The secret to success at Alitis is diversification. Not just a diverse selection of stocks and bonds, but also a meaningful allocation to alternative investments, including private real estate, private mortgages, private debt, private equity and hedge funds.
The Campbell River Hospital Foundation is a charity that we, as a company, take an active role in each year. We believe in helping the CRHF in their efforts to elevate the standard of care in Campbell River, as well as the rest of the North Island as the hospital touches the lives of ~56,000 people in the area.
The affordable end of the market, whether condos or rental apartments, is where most of Alitis’ real estate exposure is concentrated, so we feel that we are very well positioned within the current economic environment and our investments continue to perform well.
Alitis partners with developers and other real estate managers to help facilitate their projects, providing much-needed housing while also offering a quality investment to our clients.
Alitis Investment Counsel is a boutique wealth management firm based out of beautiful Vancouver Island, that’s dedicated to doing things a little differently.
Private Debt Investments are loans made to individuals and companies that are not created or financed by the banks, nor are they traded in the open market. These are loan contracts that are individually negotiated between the lender and the borrower.
Alitis is excited to welcome Ryan Patterson to our team.
As the Senior Real Estate Strategist, Ryan’s focus is on the analysis and review of potential real estate investments as well as the ongoing monitoring of current holdings. As Alitis continues to grow our real estate division and expand our portfolio, Ryan will continue to work with our current as well as potential future partners to maintain a successful long term real estate strategy.
Ryan joins the team at Alitis from an appraisal background, having spent the last five and a half years as an associate appraiser specializing in market rental analysis, feasibility studies, multi-family and commercial real estate valuations, including portfolio assessment reviews for large holdings of private and public organizations. Prior to being an associate appraiser, Ryan had spent his career in the business world, working on building, growing and restructuring businesses in a variety of different industries.
Ryan has completed his Bachelor of Commerce (B.Comm) degree with a focus on International Business as well as post-secondary courses in Real Estate through UBC’s Sauder School of Business. Ryan was born and raised in Victoria, B.C., and though he has lived all over North America, he has always called Vancouver Island home.
We would love to hear from you – fill out the form below to learn more about the real estate strategy offered at Alitis.
Disclaimers and Disclosures – Alitis Investment Counsel Inc. (“Alitis”)
This 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 should not be relied upon as investment advice. This 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 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 post and are subject to change without notice.
© 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.
At Alitis, we stay focused on our investment strategy and not worry about how everyone else is doing. Our diverse asset model and investment approach tends to perform well when traditional funds are struggling, so we thought it would be interesting to show you how our largest fund, the Alitis Income & Growth Pool, has fared relative to other balanced funds so far this year. We were very pleased with the results.
The foundation of our investment approach is to reduce risk by utilizing a variety of different of asset classes and alternative investments. The Alitis Income & Growth Pool utilizes all the asset classes and approaches available at Alitis, including stocks, bonds, private equity, private debt, real estate, mortgage investments, private infrastructure, and various hedging strategies.
This fund a good proxy for how well our approach is doing relative to other investments in Canada. Performance to the end of April for the Alitis Income & Growth Pool was:
| Year-to-Date | 1 Year | 3 Years | 5 Years | 10 Years | Since Inception | |
| Class D Units | 0.04% | 5.13% | 7.32% | 6.90% | 6.69% | 6.49% |
| Class E Units | -0.34% | 3.94% | 6.16% | 5.72% | 5.52% | 5.33% |
The Year-to-Date returns are particularly noteworthy. While these returns may not appear to be the greatest, compared to the broader investment landscape in Canada, these returns are extremely good! The Alitis Income & Growth Pool is categorized as “Global Neutral Balanced” and, according to Fundata Canada, there were 1470 funds (including different classes of the same fund) in this category with year-to-date returns. Within this category over this period, the Alitis Income & Growth Pool ranked as follows:
If we assess the fund against all the categories with “Balanced” in the name1 , we find that there are 11,024 funds, with the Alitis Income & Growth Pool ranked as follows:
Obviously, it has been a challenge to generate positive returns in these unprecedented macroeconomic conditions since only 74 of those 11,024 balanced funds have had a positive return this year.
Inflation, and its impact throughout the economy, is the primary concern in the financial world. This fear is likely heightened because many of us have never experienced inflation as it has been muted for so long. The COVID lockdowns accompanied by massive government stimulus to keep money in people’s hands created an environment where less was being produced while more money was flowing around. This excess money has led to demand exceeding supply, resulting in the current inflationary environment.
The current inflation rates for Canada and the US are substantially higher than they were before COVID which has led to significant turmoil in the stock and bond markets so far this year. Now, governments are starting to withdraw the COVID stimulus, and the economy is returning to normal so it is likely that the imbalances which caused this surge in inflation will fade away. Perhaps the recent decline in annual inflation in the US (see chart above) will mark the turning point.
Looking to the future, the market in the US is presently expecting inflation over the next 10 years to be in the 2.5% to 3.0% range. These expectations, which change over time as information becomes available, are calculated by taking the difference in yield between a regular 10-year US Government Bond and a 10-year US Government Inflation Protected Bond.
The market is expecting US inflation to moderate from its current rate for the expectations shown in this chart to come to fruition. However, it does appear that inflation is likely to remain somewhat higher than it was pre-pandemic.
There is a high likelihood of a recession happening in the next year or two. The high levels of inflation combined with the ending of government stimulus will put a damper on economies around the world. However, different countries will react differently. Canada has an economy with far more exposure to oil, gas, and other resources, which tend to fare well in an inflationary environment. There is a good chance that Canada may fare better through a recession compared to other countries.
The Canadian economy is doing quite well currently, so a recession may cool it off and bring it back to a level that we are used to. For example, unemployment in Canada – currently at 5.3% – is “the lowest rate on record since comparable data became available in 1976” according to Statistics Canada4.
From an investment perspective, the likelihood of a recession (with some inflation for a while) will change the outlook for different asset classes, as outlined below:
The first months of 2022 have simply been awful for fixed income. Bonds do not like rising inflation, nor do they like rising interest rates, and both have been present during this time. However, one needs to look forward and, as mentioned above, it does appear that inflation may be peaking and inflation expectations stabilizing. This would be a much better environment for bonds. If a recession does arise, that would be even better for bonds as the existing pressures related to potential inflation and increases in interest rates would ease.
One sign that is pointing to a normalization of the fixed income market is that for the first time since COVID struck, the yield on 10-year US Government Bonds is greater than the expected rate of inflation over the next ten years. That is, bond investors now expect to make money after inflation which should take some of the pressure off further increases in yields.
Overall, we expect the outlook for fixed income to be reasonable over the upcoming year, and certainly much better than what has been experienced so far in 2022.
We expect private mortgage investments to continue to perform well in the current environment. Inflation and higher interest rates will have limited impact on the mortgage portfolio as it has a short-term to maturity. This allows the capital to have a quicker turnaround and be lent at a higher rate upon maturity. Additionally, a number of the underlying mortgages are floating rate, which means that each time the Bank of Canada raises interest rates, the rate earned increases.
Should there be a recession, banks would likely tighten their lending standards. If this occurs, more borrowers would be looking for financing from non-traditional lenders. As such, the mortgage lenders we deal with should be able to get better quality borrowers or have the ability to charge higher rates or possibly both. A good thing for our mortgage investments!
Publicly-traded mortgage investments are looking to be another bright spot. Throughout last year to earlier in 2022, we had shifted away from publicly-traded mortgages as their prices increased and yields decreased. The recent troubles in the stock markets have added to the headwinds these investments face with the price being pushed down on a few. As the price goes down, the yield goes up which makes them attractive and as such, we will be monitoring price movements for attractive entry points. This trading strategy for publicly-traded mortgages investments has added considerable value over the years.
Real estate has obviously been a great asset class to have been invested in over the last number of years and we expect it to continue to produce good returns, but at a lower rate. The current economic situation provides some headwinds for real estate but also creates some opportunities:
Canada’s population is currently about 38.5 million8, so these new immigrants would increase our country’s population by about 3.5%. These people will need to be housed (and work) somewhere, which bodes well for the real estate market in general.
The decline in some stock markets this year has garnered much media attention. However, most significant declines have occurred in tech-oriented companies that were lauded only a year ago as having substantial growth potential over the long term. Unfortunately, interest rates have risen, there is still a war in Ukraine, and the economic outlook has dimmed. This new reality has changed the growth prospects for these tech-oriented companies with their prices being knocked down substantially this year.
The chart below shows how the MSCI World Index, representing the developed world, has performed so far in 2022, along with the growth and value sides of this index. The MSCI World Growth Index is comprised of those companies that exhibit higher Price/Earnings ratios, lower dividend payouts, etc. That is, mostly the expensive, tech-oriented companies mentioned above. The MSCI World Value Index is the opposite side of the market – those that have higher dividends and lower Price/Earnings ratios – that are much cheaper to buy. As can be seen in the chart, the expensive growth stocks have performed dismally whereas the cheaper value stocks, while still down, have fared much better:
Thankfully, Alitis has avoided much of this pain as we have focused on those cheaper, value stocks rather than on the expensive, growth stocks. The valuation of these growth companies has not made much sense for some time, so our strategy has been to be heavily biased towards the value side of the market, to invest in private equity in order to avoid market fluctuations, and to utilize some hedged strategies to mitigate market volatility.
As for the future, it is likely that the current challenging stock market environment will continue for some time. At Alitis, we will follow our strategy of focusing on value, private equity, and hedged investments while trying to avoid those stocks that could be under further downward pressure as expected economic conditions get priced into the market.
Inflation has created significant changes in our economic environment due the necessary policies undertaken during the pandemic. These changes have spilled into the investment world in the form of higher interest rates, likely tighter margins, and lower growth rates in the future. An economic recession may also be in the cards.
It is in times like these when diversification matters most, and at Alitis, our use of different asset types – real estate, mortgage, private debt, private equity, hedging strategies, etc. – has enabled our clients’ portfolios to perform relatively well so far in 2022. The performance of the Alitis Income & Growth Pool compared to other balanced funds provides a testament to the value of our investment philosophy. The economic outlook is not as rosy as it was a year ago, but Alitis’ diversified approach should help investors to win in the long-term by minimizing substantial losses in the short-term.
1 Fund categories included are Canadian Fixed Income Balanced, Canadian Neutral Balanced, Canadian Equity Balanced, Global Fixed Income Balanced, Global Neutral Balanced, Global Equity Balanced, Tactical Balanced. Funds include different classes of the same fund according to data from Fundata Canada (https://www.fundata.com/)
2 US inflation from Federal Reserve Economic Data (https://fred.stlouisfed.org/series/CPIAUCSL), Canadian inflations from Statistics Canada (https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1810000401)
3 US expected 10 year inflation from Federal Reserve Economic Data (https://fred.stlouisfed.org/series/T10YIE)
4 Labour Force Survey from Statistics Canada (https://www150.statcan.gc.ca/n1/daily-quotidien/220408/dq220408a-eng.htm)
5 US 10-Year Government Bond rates from Federal Reserve Economic Data (https://fred.stlouisfed.org/series/DGS10)
6 2021 Immigration to Canada from news release from Immigration, Refugees and Citizenship Canada (https://www.canada.ca/en/immigration-refugees-citizenship/news/2021/12/canada-welcomes-the-most-immigrants-in-a-single-year-in-its-history.html)
7 Immigration targets from Immigration Levels Plan from Immigration, Refugees and Citizenship Canada (https://www.canada.ca/en/immigration-refugees-citizenship/news/notices/supplementary-immigration-levels-2022-2024.html)
8 Population estimate from Statistics Canada (https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1710000901)
9 Growth & Value indices from MSCI (https://www.msci.com/end-of-day-data-search)
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.
Emily Hofmann is a Portfolio Manager at Alitis Investment Counsel who excels at problem solving. She loves boating, too!
Community Spotlight – Campbell River Salmon Foundation
Campbell River, sometimes referred to as the “Salmon Capital of the World”, is one of the top recreational fishing locations on the West Coast.
The Campbell River Salmon Foundation is an important community organization that provides funding for salmon enhancement projects in the region to enhance the local fish stocks which not only supports the environment, but also the local economy.
As with many not-for-profit organizations, the COVID-19 pandemic has significantly impacted the Campbell River Salmon Foundation’s fundraising efforts.
Alitis recently interviewed Kent Moeller the President and one of the founding Directors of the CRSF to find out more about the organization and how the community can support them as we make our way out of the pandemic.
How long have you been involved with the CRSF, and what made it a good fit for you?
The CRSF was incorporated on June 22, 2007, and I was one of the founding Directors. Growing up in Campbell River, I was an avid young fisherman. Now, in my professional life, I also see the economic benefits of salmon in our community. I see the CRSF as my chance to give back not only to salmon and the environment but to the town that has given me so much.
Why is the CRSF important to the Campbell River area and surrounding communities?
CRSF is focused on salmon enhancement and education and is solely focused on our local area. Our territory of interest ranges from the Oyster River in the south to the Salmon River in the north as well as the adjacent mainland coast. It is vitally important to us that money raised in our community is spent in our community.
What types of projects does the CRSF fund?
We fund various causes relating to salmon enhancement including the restoration of spawning channels, stream biodiversity and health, estuary enhancement, scientific research, and public education.
Is there a particular project that stands out to you during your time at CRSF? If so, what was it, and what made it memorable for you?
We have expanded access up the Quinsam River allowing salmon access to spawning and rearing grounds. We have focused and pressured BC Hydro to remove their Salmon River Diversion Dam which has allowed more than 10 km of fish rearing habitat to become accessible. We have removed an old derelict vessel that washed ashore on sensitive habitat.
How has COVID-19 impacted your organization?
COVID-19 has had a devastating impact on our annual fundraiser. We have been forced to cancel our annual gala dinner/auction which is held the third Saturday in March every year for the last three years. The dinner nets us over $100,000 each year so the loss of this event has limited our ability to fund salmon enhancement projects.
How can community members get involved with the CRSF?
We are always looking for qualified Board members and community members to volunteer at our annual Gala dinner. We are also hopeful that community members can help us identify salmon enhancement opportunities within our community. And, as always, people can donate to us via our website.
If you would like to learn more about the Campbell River Salmon Foundation, or donate to one of their critically important projects, check out their website: Campbell River Salmon Foundation
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 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.
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.
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