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Vetting your Investment Manager

Investments, Investment Views

Now that the digital age is upon us, we’ve become experts at comparing various products and services. Conducting due diligence has never been easier. At the click of a button we can compare product features, sort by top sellers, and even read reviews and recommendations from other customers.

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Investment implications of the changes in the GICS sector structure

Investments, Investment Views

The Global Industry Classification Standards (GICS) just went through its first significant structural change since its inception in 1999. After the market close on August 31, 2016, Real Estate (formerly an industry group within Financials) was promoted to its own sector. The new GICS structure now consists of eleven sectors. GICS is the foundation for equity index structures and investment portfolio positioning. This change may have a significant impact on not only sector characteristics but also asset allocation decisions across the entire investment industry.

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Downside Protection Applications

Investments, Investment Views

Asset Allocation

The conventional method to reduce risk in a balanced portfolio involves decreasing the portfolio’s riskier asset class, which for most investors is likely the equity allocation. For example, shifting from 55% equities and 45% bonds to 30% equities and 70% bonds. The following graphic illustrates this as the move to the “lower risk benchmark portfolio”.

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Yield Verboten

Investments, Investment Views

Global bond yields have been on a multi-decade decline; therefore, it should be no surprise that today’s yields are at or close to historically low levels. Chart #1 shows the extent of this decline for the 10 year Government of Canada (“GoC”) and U.S. Treasury (“UST”) bonds. From December 1990 to June 2016, the GoC yield started the period at 10.3%, averaged 5.1%, and closed at a mere 1.06%. Over the same period, the UST yield started at 8.4%, averaged 4.8%, and closed at a mere 1.5%.

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Evaluating Downside Protection

Investments, Investment Views

Semi-deviation (also called downside deviation) is a variation of the more commonly used metric, standard deviation. Both measures track the historic variability of returns around an investment’s average return, however, semi-deviation only considers those returns that fall below the investment’s average. A lower semi-deviation indicates an investment with lower downside risk.

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Downside Protection Strategies

Investments, Investment Views

My last blog discussed the importance of downside protection, specifically looking at the asymmetry of gains and losses, and poor historical investor behaviour. This blog will investigate some strategies investors can implement to potentially protect their portfolio from significant losses in down markets, while still allowing them to participate in rising markets.

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Importance of Downside Protection

Investments, Investment Views

Markets go up and markets go down. That’s the nature of investing in stocks and bonds, whether directly or indirectly through investment funds. Investors generally like upside volatility (when markets go up), but are much less tolerable towards downside volatility (when markets go down). Implementing downside protection strategies regardless of current market conditions can help reduce volatility when markets do go down, thereby helping to preserve and build wealth over the long-term.

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Ditch the Narrative

Investments, Investment Views

I came across an excellent blog post entitled, “You Are Owed Nothing” that highlighted that real (after inflation) returns of capital are not a given. In particular, the 1965-1980 market stood out to me as one with no strong narrative as to why markets treaded water for so long.

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The Fiscal Front

Investments, Investment Views

The European Central Bank (ECB) announced a number of new policy initiatives on March 10, including:

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Winner! Fundata FundGrade A+ Awards

Investments, Investment Views

In the midst of all this market volatility it feels good to announce that the Empire Life Emblem Growth Portfolio1, Elite Balanced Fund2, and Asset Allocation Fund3 are 2015 Fundata FundGrade A+ Award winners!

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