Investment Philosophy & Process - Alitis Investment Counsel

Investment Philosophy & Process A

Investment Philosophy

Our primary focus is to deliver superior risk-adjusted returns in all market cycles. As a result we are committed to constructing portfolios that deliver income and growth over the long term while minimizing capital drawn downs. We do this by starting with a traditional investable universe of stocks, bonds, cash and funds and include a meaningful allocation to alternative investments to adjust the risk profile of the portfolio.

Investment Process

Alitis constructs portfolios using a multi-manager approach that allows us to select the best of breed management teams and investment solutions available in order to create extremely-diversified portfolios with excellent risk-return profiles. Our investment process generates alpha by focusing on strategic asset allocation and superior manager selection.

Our team of experienced managers follows a disciplined, four-step process to achieve these objectives. Here’s how we do it:

Set the strategic asset allocation.

Simply adding more uncorrelated asset classes is the easiest way to reduce risk.

We set the long-term benchmark allocation utilizing a combination of traditional and alternative asset classes. Adding unique asset classes that have lower correlations to one another further enhances diversification versus a traditional stock/bond portfolio. At Alitis, we add alternative fixed income, real estate, and absolute return strategy investments to our standard asset class model.

Make tactical shifts in the asset allocation.

Tactical shifts amongst the asset classes allows for the capture of higher potential returns while enabling risk to be controlled further.

Here, we choose to overweight or underweight each asset class within the acceptable ranges set in each fund’s investment policy statement. Tactical shifts away from the neutral strategic asset allocation reflect our views on where we see the greatest risks and opportunities. The asset mixes are reviewed and adjusted to deliver what we believe to be the best risk-adjusted returns over the next year.

Select appropriate investments.

Using suitable investments helps ensure that the asset allocation strategy is executed effectively.

Our Investment Committee conducts regular due diligence on potential manager relationships to carefully understand their risk/reward profile and other relevant facts. We use a broad range of actively-managed and passive investments – actively-managed in areas where active management can add value and passive investments in areas where value is difficult to add. Once vetted, investments are added to our approved list for use in portfolios. As well, investments are reviewed regularly thereafter and removed from our approved list if facts change in a materially negative way.

Rebalance the portfolio regularly.

Rebalancing regularly to the latest allocation is a simple and effective way to control risk.

Asset classes and individual investments are continually monitored for deviations from their target weighting. The effect of rebalancing is that investments/asset classes that perform well are gradually sold off while underperforming investments/asset classes are accumulated. We uphold to the simple principle of buying low and selling high to deliver investment performance and reduce portfolio risk.

Is asset allocation a new approach?

No, leading pension funds, endowments and family offices have diversified into alternative investments for several decades. Canada Pension Plan, Ontario Teachers’ Pension Plan, Ontario Municipal Employees Retirement System, and many other provincial pension funds hold, and in most cases are increasing their exposure to alternative investments to meet plan requirements. An example of the Harvard Endowment Fund is illustrated below. The Alitis approach is very similar to these top-performing endowment funds.

Harvard Endowment Fund – September 2016 Annual Endowment Report

Over the last twenty years the endowment has returned 10.4% annualized, exceeding the average annual return on the benchmark portfolio of 7.7%. The value of $1,000 invested in the Harvard endowment has significantly outpaced both a traditional US and Global 60/40 mix of stock and bonds over the same time period.

Asset Class	Strategic Asset Allocation
Domestic Equity	10.5%
Foreign Equity	7.0%
Emerging Market Equity	11.5%
Private Equity	20.0%
Absolute Return	14.0%
Real Estate	14.5%
Natural Resources	10.0%
Domestic Bonds	1.0%
Inflation-Linked Bonds	2.0%
High-Yield Bonds	0.5%
TOTAL	100%

The Strategic Asset Allocation mix above has 58% in alternative asset classes, or non-traditional public securities.

Newsletter Sign-Up

Name*
First Name Last Name
City*
Email*