Welcome to Volume 13
Welcome back to the Pathfinder Investment Outlook. We are now in our 13th year writing this note for Pathfinder. We have been writing this Outlook in various formats since 2007 (more than 15 years now!). Over the years, people have asked why we continue to write these notes week-in and week-out, given that they take committed time and effort from both the investment and operations team. We are of two minds with respect to this:
First, we are Equally Invested. We think it is important for the people that we invest capital for to understand what our investment view is. Their capital is invested in the same way as ours, and we would want to know if we were the client. We find that those people who take the time to understand our investment thesis generally have better conversations with the investment team during our regular meetings. Second, we have found, over the 15+ years of writing this note that the discipline of “putting pen to paper” as the case may be, forces reflection. This reflection has clearly helped with the evolution of our investment thesis over the years. Once we have the formalized investment thesis portfolio, wealth management is a matter of execution. But it all starts from the weekly note and regular investment team discourse.
By now, you have received our year-end mandate reports, so we begin the regular process of updating and editing our views, which will be expressed in this format going forward. Our thoughts now are preoccupied with the global economy, US inflation and changes with production and operations in the business models of the companies we own. There are many geopolitical issues as well (all very hard to predict) so for the next few Outlooks, we will focus on the economy.
We have a hard time believing that the US will go into a recession with the lowest unemployment rates since 1953. The job market appears to be strong, so we wondered about participation rates. Is unemployment so low because people have stopped looking for work? Figure 1 presents this data for “working aged” people for the global economy. As you can see, it does not appear that there has been a significant drop off in participation rates as of the end of the 2022. While there was a definite blip down in 2021, the data has recovered and, in some cases, even surpassed the prior highs (North America).
“This means that” lower participation rates would have forced unemployment rates lower, but this is not the case. The strength of the employment market around the world continues to puzzle us. Continued wage inflation is a risk, as is housing costs. We will continue the discussion going forward in the coming weeks.
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 Real Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.
*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.