Welcome to Volume 14
Welcome back to the Pathfinder Investment Outlook. We are now in our 14th year writing this note for Pathfinder. We have been writing in various formats since 2007 (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 Counselling Teams. I am of two minds with respect to this:
First, we are Equally Invested. We think that it is important for the people that we invest capital for that they understand what our investment view is. Their capital is invested the same as ours, and personally I would want to know that information if I was the investor. We find that those people who take the time to understand our investment thesis generally have better conversations with the Counselling Team during our regular meetings. Second, I have found, over the years of writing this note that the discipline of “putting pen to paper” forces reflection. This reflection has clearly helped with the evolution of our investment thesis over the years. With a formalized investment thesis, portfolio and wealth management are just a matter of execution, but it all starts from the regular discourse we have as an investment team, and this includes writing the weekly Outlook.
By now, you have received our year-end mandate reports and analysis. Our thoughts are now preoccupied with the global economy, given the significantly different trajectories of North America, Europe, Japan (now in technical recession) and China (clearly in a recession). There are many geopolitical issues as well (all very hard to predict), so for the next few Outlooks, we will focus on our companies and portfolio positioning.
- We start the year off by noting that markets have continued their run higher. Recently, there have been headlines about all time new highs. The S&P 500 has pushed through 5,000 and in Japan, the Nikkei 225 is within a sliver of its all time high, which is the bubble that burst at the end of 1989. Technology stocks around the world continue as before and are now the largest positions in several of our mandates.
- We find ourselves, again, in the difficult position of trying to deploy excess cash into large cap North American stocks that are trading at valuations that we consider too high. For now, we will hold our cash.
- We are also clearly aware of the ongoing debate about inflation, the state of the US economy and the market’s expectations of potential administered interest rate cuts over the coming year at the US Fed.
“This means that” we will continue to remain disciplined with our investment philosophy. In our funds, we see good opportunities. Certain parts of the world offer great value for the International Fund. Investment capital is scarce, so our Partners and Resources funds have lots of work to do and the Conviction Fund is focused on opportunities in small to mid sized financial, consumer, and industrial companies where we have an analytical edge.
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 Pathfinder Real Fund are presented based on the master’s 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.