An approach designed to translate complexity into value
We are active investors, allocating capital to what we believe are our best global opportunities and strategies in equities and fixed income. Our concentrated portfolios contain only our highest conviction ideas, with the preservation of capital being of paramount importance.
Fixed Income Investment Approach
Outside Manager Selection Approach
We believe that a straightforward approach to identify and acquire shares of quality businesses with long-term earnings growth potential at a discount to intrinsic value provides the greatest opportunity for repeatable outperformance.
Accomplishing this requires patience. We carefully focus on the details of each investment decision, avoiding the temptation to guess at where we are in the economic cycle or otherwise “time the market.”
We believe a small, experienced team leveraging the efficiency of quantitative tools can operate more effectively than large-scale competitors. Our size and independence enables us to objectively consider the broadest opportunity set before efficient execution of our best ideas. At a firm of our size, accountability for these ideas is not diffused among broad committees or teams and therefore every decision requires considerable conviction.
Our disciplined process seeks to deliver superior returns and low volatility by employing a blended analytical process that combines the judgment of fundamental analysts with the objectivity provided by modern quantitative tools.
This begins with a screen utilizing a ranking tool to evaluate a broad universe for both buy and sell candidates systematically, reducing potential for behavioral biases. We review this narrowed opportunity set from a fundamental perspective, considering a number of key intangible business characteristics. We find greatest conviction in businesses with sustainable competitive advantage, either in the form of significant barriers to entry or control over cost structure. We believe these types of business provide us with the best long-term visibility for our forecasts and are resilient in down-market periods.
Finally, we assess investor sentiment around each opportunity, identifying potential catalysts for positive change such as investor misperception or overreaction due to short-term focus. It is in these circumstances we find businesses that exhibit the quality characteristics we seek at attractive valuations. This combination provides opportunity for upside in the form of both rising expectations and multiple expansion.
Ongoing risk management measures and focuses risk to where we believe it is most attractively balanced with reward. This approach reduces unknowing factor exposures or excessive risks at the portfolio level and complements thorough research files maintained for each portfolio holding.
Research generated independently from larger financial centers and institutions underpins conviction in our best ideas. Limiting interaction with third party research sources or “the street” ensures we are independent thinkers and helps us distance ourselves from the herd mentality that characterizes modern financial markets and our larger competitors.
The resultant portfolios are concentrated and contain only our highest conviction ideas.
We invest in fixed income to reduce portfolio-level volatility and provide a source of funds during down-market periods.
Our fixed income approach targets measured and carefully considered active risk in the areas of sector and security selection, with a focus on liquidity. We do not attempt to anticipate short-term interest rate fluctuations. However, we will deviate in duration to achieve desired portfolio characteristics relative to our view on yield curve structure.
Emphasis on investment-grade corporate bonds and typically favor sectors that provide an attractive yield relative to Government of Canada bonds. This includes corporate, provincial, and municipal credits.
Absolute protection of principal is paramount. In determining creditworthiness of borrowers, we employ a blended analytical process that combines the judgment of fundamental analysts with the efficiency and objectivity provided by modern quantitative tools.
Opportunistic provider of liquidity in cases where we can capture value by acquiring attractively-priced odd lots or participate in smaller issues.
In general, we tend to hold fixed income assets through to maturity. However, we can be active traders when required, such as when the creditworthiness of an issuer deteriorates or yield compression reduces a securities risk-reward proposition to unattractive levels.
Ongoing risk management measures and focuses risk by evaluating portfolios on an ongoing basis.
We identify, hire, and oversee outside managers on behalf of our clients, providing independent assessment of their results.
Our Manager Selection philosophy is that success requires a careful balance of both quantitative data and qualitative considerations. This requires a thorough consideration of a potential manager’s people, philosophy, process, performance and price.
Our work with clients begins with a discovery process to identify and define each client’s investment objective. An investment policy is designed and asset mix weightings are determined in a way that seeks to achieve these specific objectives.
Only after a thorough consideration of each client’s specific objectives do we begin our search.
We receive and monitor ongoing performance data on a broad universe of managers. Those that have established track records are identified for further review. Managers that meet our stringent criteria are available for consideration by our clients.
Search processes can take two forms: a full-length request for proposal process that culminates in manager presentations to the clients at our offices or a short-form search that comes in the form of a thoroughly researched recommendation.
Our firm prepares and makes these recommendations in complete independence, we pass along the cost of these managers transparently in an “open architecture” format. Our sole source of compensation is directly from our clients and so are not incentivized to select a manager for any other reason than merit.
For us, outside manager selection is not an event. Getting our clients the outcomes they desire requires ongoing evaluation to ensure that hired outside managers are delivering on their value proposition.
Managers are selected in combination with other managers, intentionally selecting those that employ different strategies or with special expertise in niche areas. We expect that selected managers will perform differently in different markets and seek to reduce portfolio-level volatility by diversifying managers.