Third-quarter surge drives charity investors' returns

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The Canadian economy found its stride in the third quarter, bringing it into the spotlight for a trio of money managers committed to raising funds for charity.

The three veteran investors are participating in an investment challenge dedicated to raising money for the Holland Bloorview Kids Rehabilitation Hospital, which is the largest facility of its kind in Canada. The Toronto hospital's mission is to improve the lives of children living with disabilities.

Each of the fund managers started with $25,000 donated by their respective firms. And each is managing that money on behalf of Holland Bloorview over the course of the calendar year, with all capital and investment gains going to the hospital. Donations of cash or securities can be made to each manager's Investor Challenge fund at hollandbloorview.ca/investorchallenge.

The third quarter saw Canadian GDP growth assume its quickest pace in a decade, while the loonie as well as long-term bond rates rose considerably after two policy rate hikes by the Bank of Canada. Meanwhile, thanks to a late-quarter surge in Canadian stock prices, the S&P/TSX composite index finally made up some ground lost against most other developed markets.

Here is how each manager fared in the lively quarter.

The manager: Wesley Roitman, managing partner, Romspen Investment Corp.

The fund: Romspen Mortgage Investment Fund

A rise in interest rates tends to affect how properties are valued, making this portfolio of mortgage loans somewhat susceptible to the rate environment.

"Typically that means, you go with a little less land, or you stick with higher-quality borrowers," Mr. Roitman said. "But the rate changes so far have been fairly modest."

The Bank of Canada's rate hikes in the quarter added a total of 50 basis points to the overnight lending rate, while the yield on five-year Government of Canada bonds hit its highest level in nearly four years. But at 1.82 per cent, that recent peak is still extraordinarily low in a long-term historical context.

And with high levels of household and government debt in North America, it doesn't take much in the way of upward pressure on rates to cool the economy, Mr. Roitman said. That makes anything more than modest increases in long-term rates unlikely, he said.

That might warrant more of a cautious approach, but he will continue funding projects such as the $80-million expansion of Cronos Group Inc.'s marijuana production facility in Stayner, Ont. Romspen provided half the project cost, secured against the company's assets. "It's a very safe loan," Mr. Roitman said.

The fund returned 1.9 per cent in the third quarter.

The manager: Brandon Snow, chief investment officer, Cambridge Global Asset Management

The fund: Cambridge Global Equity Fund

The tightening of monetary policy after nearly a decade of unprecedented stimulus could have profound impacts on asset prices. And Mr. Snow said he's not sure the market is fully taking that risk into account.

That cautious stance has him sitting on a pile of cash at a time when major equity indexes in developed countries continue to post runaway gains. The S&P 500 index is up by 15 per cent year to date, and even the S&P/TSX composite has fallen in line after a rough first half.

"As bottom-up investors focused on downside risk, we're happy to go in cash and happy to not really participate in this equity rally," Mr. Snow said.

He has relatively low exposure to rate-sensitive stocks such as consumer staples and telecoms, and a 20-per-cent weighting in cash.

He's not overly concerned, however, that a hot economy could keep him on the sidelines for too long.

"If the economic momentum we've seen continues, which seems to be what's driving the mood in the market, you're going to get more aggressive monetary tightening." That would most likely push stock prices down, opening up some buying opportunities.

The fund was up by about 1 per cent last quarter.

The manager: Brendan Caldwell, president and chief executive, Caldwell Investment Management

The fund: Caldwell Canadian Value Momentum Fund

With almost no exposure to the energy sector and no positions in the big Canadian banks, this fund is not exactly closely aligned with the domestic economy or the domestic stock market.

"Our fund is still doing better than the index as a whole, which is remarkable considering that oil has come back somewhat and that financial services stocks, and banks in particular, have come back," Mr. Caldwell said.

The fund is a combination of value and momentum strategies, with the goal of identifying undervalued stocks that the market is starting to recognize. That process has led to heavy overweights in industrials and consumer discretionary sectors, which together account for nearly two-thirds of the fund's assets.

Third-quarter performance was 1.51 per cent.