Proper Diversification
At Pathfinder, we feel that there are three ways a person should manage their investment portfolio:
- Do it yourself actively – research companies and invest in them directly on your own;
- Do it yourself passively – buy Exchange Traded Funds (ETF’s) that mimic the stock market or a certain sector and hold on to them for the long term, ignoring short term market fluctuations; or
- Hire a money manager – preferably one that is equally invested, builds a concentrated portfolio and takes a real investment stance, not over-diversifying your portfolio (why would you pay somebody to do what you can do in #2 above for essentially free?)
As we discussed last week, we have recently seen several portfolios invested at large mutual fund institutions, where the client is invested in over 20 different mutual funds and ETF’s, spanning across every investible asset class and geography across the world. Many of the mutual funds owned the exact same stocks within multiple funds. While we feel this is not ideal, it is an approach we feel falls into the #2 category above. However, the clients were paying double the fee as the funds were bought through a financial advisor and not directly on their own.
At Pathfinder, we build an investment portfolio by writing an investment policy statement together with the client. This investment policy is tied directly to the client’s financial plan, long term goals, or income needs. It dictates how much of the portfolio we need invested in fixed income or cash for short to medium term spending; how much of the portfolio we need in blue chip equities for both growth and dividend income generation; and how much of the portfolio we need invested in our growth focused Pathfinder funds. It is important to know that each of these portfolios or investment classes is completely different than the other, providing real diversification and communication between the people managing the money.
“This means that” we are encouraging anybody with a portfolio that is invested in a wide range of mutual funds to reach out and let us have a look at it. We can offer a complimentary, no commitment forensic report, showing you what you own and how much you are paying for it. If it is properly diversified and performance is living up to standards, we will tell you to hang on to it. We feel this is most important during the current market condition. You may be over exposed to certain companies that are invested within all the mutual funds you own and you may not even know it. Remember Nortel??? Please reach out to Nigel Andison at 604-682-7312 ext. 230 if you have any questions or would like us to give you our no obligation opinion on your current holdings.
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.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Pathfinder Real Fund are presented based on the masters series of each fund. The Pathfinder North American Equity Portfolio and The Pathfinder North American 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 North American Equity Portfolio (January 2011), Pathfinder North American High-Income Portfolio (October 2012) Pathfinder Partners’ Fund (April 2011), Pathfinder Real Fund (April, 2013), and Pathfinder International 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.