relatively well.  Alitis has always focused on risk management and the use of alternative asset classes which, in our opinion, should have better risk/return outcomes. These private asset classes have allowed us to increase the diversification options available for your portfolio and should work well even in these truly uncertain times.

Disclaimer and Disclosures – Alitis Investment Counsel Inc. (“Alitis”)

This article is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell any securities discussed herein to anyone in any jurisdiction where such offer or solicitation would be prohibited.

Opinions expressed in this article should not be relied upon as investment advice. This article does not take into account the investment objectives, risk tolerance, financial situation or specific needs of any particular person. Each person’s investment objectives, risk tolerance, financial situation and specific needs should be evaluated before making any investment decision. This article may contain economic analysis and opinions, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. All opinions expressed herein constitute judgements as of the date of this article and are subject to change without notice.

Unless otherwise noted, the indicated rates of return are the historical annual compounded returns for the period indicated, including changes in security value and the reinvestment of all distributions and do not take into account income taxes payable by any securityholder that would have reduced returns. The investments are not guaranteed; their values change frequently and past performance may not be repeated.

Unless otherwise noted, risk refers to the annualized standard deviation of returns for the period indicated.

The information contained in this article has been drawn from sources believed to be reliable but is not guaranteed to be accurate or complete. Alitis assumes no duty to update any information or opinion contained in this article.

© 2022 Alitis Investment Counsel Inc. All rights reserved. Unauthorized use, distribution, duplication or disclosure, in whole or in part, or in any form or manner, without the prior written permission of Alitis is prohibited by law.

Dividend Investing – Part II

This article is the second in a series highlighting Dividend Investing and its role within portfolios. The inspiration for this series is the first anniversary of the newest addition to the Alitis suite of funds: the Alitis Dividend Growth Pool. For more information or if you have follow-up questions from this article, please reach out to your Alitis adviser.

In Part I of this series, we reviewed the basics of Dividend Investing. In Part II, we look at the current market environment to provide our outlook for Dividend Investing for the years ahead.

2021 was a year full of twists and turns. Time and again, investors brushed off news that could have derailed investment markets. A contested US presidential election, an assault on the US Capitol, historically high inflation, supply chain disruptions—none of these events stopped the investment markets from achieving strong performance. Even the Delta and Omicron variants of COVID-19 failed to cast a shadow during the holiday season of 2021, and the markets closed out the year strongly.

2022 is also starting off in dramatic fashion. Russia’s invasion of Ukraine, central bank plans for raising interest rates & possible quantitative tightening, and lurking fears of the Omicron variant & its impact on supply chain issues are causing the markets to be very volatile over the last few weeks. The Bank of Canada kept its policy interest rate unchanged on January 26th, 2022. Similar to their US counterparts, the Bank of Canada left no doubts that rate hikes are coming.

While many moving parts cloud the outlook for markets, some key themes are beginning to emerge. Let’s take a closer look at a few of these major issues to develop our investment thesis.

Current Macroeconomic Environment

 

Rising Interest Rates

In the image below (Figure 1), the expected federal funds rate is shown to be increasing from around 0% to close to 2% over the next two years. While those numbers may not seem like extreme changes, when applied to the billions of dollars of future earnings and the billions of dollars of debt held by companies, it can make a significant difference to earnings and valuations.

Figure 1 – Higher Rates Coming (Bloomberg)

Higher rates reduce the value of companies’ future earnings, which is an important part of discounted cash flow valuation models. This weighs especially on shares of fast-growing companies with much of their valuation reliant on profits in the years ahead.

This effect would warrant an overweight of value-oriented sectors like cyclicals, financials, and energy over expensive growth stocks like the technology sector.

Higher Inflation

Inflation numbers continue to come in red hot (Figure 2) and will continue to be a talking point for the next few years.

Figure 2 – Inflation Since the Start of the Pandemic (Bloomberg)

Sustained inflation and higher interest rates have the potential to be lethal to a standard portfolio of stocks and bonds. Inflation accelerated at the fastest pace in this last quarter of 2021 since the early 1980s. A lot is riding on the idea that the Fed really can do what it says: cool down the economy without tanking it. Inflationary fears tend to drive up the yield on 10-year bonds, which is usually detrimental to growth stocks. Another trend also emerges during inflationary times; companies can raise prices to boost profit margins.

Value-based companies are mature, long-standing companies, and they can use their earnings to improve their margins. Growth companies rely on expected earnings and lack a long-standing performance track record. An environment with higher sustained inflation would warrant a tilt towards value stocks over growth stocks.

Supply Chain Issues

Whether its semiconductor chip shortages, Russia-Ukraine tensions causing oil prices to surge to over $90 or the availability of food & other consumer staples – supply chain woes are far from over. Supply chains are still grappling with high costs of energy, packaging, and transportation, as well as shortages of workers and shipping containers. Grain prices have jumped since mid-2020 as bad weather curbed harvests, China scooped up supplies, and a fertilizer crunch added to farmers’ costs. Other key foods have also seen significant price increases in 2021 (chart below). These supply chain issues will most likely continue to impact our lives for the rest of 2022 and possibly have some prolonged effects.

From an investment standpoint, these supply chain issues do not provide a clear position opportunity, as some of the increased costs/delays are passed onto consumers while others impact companies directly. In general, these effects would be expected to create more volatility in sectors with greater reliance on international shipping, like energy, consumer goods, materials, and industrials.

Geopolitical Risk

With Russia’s invasion of Ukraine, investors should maintain a defensive bias and seek haven in quality investments. While most strategists & geopolitical experts expect the impact of a potential conflict to be brief, volatility is expected in the near term (which has been very evident in the market over the past few weeks).

Keeping these geopolitical risks in mind, sectors like energy and financials, value stocks, and commodities are positioned to benefit from robust economic growth and are relatively well insulated from the primary market risks. The quality & resilience of companies is of vital importance during such challenging times.

 

Current Stock Valuations

 

The Price You Buy At Affects Your Returns

When making investments, nobody is buying with an expectation to lose money. With any purchase, the price you pay is your current perception of fair value. It includes your expectations for any future value you will receive from your purchase.

However, the stock market does not always go up in value, even though everyone buys with an expectation of a positive return. As new information becomes available and new events unfold, our expectations change. This may move prices up or down, but rarely do they stay for long on the expected path we imagined when buying.

These expectations that we start with are a large part of the stock market’s valuation. Knowing how lofty our expectations are at a given moment is not useful for forecasting short-term returns, but it can be a useful indicator for long-term returns. In fact, there is a formula in finance for this purpose: the CAPE Ratio2 (Cyclically-Adjusted-Price-to-Earnings Ratio), also known as the Shiller P/E.

CAPE Ratio

A high CAPE ratio (the current price is relatively high compared to the amount of historical earnings) indicates the market is overvalued and future long-term returns will be poor. A low CAPE ratio indicates the market is undervalued and future long-term returns will be strong.

A further look into historical CAPE ratios is included at the bottom of this post if you really like numbers. For brevity, using this valuation tool we will consider the following ranges of CAPE ratios as follows:

  • Below 10: Very Cheap
  • Between 10-20: Moderately Cheap
  • Between 20-30: Moderately Expensive
  • Above 30: Very Expensive

To be clear, the CAPE ratio is not useful as a market timing tool. Even if valuations are near all-time highs, selling out of the stock market entirely will almost always result in a lower return in the long-term versus staying invested. This ratio is meant only as a long-term point of reference, which is useful for setting expectations for long-term investing and financial planning.

Where are CAPE Ratios Today?

CAPE ratios for the global stock market are at very high levels relative to historical periods. The yellow dots in the following chart are the highest CAPE ratios recorded for the global stock market, and they are from the tech boom in the late-1990s to 2001. The shaded range is the range of CAPE ratios experienced over the past 5 years, which are no less extreme.

In using the labels above, the global stock market is Very Expensive, and has been for some time. This could continue for another long period of time, but the odds of having very strong stock returns over the next ten years from current valuations is low.

The Global Stock Market is Multiple Markets…

Not all parts of the stock market are at such high valuations. There are many ways to divide the stock market for relative analysis.

One way is to look at Growth versus Value stocks. Using indices for the broader US market, we can see the following CAPE ratios on December 31, 2021:

  • Russell 1000 Growth Index: 4 (Very Expensive)
  • Russell 1000 Value Index: 8 (Moderately Expensive)

Another way is by region. Here are some country-specific index valuations on December 31, 2021:

  • Canada: 9 (Moderately Expensive)
  • USA: 0 (Very Expensive)
  • United Kingdom: 5 (Moderately Cheap)
  • Europe: 3 (Moderately Expensive)

And a third way is by sector. Here are some sector-specific index valuations on December 31, 2021, using companies listed in the S&P 500 Index:

  • Very Expensive Sectors:
    • Communications, Consumer Discretionary, Industrials, Technology, Real Estate
  • Moderately Expensive Sectors:
    • Consumer Staples, Energy, Health Care, Materials, Utilities
  • Moderately Cheap Sectors:
    • Financials

…But The Global Stock Market Is All Connected

We can see above that most markets we look at here are either Very Expensive or Moderately Expensive. Stocks in general have had many factors in their favour in the last few years as we noted above. However, there are pockets of the stock market that have much higher valuations than others. These would typically be areas like US Growth and specifically Technology stocks that are starting to have a variety of headwinds develop.

High-valuation areas of the stock market do not warrant selling or avoiding those areas of the market entirely. They can still out-perform or have specific opportunities that can add value to your portfolio. In our long-term positioning, we favour tilting towards value over growth and tilting away from the US stock market in favor of other global markets.

Summary

At Alitis, extreme valuations in the stock market only further bolster our enthusiasm to use alternative investments and appropriate diversification to provide our clients with solid returns on their investments.

To repeat a point made above, these valuations do not provide a market timing tool. The perfect time for you to invest in anything is more dependent on your personal planning, financial goals, risk tolerance and time horizon than it is on market levels. We believe a diversified approach to investing provides better risk-adjusted returns over the long-term, which is the most important horizon to us as long-term investors.

We hope you enjoyed reading this and will look forward to the next article in our series, where we will highlight the features and benefits of the Alitis Dividend Growth Pool. We will leave you with this thought from The Intelligent Investor: The Definitive Book on Value Investing:

“The lesson is clear: Don’t just do something, stand there. It’s time for everyone to acknowledge that the term “long-term investor” is redundant. A long-term investor is the only kind of investor there is. Someone who can’t hold on to stocks for more than a few months at a time is doomed to end up not as a victor but as a victim.”

– Benjamin Graham, Author

Sincerely,

Apurva Parashar, MBA, CAIA, CIM®
Associate Portfolio Manager
Alitis Investment Counsel Inc.

Thomas Nowak, CFA
Portfolio Manager
Alitis Investment Counsel Inc.

 

References

  1. Vishnoi, Abhishek. “Cheap Stocks to Finally Have Their Day in 2022, Investors Say.” Bloomberg, 3 Jan. 2022, www.bloomberg.com/news/articles/2022-01-03/cheap-stocks-to-finally-have-their-day-in-2022-investors-say?sref=4ZAyTULR.
  2. Mathews, Steve. “A Guide to the Fed Meeting as It Seeks to Tame Inflation.” Bloomberg, 26 Jan. 2022, www.bloomberg.com/news/articles/2022-01-26/fed-to-signal-march-interest-rate-liftoff-decision-day-guide?sref=4ZAyTULR.
  3. Durisin, Megan. “Don’t Bank on Food Getting Cheaper Quickly If Crop Prices Ease.” Bloomberg, 28 Jan. 2022, www.bloomberg.com/news/newsletters/2022-01-28/supply-chain-latest-expensive-food-even-if-crop-prices-ease?sref=4ZAyTULR.
  4. Brush, Michael. “Four Reasons Why Value Stocks Are Poised to Outperform Growth in 2022 — and 14 Stocks to Consider.” MarketWatch, 15 Jan. 2022, www.marketwatch.com/story/four-reasons-why-value-stocks-are-poised-to-outperform-growth-in-2022-and-14-stocks-to-consider-11641991663.
  5. Jackson, Anna-Louise, and John Schmidt. “2021 Stock Market Year In Review.” Forbes, 3 Jan. 2022, www.forbes.com/advisor/investing/stock-market-year-in-review-2021.
  6. Chrysoloras, Nikos. “The Stock Investor’s Playbook for the New World of Rising Interest Rates.” Bloomberg, 14 Feb. 2022, www.bloomberg.com/news/articles/2022-02-14/a-stock-investor-s-playbook-for-the-new-world-of-rising-rates?sref=4ZAyTULR.
  7. https://indices.barclays/IM/21/en/indices/static/historic-cape.app
  8. http://www.econ.yale.edu/~shiller/data.htm
  9. https://siblisresearch.com/data/growth-value-pe-cape/
  10. https://siblisresearch.com/data/cape-ratios-by-sector/
  11. https://www.brandes.com/docs/default-source/brandes-institute/2018/the-cape-ratio-and-future-returns-a-note-on-market-timing.pdf

Appendix

The CAPE Ratio is used on indexes and takes the current index price divided by the past 10 years of earnings data adjusted for inflation. For more details on the calculation, see https://www.forbes.com/advisor/investing/shiller-pe-ratio/

A high CAPE ratio (the current price is relatively high compared to the amount of historical earnings) indicates the market is overvalued and future long-term returns will be poor. A low CAPE ratio indicates the market is undervalued and future long-term returns will be strong.

Using U.S. stock price data going all the way back to 1881, it can be shown that there is a clear relationship between lower 10-year returns and higher starting CAPE ratios3. For periods with starting CAPE ratios below 10, the average 10-year subsequent annual return is 11.3%, whereas starting CAPE ratios over 30 have had an average 10-year subsequent annual return of -1.0%.

The chart with the boxes shows the range of historical outcomes graphically. The top and bottom “T” lines are the maximum and minimum return for those ranges of CAPE ratios, the top and bottom of the shaded box for each range represent the 25th and 75th percentiles, and the horizontal line in the middle of each box represents the 50th percentile (median).

Initial CAPE Ratio Percentage of time in range Subsequent 10-year annualized real returns
Average (Mean) Minimum Maximum
Less than 10 15% 11.3% 1.8% 20.0%
10 to 20 62% 6.8% -4.6% 17.6%
20 to 30 20% 4.0% -4.0% 14.2%
Greater than 30 4% -1.0% -5.9% 4.5%

With this data on hand, by this valuation tool we can label these four ranges as follows:

  • Below 10: Very Cheap
  • Between 10-20: Moderately Cheap
  • Between 20-30: Moderately Expensive
  • Above 30: Very Expensive

Disclaimer and Disclosures – Alitis Investment Counsel Inc. (“Alitis”)

This article is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell any securities discussed herein to anyone in any jurisdiction where such offer or solicitation would be prohibited.

Opinions expressed in this article should not be relied upon as investment advice. This article does not take into account the investment objectives, risk tolerance, financial situation or specific needs of any particular person. Each person’s investment objectives, risk tolerance, financial situation and specific needs should be evaluated before making any investment decision. This article may contain economic analysis and opinions, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. All opinions expressed herein constitute judgements as of the date of this article and are subject to change without notice.

Unless otherwise noted, the indicated rates of return are the historical annual compounded returns for the period indicated, including changes in security value and the reinvestment of all distributions and do not take into account income taxes payable by any securityholder that would have reduced returns. The investments are not guaranteed; their values change frequently and past performance may not be repeated.

Unless otherwise noted, risk refers to the annualized standard deviation of returns for the period indicated.

The information contained in this article has been drawn from sources believed to be reliable but is not guaranteed to be accurate or complete. Alitis assumes no duty to update any information or opinion contained in this article.

© 2022 Alitis Investment Counsel Inc. All rights reserved. Unauthorized use, distribution, duplication or disclosure, in whole or in part, or in any form or manner, without the prior written permission of Alitis is prohibited by law.

Dividend Investing – Part I

This article is the first of a series highlighting Dividend Investing and its role within portfolios. The inspiration for this series is the approaching first anniversary of the newest addition to the Alitis suite of funds: the Alitis Dividend Growth Pool. For more information or if you have follow-up questions from this article, please reach out to your Alitis adviser.

 

As we begin a new year, we thought it would be an excellent time to reflect on the highlights of 2021. For all of us at Alitis, the launch of the Alitis Dividend Growth Pool in January 2021 was a huge milestone and something that had been in the works for awhile. The Alitis Dividend Growth Pool is an all-equity portfolio designed for tax- efficiency with a focus on dividend investing.

What is Dividend Investing?

Dividend investing is a type of equity investing that has a focus on dividend-paying stocks. As a subset of other equity strategies, it is still expected to be correlated with the overall stock market and to carry similar risk and return characteristics. That being said, there are important differences between dividend-paying stocks and other stocks.

Total returns from dividend-paying stocks are comprised of two components – dividend income plus price appreciation (or capital gains). Companies that pay dividends tend to have stable cash flows, robust business models, and consistent dividend payout track records. After all, if a company makes a commitment to a dividend policy, investors expect them to stick with it.

For stocks that do not pay dividends, total returns are entirely dependent on price appreciation. These companies are often newer and have less free cash flow generated within their business models. In some cases, the amount of cash flows can be deep in the red for years. This type of investing places more reliance on the prospects of future earnings potential as opposed to current business operations.

More than the dividend yield, the focus of a dividend investor should be in finding businesses that have strong intrinsic value. The value of a business in technical terms is defined as the present value of all future cash flows that the business can generate. The business (or company) can then decide what to use that cash for – paying dividends (think stocks of Canadian banks), reinvesting in that business (for example extending their R&D capabilities or expanding to a new location), acquiring other businesses to add more value through synergies (think mergers & acquisitions), holding the cash (think Apple), paying down their debt or buying back its shares (think Berkshire Hathaway).

Dividends as a Defensive Tool

In today’s low interest rate environment, low-risk investments like GICs and traditional bonds are not yielding enough to keep up with inflation. Common stocks generally provide an opportunity for more capital appreciation than fixed income investments but are also subject to greater market fluctuations. Dividends as an income stream give investors reassurance in periods of market volatility.

Dividend investing has been around a long time. There are examples of companies as early as the 1600s paying dividends on shares in companies involved in the spice trade between Europe and Asia.1 More recent research has shown that dividend yields have been strong indicators of earnings growth.2

What the Numbers Say

In wanting to do our own research on the matter, we made a simple case study. We took the global broad market stock index (MSCI World Index USD) and measured it against its equivalent for dividend-paying stocks (MSCI World High Dividend Yield Index USD), with monthly data from September 30th, 2021, going back to June 30th, 1995.3 Here is what we found.

In Chart 1, the dividend-paying stocks (solid line) outperforms the broad stock index (dotted line) over the total timeframe. Dividend-paying stocks would have turned $100,000 USD into $755,548 (an 8.00% annualized return) while the broad stock index would be at $713,140 (a 7.77% annualized return).

Correlation is a measure of how two investments zig and zag together.  A correlation of 1 means that the investments zig and zag together while a correlation of -1 indicates that when one zigs, the other zags. The two sets of data stated above are quite highly correlated (0.93, for those keeping score), but there are certainly periods when one or the other outperforms. For example, the dividend-payers outperformed coming out of the 2000 tech bust and had quite the lead until the housing crisis near the end of the decade. For the start of the 2010s, the dividend-payers spent the first half rebuilding their lead, while during the latter half and into the 2020s the broad market index caught up substantial ground.

Chart 1: Growth of $100,000 Dividend-Paying Stocks (solid) vs. Broad Stock Market (dotted)

Data Sources: Bloomberg, Alitis

Another way to look at this data is by the 3-year trailing returns. Chart 2 shows the difference of the dividend-paying index and the broad market index over the same period. For example, in 2003 if an investor in the dividend-paying index compared their statements with someone who invested in the broad market, they would have a 3-year annualized return that was over 10% higher. However, if those two investors compared statements as of September 30, 2021, they would find themselves in reversed positions with the broad market investor outperforming on a 3-year basis by about 6% annually.

Chart 2: 3-Year Trailing Return Outperformance for Dividend Index

Data Sources: Bloomberg, Alitis

Based on historical performances, we can see that there are times dividend-paying stocks will generate higher returns than the broad stock market, and there are times when the reverse is true.

It can also be noted that we are currently at the low end of the dividend-payers relative performance over this period. Historically this level of under-performance is similar to what transpired at the height of the tech boom around 1999-2000. Following that episode, dividend investing experienced relative outperformance for several years.

How does the final report card look for dividends versus the broad market? Let’s look at their returns plotted against their risk level (more formally called standard deviation). In Chart 3 we have plotted the values since inception as solid markers, while the outlined markers represent the values over the five years ending September 30th, 2021. In general, items to the top-left of the chart are preferred, while items to the bottom-right have higher risk and lower returns.

Chart 3: Risk-Return

Data Sources: Bloomberg, Alitis

This supports the same story seen above. Dividend investing and stock market investing are both “higher risk, higher return” investment strategies. Dividend investing since inception has achieved roughly the same annualized return with a slightly lower risk level. However, over the most recent five-year period (Oct 2016- Sep 2021), the broad market has had a burst of higher returns, while the dividend-payers have still achieved solid returns with a lower standard deviation.

Summary

In this piece, we have covered a lot of information. We looked at the basic arguments behind dividend investing and we dove deep into the statistics to find whether the arguments hold true. We found that investing in dividend stocks provides a lower risk yet robust performance versus the broad stock market index. We noted that in the last five years, dividend-paying stocks have had positive performance, but the broader stock market has taken off higher in relative terms.

In part 2 of this series, we shift our focus from historical returns to the future. Given extremes in interest rates, equity prices and other variables, we will develop our case for why we expect dividend investing to outperform based on our outlook.

Thank you for reading and we hope you enjoy the upcoming articles of this series.

 

Apurva Parashar, MBA, CAIA, CIM ®
Associate Portfolio Manager
Alitis Investment Counsel Inc.

 

Thomas Nowak, CFA
Portfolio Manager
Alitis Investment Counsel Inc.

 

References

  1. Beattie, A. (2021, May 19). What was the first company to issue stock? Investopedia. Retrieved October 17, 2021, from https://www.investopedia.com /ask/answers/08/first-company-issue-stock-dutch-east-india.asp.
  2. Arnott, R.D and C.S. Asness. (2003). “Surprise! Higher Dividends = Higher Earnings Growth.” Financial Analysts Journal, Vol.59, No.1, pp. 70-87 https://www.researchaffiliates.com/documents/FAJ_Jan_Feb_2003_Surprise_Higher_ Dividends_Higher_Earnings_Growth.pdf
  3. MSCI World High Dividend Yield Index (USD) Fund Fact as of September 30, 2021. Retrieved October 30, 2021, from https://www.msci.com/documents/ 10199/74fe7e16-759e-405c-96aa-8350623fae65

Disclaimer and Disclosures – Alitis Investment Counsel Inc. (“Alitis”)

This article is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell any securities discussed herein to anyone in any jurisdiction where such offer or solicitation would be prohibited.

Opinions expressed in this article should not be relied upon as investment advice. This article does not take into account the investment objectives, risk tolerance, financial situation or specific needs of any particular person. Each person’s investment objectives, risk tolerance, financial situation and specific needs should be evaluated before making any investment decision. This article may contain economic analysis and opinions, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. All opinions expressed herein constitute judgements as of the date of this article and are subject to change without notice.

Unless otherwise noted, the indicated rates of return are the historical annual compounded returns for the period indicated, including changes in security value and the reinvestment of all distributions and do not take into account income taxes payable by any securityholder that would have reduced returns. The investments are not guaranteed; their values change frequently and past performance may not be repeated.

Unless otherwise noted, risk refers to the annualized standard deviation of returns for the period indicated.

The information contained in this article has been drawn from sources believed to be reliable but is not guaranteed to be accurate or complete. Alitis assumes no duty to update any information or opinion contained in this article.

© 2021 Alitis Investment Counsel Inc. All rights reserved. Unauthorized use, distribution, duplication or disclosure, in whole or in part, or in any form or manner, without the prior written permission of Alitis is prohibited by law.

Learnings from A Random Walk Down Wall Street by Burton G. Malkiel

As the ongoing pandemic has restricted everyone’s ability to travel and explore, I have found a way to escape through the next best alternative: books. I recently finished reading one of the most classic investment books: A Random Walk Down Wall Street. The first edition of this book was published over forty-five years ago and the book has truly stood the test of time. The lessons from this book are still very relevant and there are some true merits to the author’s overall investment recommendations. Below are my most valuable takeaways from this book:

1. Importance of diversification beyond stocks and bonds at all age group

Beyond traditional stocks and bonds, the author emphasizes the importance of bond substitutes/alternatives and real estate investing {through real estate investment trusts (REIT)} for investors across different age-groups.

We at Alitis strongly believe in this philosophy: the Alitis Private Mortgage Fund is a bond substitute designed to generate a high level of income with relatively low volatility. In today’s low-interest-rate environment, the Private Mortgage Fund targets net annualized returns in the 6-7% range while the Canadian 10-year government bond is presently yielding less than 1.6% (https://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/). Similarly, the Alitis Private REIT offers access to private real estate investments with a focus on the multi-family residential sector. The Private REIT fund targets net annualized returns of 7%-10%. It is Alitis’ view that diversification across many different asset classes will mitigate risk which is an important factor in building a well-balanced investment portfolio across all age groups.

2. Stock Picking vs. Indexing

In today’s low fees/zero fees environment, anyone who has access to the internet and watches BNN news can become a stock picker. But time and again, index-based investment strategies have outperformed the active managers. Based on S&P Global’s SPIVA (“S&P Indices Versus Active”) Statistics & Reports (https://www.spglobal.com/spdji/en/spiva/#/reports ) as of Dec 31st, 2020, 98.63% of Canadian equity funds underperformed the S&P TSX Composite index over the previous five years. Another factor to keep in mind while considering stock picking and trading in and out is the fees associated with each transaction; these costs add up over time and can have a material impact on your portfolio’s performance.

We at Alitis believe that the market finds its true intrinsic value, so you will never hear our portfolio managers & advisers talk about things like the top stock pick of the hour. We believe in hedging our bets and complementing our active portfolio management in the alternative space (mortgages, private debt, real estate, private equity) and traditional asset classes (stocks & bonds) with low-cost passive investment strategies. It is Alitis’ views that this creates a complimentary mix of active and passive investment strategies.

History has indicated that it is almost impossible to beat the market by timing the market. The safest and most efficient way to build wealth is through time. Portfolios will go up in the long run because the expected returns of the investments are positive, or otherwise they would not be able to attract capital. Combined with the compounding effect, a well-diversified portfolio held for long periods should produce generous results.

3. Behavioral biases and their side effects

Individual investors are expected to be rational individuals who make decisions that maximize their wealth but are constrained by their risk tolerance. Below are some factors which indicate the irrational behavior that investors may be prone to:

  • Loss Aversion & Overconfidence: How often have you heard stories about a friend or a family member saying that they are holding on to a stock even though it has been performing poorly for five years, just because they believe it will recover. Well, that is because they do not want to admit that they are at fault – it is better to carry on that loss instead of realizing it because that makes it real, and one must admit their mistake. Another common manifestation of overconfidence is the consistent overvaluing of growth stocks.
  • Herd Mentality: Of late everyone knows someone who got rich quick with cryptocurrency investing. A couple of years ago, there was a similar buzz around marijuana stocks. We get lost in the herd mentality and get swept up with all the hype surroundings these get-rich-quick-trades and forget about our true risk tolerance and investment needs. People are quick to share success stories, but not failures, and what we do not hear about is all the failures that happened in these get-rich-quick-trades.

One of my all-time favorite movies is “Everest” directed by Baltasar Kormakur (released in 2015). There is a scene in the movie when a climber is talking with Rob Hall, expedition leader, and is trying to push Rob to take some additional risks to make sure they can summit Mount Everest. Rob replies: “You do not pay me to take you to the summit; you pay me to bring you back safely.”

That is what our role as Portfolio Managers and Financial Advisors is: we are here to protect you from pitfalls, temptations, biases, and unnecessary risks and ensure your financial well-being is always paramount.

 

Thank You,

Apurva Parashar, MBA, CAIA, CIM ®

Associate Portfolio Manager

Alitis Investment Counsel Inc.

 

Buy the Book

If you would like to purchase a copy of Malkiel’s book, please follow this link to Amazon:

https://www.amazon.ca/Random-Walk-Down-Wall-Street-ebook/dp/B07DP6YGVX/ref=sr_1_2?crid=23SYOWY26K7K5&dchild=1&keywords=malkiel&qid=1623710348&sprefix=malkiel%2Caps%2C208&sr=8-2

Disclaimer 

This report is provided, for informational purposes only, to customers of Alitis Investment Counsel Inc. (“Alitis”) and does not constitute an offer or solicitation to buy or sell any securities discussed herein to anyone in any jurisdiction where such offer or solicitation would be prohibited. Opinions expressed in this report should not be relied upon as investment advice. This report does not take into account the investment objectives, risk tolerance, financial situation or specific needs of any particular customer of Alitis. Each individual’s investment objectives, risk tolerance, financial situation and specific needs should be evaluated before making any investment decision.

The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. Alitis assumes no duty to update any information or opinion contained in this report. Neither Alitis nor any director, officer or employee of Alitis accepts any liability whatsoever for any errors or omissions in the information, analysis or opinions contained in this report, nor for any direct, indirect or consequential damages or losses arising from any use of this report or its contents.

Target returns are determined through a number of methods that are designed and intended to maintain the desired returns within the specified risk tolerance set for the fund.  These methods vary.  The fund manager has concluded that within the current environment displayed target returns are reasonable to expect over time, however, returns are not guaranteed.  Talk with an Alitis representative to learn more about what determines the rate of return earned by the fund.

Understanding Tax Slips from Your Investment Accounts

Fraud and How to Protect Yourself

How to build your wealth like the ultrawealthy

When you are searching for the best way to do things, you look for someone with experience. If you need information on gardening, you go to a nursery. If you want to build a house, you find a professional homebuilder with a good reputation and a long track record. Many people would say the same applies to investing: if you want to find the best strategy for building wealth, you look to those that have accumulated the biggest portfolios over the years. Enter the “Ultra-High Net Worth Individual” (UHNWI).

According to Investopedia, UHNWIs are those with investable assets of at least $30 million, an amount that many people balk at. UHNWIs are people too. As my mom would say, “They put their pants on one leg at a time like the rest of us.” They can have biases and make mistakes. However, here are three techniques in which they excel that everyone can use to invest like the ultrawealthy.

Lesson 1: Use a Team Approach

UHNWIs often have complicated financial pictures, and it is important that all the moving pieces fit together. Many UHNWIs will establish their own family office to manage their affairs with a team consisting of accountants, financial planners, portfolio managers, lawyers, and other professionals. The main pillars of planning include complex topics such as investments, insurance, tax planning, estate planning, and generational wealth transfers.

While it is unrealistic for most people to personally retain such an assembly of individuals, these are all professionals that everyone can and should gain some access to. Think of your financial life as a company. If you have multiple departments doing the same thing, you can reduce redundancies. If there are departments missing entirely, the best time to complete your team is now. If you are wanting to build a strategy to maximize your wealth and meet your objectives, you will be better off with input from a team of experts with diverse backgrounds.

After all, if these different professionals are not working towards the same goal there could be issues. For example, your portfolio manager could earn you an excellent return, but if they are not aware of a plan you made with your accountant to provide a large cash gift to one of your children, then it may be in an illiquid asset that is difficult to gift.

By having a level of coordination between these professionals, you can have a unified plan that covers all your bases and minimizes confusion. The most important part of using a team of professionals is not to make your life as complex as a UHNWI, but to streamline your resources so you can spend less time worrying about your life’s journey and more time enjoying it.

What can a team of professionals do for you?

If you think of the group of professionals in your team as the company supporting your financial and life goals, each should bring value to you and provide an Return on Investment toward achieving your goals. In the organizational structure each also brings a unique skill set.

Lesson 2: Invest in Alternative Asset Classes

Picking any one asset class to invest all your money is quite literally putting all your “nest eggs” in one basket. There is a chance it may work out, but it is a highly risky move that is unnecessary to building your net worth over time.

Increased diversification leads to better risk-adjusted returns. An important tool in the UHNWI toolkit for diversification is alternative asset classes. This includes access to private markets like private mortgages, private real estate and private debt.

What are the benefits of having access to private markets? For your portfolio, it means having investments that are less correlated to public markets (so you will see less volatility during market crises). In addition, many of these asset classes have higher expected returns because they earn an illiquidity premium.

Private markets are not without risk. The key one is that you cannot sell these investments quickly, so it should not be where you invest your “in case of emergency” money. Another risk is that high minimum investments (which are common to alternative asset classes) may lead you into concentration risk, meaning that you cannot buy enough variety in your investments to properly diversify your portfolio. For UHNWIs that have portfolios in the tens of millions of dollars to invest, this is hardly an issue.

At Alitis, we use pooled investment vehicles so that all our clients can gain an appropriate allocation to alternative asset classes allowing them to meet their return objectives with their given comfort level of risk.

Lesson 3: Take A Long-Term View

If you are completely focused on the short-term, you will find this slows your progress.

Last week I went mountain biking for the first time in a while with some friends. Given I was a little rusty and was riding a borrowed bike, I was a little slow to get going. I could not help focusing on every single root and obstacle in my way and found myself off-balance and falling behind.

Soon enough, one of my friends noticed what was going on and gave me some advice. She told me to stop looking down and start looking ahead. When you are moving faster and keeping your vision forward, the bike will absorb those bumps along the way, and you will have greater control. Sure enough, with this bit of advice I was able to hit the trails with greater speed, keep up with the group and have a lot more fun!

With investing, there are also times when the short-term bumps are taking up too much of our attention. UHNWIs are very good at keeping their attention on long-term goals. One reason for this is they often have a portion of their wealth in low-risk investments that is enough to meet not only emergencies, but also to sustain their lifestyle over the long-term.

This is important because it gives them the comfort and control needed in case of a market downturn, which is the exact point in time where they SHOULD NOT be making changes to their portfolios. After all, if a portfolio is truly built to fit your needs, it should be a good fit across all parts of the market cycle.

It is important for everyone to have money accessible for emergencies, as there is no telling what the future will hold. While few people can allocate enough to sustain their lifestyles for decades like a UHNWI can, a good guideline many financial planners would say, is to have enough to cover typical expenses for six months.

This does not necessarily mean that your emergency money needs to be sitting in a bank account earning nothing, but it is something to think about. If your current income were interrupted for the next six months, where would you access cash in a way that does not incur excess taxes or fees? If you can answer this question, you will find yourself well on your way to thinking long-term.

Summary

There is no “one size fits all” financial plan or secret investing plan for the ultrawealthy. Everyone will have different opportunities, goals and constraints along their financial journey.

By thinking like an Ultra-High Net Worth Individual, you can:

  • Build Your Team to make a unified plan to maximize your wealth
  • Gain access to Alternative Asset Classes to diversify your portfolio
  • Take A Long-Term View to prepare for and minimize obstacles along the way

Growing your wealth is similar to managing your personal health. Different techniques and routines will work for different people. There are many aspects to consider and you must continue to monitor and work on it regularly if you expect it to improve.

If you would like to discuss and discover ways to grow your wealth like an Ultra-High Net Worth Individual, please reach out to us to schedule an appointment with one of our Advisers or Wealth Service Coordinators.

Sincerely,
Thomas Nowak, BComm.
Associate Portfolio Manager

Disclaimer 

This report is provided, for informational purposes only, to customers of Alitis Investment Counsel Inc. (“Alitis”) and does not constitute an offer or solicitation to buy or sell any securities discussed herein to anyone in any jurisdiction where such offer or solicitation would be prohibited. Opinions expressed in this report should not be relied upon as investment advice. This report does not take into account the investment objectives, risk tolerance, financial situation or specific needs of any particular customer of Alitis. Each individual’s investment objectives, risk tolerance, financial situation and specific needs should be evaluated before making any investment decision.

Unless otherwise noted, the indicated rates of return are the historical annual compounded returns for the period indicated, including changes in security value and the reinvestment of all distributions and do not take into account income taxes payable by any securityholder that would have reduced returns. The investments are not guaranteed; their values change frequently and past performance may not be repeated. Unless otherwise noted, risk refers to the annualized standard deviation of monthly returns for the period indicated.

The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. Alitis assumes no duty to update any information or opinion contained in this report. Neither Alitis nor any director, officer or employee of Alitis accepts any liability whatsoever for any errors or omissions in the information, analysis or opinions contained in this report, nor for any direct, indirect or consequential damages or losses arising from any use of this report or its contents.

Client Update – COVID-19 & the New Normal

To our valued clients,

At Alitis, we are frequently assessing the COVID-19 landscape in our province.

We are still pro-actively managing the Alitis pools with vigilance and care during this time of continued market turbulence. We continue to offer phone and Microsoft Teams video meetings, as well as limited in-person meetings with the following procedures in place:

  • Only one group of clients will be allowed in the Alitis offices at one time.
  • Client meetings will be scheduled with adequate time for proper cleaning and sanitizing in between meetings.
  • Clients are requested to phone 250-287-4933 when they arrive at the office and remain in their car. The office door will open when we are ready for you.
  • Clients will be required to apply hand sanitizer upon entering the Alitis office.
  • Clients will be required to wear a medical face mask. We will provide a medical face mask if needed.

While we are excited to see our clients in person, if you, or anyone in your household are exhibiting COVID symptoms, have been requested to self-isolate, have arrived from outside Canada within the last 14 days, or have had contact with anyone who has COVID-19, we kindly request that we hold your meeting virtually over the phone or video conference, or postpone until a later date.

We would like to sincerely thank all our clients for their patience and understanding during this unprecedented time.

Sincerely,

The Alitis Team

 

Top 3 Fears For Most Investors

Signs of the emergence of second wave COVID-19 cases and the risk of further deterioration of U.S.-China relations are causing a slump in the stock markets. There is also no denying the fact that as the US & Canada relief packages run out in the near future and the levels of unemployment remain significantly high, the fundamentals remain grim and the future is hard to predict.

In such times, it is natural to have apprehensions and fears regarding investing, but we are here today to debunk some of the more common myths about investing and provide our perspective.

#1: I will lose all my money by investing 

Some individuals believe that the financial markets are risky and that nobody ever beats the market. The truth is that investments will have positive and negative periods of return, but having a long-term investment strategy and sticking to it, is the best method for growing your wealth over time.

Investing is not a gamble, rather it is the mechanism used for generating returns by purchasing investable assets. Investments are priced using future expected returns, and thus entail some degree of risk, but this is calculated risk. The investments you make should be based on thorough research and due diligence, looking at investable assets both from a macro-economic and micro-economic stance (considering both qualitative and quantitative aspects, as well as how they combine into your total portfolio).

Granted one might just consider investing in Guaranteed Investment Certificates (GICs) instead of trying to get higher long-term consistent returns. But then, in today’s low-interest-rate environment, can we honestly say that we are satisfied with our investments generating 0.7% annual return (current one-year GIC return is 0.7%) which does not even keep up with inflation (2019 inflation rate in Canada was 1.95%)?

Investing is all about making informed decisions, finding the risk vs return trade-off which best fits our own investment preferences, and focusing on long-term performance instead of short-term volatility.

#2: Fear of missing out 

Fear of missing out, made popular as a millennial meme, often stoked by social media, that somewhere someone was having more fun than you. It has since morphed into every investor’s concern that there is a sector, asset class, or investment that they are underexposed to that is going to be this year’s big winner. A classic example of this is when Warren Buffet, one of the most successful investors of all time and who is also known as the Oracle of Omaha, openly admitted to being too late to the game and missing out on the opportunity to invest in Amazon early on.[1]

Another kind of fear of missing out is market timing – is this the right time to invest or should I be exiting the markets now? History has proved time and again that market timing has never really worked in anyone’s favor.[2] So, if you are looking for the perfect day to invest – well there is none!! It is all about knowing and understanding the asset class and the fundamentals that drive their performance – bonds, stocks, commodities, real estate, and other alternative investments are each unique and serve a different purpose.

 

#3: What will happen if the markets drop the year after I retire? 

Let us assume that an investor retired in January 2020 at the age of 60, after having worked and saved for 30 years. Following that, the investor’s portfolio dropped in March 2020 by 20%. Does that mean he or she needs to get back to work to make up for all the money lost?

The market volatility or investment drop over a 3-month, 6-month, or even a 1-year duration should not impact how you live your life or your ability to retire. The duration of your retirement is 25-35 years (you are not spending all your hard-earned savings the year you retire but gradually over the next two or three decades). This means your investments have more or less the same time-frame to recoup the losses. Some measures such as reducing the rate of withdrawal from the investment portfolio can assist in faster recovery during periods of an extreme market correction, but your life plans can remain intact.

And that new retiree, who was pulling their hair out at the end of March 2020 with their portfolio having dropped 20%? They stuck to their plan, stayed invested, and now their portfolio at the end of August 2020 is likely back to the same level they started the year with.

The chart below shows how $10,000 invested in the S&P 500 index, for the 20-year period of 1999 through 2018, would have performed under various scenarios.

During times of uncertainty, investors need to look beyond traditional asset classes for other sources of returns to meet their financial objectives with greater confidence. Alternative investments can provide an interesting opportunity for investors to diversify their portfolios, dampen the impact of market volatility and help them achieve their long-term investment objectives, even during times of market uncertainty. By adding alternatives like real estate, private debt, alternative fixed income, mortgages and private equity to the mix; investors could enhance portfolio performance, boost diversification and reduce their overall risk.

One of the leading commentators on personal finance, Financial Journalist Jane Bryant Quinn once said, “The market timer’s Hall of Fame is an empty room.”

Sincerely,
Apurva Parashar, MBA, CAIA, CIM
Associate Portfolio Manager

Resources

  1. https://fortune.com/2018/05/06/why-warren-buffet-was-wrong-about-google-amazon/ & https://www.cnbc.com/2017/05/06/warren-buffett-admits-he-made-a-mistake-on-google.html
  2. https://www.rbcgam.com/documents/en/advisor-support/time-in-the-market-vs-timing-the-market.pdf

Disclaimer 

This report is provided, for informational purposes only, to customers of Alitis Investment Counsel Inc. (“Alitis”) and does not constitute an offer or solicitation to buy or sell any securities discussed herein to anyone in any jurisdiction where such offer or solicitation would be prohibited. Opinions expressed in this report should not be relied upon as investment advice. This report does not take into account the investment objectives, risk tolerance, financial situation or specific needs of any particular customer of Alitis. Each individual’s investment objectives, risk tolerance, financial situation and specific needs should be evaluated before making any investment decision.

Unless otherwise noted, the indicated rates of return are the historical annual compounded returns for the period indicated, including changes in security value and the reinvestment of all distributions and do not take into account income taxes payable by any securityholder that would have reduced returns. The investments are not guaranteed; their values change frequently and past performance may not be repeated. Unless otherwise noted, risk refers to the annualized standard deviation of monthly returns for the period indicated.

The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. Alitis assumes no duty to update any information or opinion contained in this report. Neither Alitis nor any director, officer or employee of Alitis accepts any liability whatsoever for any errors or omissions in the information, analysis or opinions contained in this report, nor for any direct, indirect or consequential damages or losses arising from any use of this report or its contents.

Alitis’ Values

Back in 2007, driven by my personal values of learning, community, adventure and growth, I moved across the world to Tanzania to volunteer at a rural hospital. During the 18 months I was there, I had the good fortune to play a few different roles within both the hospital and the community. One of the most memorable and rewarding experiences was coaching the local men’s football (soccer) team. We traveled to other villages to play, allowing me to explore the surrounding area, as well as, meeting a wide assortment of interesting characters. Had I not been guided by my values; I may not have taken the opportunity to move to Africa nor go outside my comfort zone to coach the team.

At Alitis, our corporate values are at the center of all that we do. Given how the world and our community has changed due to COVID-19 over the past few months, these values are more important now than ever.

Alitis’ values are centered around 3 key themes; Community, Integrity, and Innovation.

At Alitis, our values guide our decisions and are the foundation that has enabled us to be where we are today.

Community

People – “Our team works together to support each other to thrive by fostering teamwork, respect and growth.”

Relationships – “Our clients and collaborative partners are treated as friends and family; they are our biggest advocates.”

Community – “We are a leader in our community and industry through our volunteer work, sponsorships and participation on Boards and Committees.”

Fun – “We come to work through choice. We celebrate our successes. We act in a way that is appropriate to the business. Our clients and co-workers see us as genuinely friendly and up-beat.”

Integrity

Trust – “We earn the trust of our clients through acting in their best interest. We earn the trust of our team members through having faith in one another to do our jobs well.”

Ethics – “We strive to do what is right for our clients, our profession, our firm and each other.”

Communication – “The voices of our clients and our team are welcomed and encouraged. We appreciate that many of our best ideas come from them.”

Innovation

Quality – “We aim to deliver premium value to our clients by providing outstanding products and service.”

Change – “Our entrepreneurial team embraces change to create opportunities for our firm and clients.”

Creativity – “We encourage and invest in creativity to invent and reimagine solutions, leverage technology and promote innovation that best serves our clients.”

 

As we found ourselves in the midst of a global pandemic, with core values and focus on people and relationships, Alitis provided a flexible and safe environment, allowing the team to continue working, stay connected and maintain relationships with our clients and each other. Guided by our value of communication, we deliver regular updates to our clients on various important topics including what we were doing as a firm and what we were seeing in the markets as a result of COVID-19.

As a bit of a tech nerd, I am very drawn to Alitis’ values around innovation. Alitis has continually embraced innovation throughout the years and have implemented various structures and technologies throughout our processes and procedures. The use of cloud-based technologies for many systems allows for remote offices with a virtual work force and the ability to maintain physical distance from each other. If Alitis had not incorporated a mindset of innovation, COVID-19 would have been a major interruption to the service that we provide.

In a similar way that my personal values set me up for an amazing adventure in the middle of Tanzania, Alitis’ values are the guiding principles that allow us to support our clients, our team, and manage our funds through the unpredictability of 2020.

Sincerely,
Chad Grimm, BComm.
Manager, Business Development and Marketing