We believe we have created a better platform for money management. Our inception as a family office led to the creation of our Equally Invested™ culture: This means that everyone at Pathfinder invests in the same portfolios and funds and pays the same fee as our clients. Also, we (employees), along with our families are the largest investors at Pathfinder so your portfolios are invested right alongside ours.

January 2021

It was an historic year in financial markets. Equity markets rallied back to all-time highs after what was one of the most severe market crashes on record. The drop and subsequent rebound caught most investors by surprise. Without government intervention, financial markets were staring over a very ugly cliff that threatened to be worse than the Great Recession of 2009 and drew comparisons to the Great Depression of the 1930s. Fixed income markets also were severely impacted with yields reaching record lows globally. While it seems the equity markets have looked past the impact of pandemic in nominal terms, investors are now faced with a significant disconnect between the financial markets and the real economy that has yet to fully play itself, in our opinion.

Every year, we put the top and bottom performing equity markets (along with the markets that we focus on) in a chart; however, this year, we have added dispersion so that the reader can see how far the markets dropped from the start of year and then subsequently rose after governments from around the world intervened.  As you can see the drawdown in essentially all major markets was greater than -30%. This happened very quickly, which is different than other recessions. The ultimate high for the year after the rebound was just as shocking but quite varied, ranging from small losses to +35% in South Korea. Please also look at the last item, which is the Canadian bond market. While less volatile, it also has significant drawdown. This and other items will be discussed in more detail in each of our mandate reports.

At Pathfinder, we draw a clear distinction between our Core Portfolios (segregated stocks, bonds and cash) and our Pathfinder Funds (our private specialty pooled funds). The investment profiles of these two “baskets” are quite different.  The North American Equity Portfolio is managed to produce broad, equity-like market returns but with less risk. The Pathfinder Funds have specialty mandates and are very different vs. a traditional long-only blue-chip portfolio. Our investment thesis is that the combination of these two baskets should produce results that are better than broad equity markets for any given risk level when combined in various mixes, based on client objectives. Blending between these two baskets and treasury bonds, where appropriate, allows your portfolio manager to target essentially any return and risk level that is appropriate to your situation and financial goals.

Our investment thesis:

The North America Equity Portfolio is the blue-chip part of your portfolio. It should generate long-run equity returns. We select stocks from a list of high-quality, stable cash-flowing companies and allocate to cash when we feel there is too much risk in financial markets or when stock prices are too high (the two are not the same). We also use a 9% long-run cost of capital (similar to the long run return of global equities as represented by the MSCI World Index) as one of the more significant valuation tests when we consider adding a company as an investment into our portfolios. If we are doing our job correctly, we should generate equity like returns with less market risk. We then use the “budgeted risk” saving in this part of the portfolio to allocate capital to the Pathfinder Funds.

The Pathfinder Funds are more aggressive by comparison and are managed for performance (either absolute or relative). Furthermore, each of the risk profiles and investment processes are quite different. This is by design so that we do not introduce a high level of correlation between each fund and the Equity Portfolio. As a generalization, the funds are able to use derivatives, leverage, shorting, trade physical commodities, own private companies and typically have higher position concentration. Each fund has its own mandate and a short one-line description is outlined on the next page. Over the coming weeks, you will receive portfolio manager reviews that will dive into more detail about each fund.

The diversity of risk profiles among each of the mandates at Pathfinder allows our Portfolio Managers and Investment Counsellors to custom blend a portfolio for each client, depending on their needs and investment goals. Less risk taken in the North American Portfolio allows for the budgeted risk to be spent elsewhere. Much of this is accomplished by diversifying asset classes, management strategy and differentiation.

With respect to risk, most people think of risk in terms of losing money. Other more institutionalized investors think of risk in more relative terms – i.e. their portfolio’s return against a benchmark. In the latter case, the absolute return is less important than the relative return. If you have read much of what Pathfinder has written over the years, you would know that we are not big believers in benchmarking. We are more concerned about buying the best companies that we can find and taking a real investment position, rather than hugging widely published index weights (investors can do this cheaply on their own by using Exchange Traded Funds). Thus, risk minimization for us comes from our process and our process allows us to customize this for each client.

PERFORMANCE: 

A summary of the Pathfinder mandates and their performance follows: