In a year that featured two major global equity corrections, finding pockets of strength was key for a trio of fund managers trying to make money for a worthy cause.
The three were taking part in an investment challenge to raise money for the Holland Bloorview Kids Rehabilitation Hospital, which is the largest facility of its kind in Canada. The Toronto hospital pioneers treatments, technologies and programs for kids with a wide range of disabilities.
Starting with $25,000 donated by their respective firms, each fund manager invested that money on behalf of Holland Bloorview over the course of the 2018 calendar year, with all capital, investment gains and additional donations going to the hospital.
While all three fund managers ended the year in negative territory, they all managed to beat the broader market in what was a tumultuous year. The investment challenge raised a total of $116,000 in 2018, which will go toward patient care, family resources and disability research and innovation.
A new slate of portfolio managers is taking over for the 2019 instalment of the challenge: Sean McNulty, co-founder of XIB Financial Inc.; Alex Sasso, CEO of NCM Investments and Aubrey Hearn, senior portfolio manager at Sentry Investments Inc. Donations of cash or securities can be made to each manager’s Investor Challenge fund at hollandbloorview.ca/investorchallenge.
As for 2018, here is how each fund manager navigated an eventful year in markets:
The investor: Som Seif, chief executive of Purpose Investments Inc.
The fund: A custom portfolio from across the Purpose family of funds
2018 performance: negative 3.9 per cent
It might be a good time for investors to reconsider the role of bonds in a diversified portfolio, Mr. Seif said.
In an era of ultralow interest rates and bond yields, there is little room for bond prices to rise, raising the risk of stocks and bonds falling simultaneously.
“We need to start to rethink asset allocation and diversification, not just by hoping that my bonds will protect my equity exposure,” Mr. Seif said.
Put options, for example, which give the owner the right to sell a stock at a specified price, can offer some protection against that stock declining significantly. Strategies like that can help maintain returns during episodes of volatility, such as in early and late 2018.
The one component of Mr. Seif’s portfolio that didn’t work so well were preferred shares, which had a rough year as bond yields declined in the final quarter. “That’s been one part of the market we continue to look at as very cheap right now.”
The investor: Alfred Lam, chief investment officer of CI Investments’ multi-asset division
The fund: Select 80i20e Managed Portfolio
2018 performance: negative 2.3 per cent
In early November, with the 10-year U.S. Treasury yield at about 3.25 per cent, Mr. Lam said he was comfortable adding longer-term bonds, which are generally more vulnerable to rising rates.
While markets grew concerned about excessive monetary tightening, the U.S. Federal Reserve was running out of room to continue hiking interest rates, Mr. Lam said.
“The Fed then went from hawkish to dovish in a month. The ‘Fed put’ was back on,” he said, describing the idea that the Federal Reserve is willing to support the stock market. In late December, investors quickly rediscovered their risk appetite.
“...[I]t looked like we were headed to the end of cycle. And the Fed extended that for probably another year or two years,” Mr. Lam said. “I’m not complaining, because, at the end of the day, we still participate in the upside.”
The investor: Michael Simpson, senior vice-president and executive portfolio manager, Sentry Investments
The fund: Sentry Canadian Income Fund
2018 performance: negative 8.4 per cent
Though rising interest rates through much of 2018 put pressure on rate-sensitive sectors of the stock market, Canadian real estate stocks held up quite well.
The S&P/TSX REIT Total Return Index rose by 6 per cent, led by some apartment REITs. “You have to look at where you are in the real estate cycle. There is strong growth in several cities, as well as a lack of supply,” Mr. Simpson said.
Those holdings helped limit the downside from market sell-offs, as did avoiding most Canadian bank stocks. “Our concern with the banks is slowing mortgage growth and record amounts of consumer and corporate debt,” Mr. Simpson said.
The only Big Six bank in the fund’s top holdings last year was Bank of Nova Scotia, which was penalized in part for its active mergers and acquisitions program. But it remains his top bank pick.