Q1 2018 | Portfolio Commentary

Volume 2 | Issue 1

Only When the Tide Goes Out Do You Discover Who’s Been Swimming Naked
— Warren Buffett

This well-known, attention-grabbing quote from Mr.Buffett highlights the idea that you can only understand how well your investment strategy has worked when the market pulls back. Even a badly built portfolio will do well when the tide is rising.



Stock markets have behaved much differently in the last three months as compared to the previous year. The market that had let negative news just roll off its back is now more sensitive which is evident with the current bout of volatility. Last year was the outlier. Here is what happened in the first three months of the year:


¹ TSX/S&P Composite Index Q1 2018 Price Results
² MSCI EAFE Index Q1 2018 Price Results
³ S&P500 Q1 2018 Price Results
Bloomberg Barclays Global Aggregate Canadian Float Adjusted Bond Index Q1 2018 Results

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As mentioned, during our last quarterly commentary, we made three trades in early January when the markets were trading up:

  1. An increase in fixed income from 40% to 50%

  2. A decrease of North American equities from 25% to 20%, and

  3. An increase in International equities from 10% to 15%

The increase in fixed income helped reduce the equity market pullback. At the end of the quarter, our fixed income pool was positive while the US and Canadian stock market traded down 1.2% and 5.2% respectively. This is despite the 0.25 interest rate hike announced in January by the Bank of Canada. The fixed income success was largely driven by our non-traditional exposure in Picton Mahoney Income Opportunities Fund (up 1.18%) and Antrim Balanced Mortgage Fund (up 1.70%). Each of these positions performs well in a rising interest rate environment while regular fixed income tends to struggle.


Source: Morningstar AWS

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The increase in International equities and subsequent reduction in North America proved to be a good trade during the quarter. Leading the rebound after the financial crisis of 2008, North American stock prices and valuations have stretched to record highs. Therefore, on a relative basis, International equities look more attractive from a return and risk view. As you can see in the chart below, our dedicated actively managed International position, Trimark International Companies Class (AIM33547), finished up 0.38%, while North American equities stocks traded down.


Chart Source: TMX Quotestream Pro

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In the past, stocks and bonds tended to move in opposite directions. We call this negative correlation. When stocks lost value, bonds typically gained in value, and vice versa. Increasingly we see stock and bond values move together. We call this positive correlation; which increases volatility and is ultimately bad for a portfolio. The traditional stock/bond portfolio no longer provides the safety and returns it did in the past.

Our portfolios are deliberately diversified beyond traditional equities and fixed income to minimize the effects of volatility.

Our portfolios are deliberately diversified beyond traditional stocks and bonds to minimize the effects of volatility and correlation.

Just like the Canada Pension Plan, we have always dedicated a portion of our holdings to Real Estate & Infrastructure.


Source: 2017 CPP Investment Board Annual Report

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We use private exposure where possible to reduce volatility as long as it does not compromise liquidity too greatly.

Our exposure to Antrim Balanced Mortgage Fund is an example of this kind of private real estate exposure.

Spotlight: Alyshia Ghai


We are sad to see Alyshia go as Mila Watson returns from employment with a colleague in the office so we will still have the pleasure of seeing her. Alyshia has been a phenomenal member of the team during this often, challenging transition year. We wish her success in her future endeavors.


Matthew Evans, CFP®, CIM®  | Portfolio Manager
HollisWealth®, a division of Industrial Alliance Securities Inc.

Lorenzo Pederzani, CFA, CFP®, FCSI®  | Director, Private Client Group & Portfolio Manager
HollisWealth®, a division of Industrial Alliance Securities Inc.

This information has been prepared by Lorenzo Pederzani and Matthew Evans who are  Investment Advisors/Portfolio Managers for HollisWealth® and does not necessarily reflect the opinion of HollisWealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisors/Portfolio Managers can open accounts only in the provinces in which they are registered.

HollisWealth® is a division of Industrial Alliance Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.