High volatility this past quarter
This week, we read an article in Bloomberg that declared this past quarter was one of the more volatile periods ever recorded for stock markets. That’s quite a statement but also seemed to ring true, given the way everything has evolved over the past several months. We decided to test this statement and Figure 1 presents the data. As you can see, we are right up there with other major market events. In fact, 95% of other quarters back to 1970 and 97% of other “first-halfs” were less volatile than so far in 2025. We also tested for other markets and saw similar results for technology and international stocks. The volatility math counts both positive and negative movements the same. The higher the volatility, the worse investors feel, even with upside volatility. That seems a little counter intuitive for the stock market, where positive results are cheered by the financial press. But, as we have mentioned before, investors like consistency over the long run, and big movements in either direction creates uncertainty.
This week, one of our clients asked us how we managed to make money through all the volatility. It was a good question, and our answer highlights the major processes that we use to manage the portfolios. First, we invest in quality companies that generate and consistently grow cash flow. This makes for less price movement during market events. Second, when prices are high, we sell companies that we think are overvalued. This generates cash, which dampens downside volatility, and if we are smart enough to deploy the cash back into the right companies when prices are down, we can provide good returns over the cycle. Third, we also invest in companies where the business models are less correlated with the economic cycle. Our thesis is that when markets drop, the prices of these companies drop less. Much like the cash position noted above, if we can switch those companies to new ones that offer better value over the next cycle, the portfolios should benefit. Last, each of the mandates at Pathfinder have different strategies (i.e. North American blue chip, compounders, dividend growers & payers, small companies, mining companies, international companies, and fixed income) and over time, the mandates have provided real diversification of returns (i.e. zigging while the others zag). For a patient investor, which is what we are at Pathfinder, these four elements of the investment management process give our Portfolio Managers and Wealth Advisors the tools to outperform on a risk adjusted basis.
“This means that” we need to stick with our process and try not to react to the big headlines… positive or negative.
National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.
Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Conviction Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.
For more information, please follow the links above to review the fund term sheets.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).
Pathfinder Asset Management Limited (PAML) and its affiliates may collectively beneficially own in excess of 10% of one or more classes of the issued and outstanding equity securities mentioned in this newsletter. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor PAML can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your portfolio manager, who can assess all relevant particulars of any proposed investment or transaction. PAML and the author accept no liability of any kind whatsoever or any damages or losses incurred by you as a result of reliance upon or use of this publication.