Welcome to Volume 15
Welcome back to the Pathfinder Investment Outlook. We are now in our 15th year writing this note for Pathfinder. We have been writing in various formats since 2007 (we are 18 years old now!). Over the years, people have asked why we continue to write these notes week-in and week-out, given the time commitment 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 our clients to understand our investment view and why it is the way it is. All of our collective capital is invested the same way and, personally, if I was a client, I would want to know. We find that those people who take the time to understand our investment thesis generally have better conversations with the Private Client and Investment Team during our regular meetings. Second, we have found, over the years, that the discipline of “putting pen to paper” forces reflection. This reflection has clearly helped with the evolution of our investment thesis. With a formalized investment thesis, portfolio and wealth management are just a matter of execution. However, it all starts from the regular discourse we have as an investment team, which includes writing the weekly Outlook.
Our thoughts continue to be preoccupied with the global economy, given the different trajectories of North America, Europe, Japan and China. There are geopolitical issues as well (all hard to predict) and those seem to be accelerating.
- We start the year off noting that markets have continued their run higher. This was the same as last year. Technology stocks around the world continue as before… although with some building concern that growth expectations are too high.
- Last year, we were struggled to put cash to work. But this year, we have become more conservative. We are building cash balances where we find valuations too high. Normally we would be interested in “switching” positions, selling a higher priced company for one with better valuation, but now we are just as content to hold some cash.
- We have also built our defensive positioning. We added good quality names that we believe will not fall as much as the rest of the “market” in a stress event. The goal is to sell those defensive companies and replace with great bargains when we ultimately do experience downside volatility.
“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
*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.