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  • Peter Churchill-Smith


    As a managing director of Newport Private Wealth, Peter Churchill-Smith provides individuals and families with investment and wealth management services. He has spent his entire 35 year career working with and advising successful entrepreneurs: 10 years of lending and providing capital and 25 years managing the private wealth of entrepreneurs and their families.

    Peter is passionate about the experience of entrepreneurs who have sold a business - an area of specialization for Newport Private Wealth. He has written several articles on the subject and most recently helped launch Newport Private Wealth's nation wide survey of business sellers that further strengthens the firm’s capability in advising the next generation of business-sellers.

    Prior to joining Newport Private Wealth in 2001, Peter was a vice president with Connor Clark Private Trust (now RBC Private Counsel) and vice president of Mutual Securities Inc. and Mutual Trust Company. He also spent 10 years in the commercial lending business at both Morguard Bank of Canada and Mercantile Bank of Canada. Peter holds an MBA (1976) from the Ivey School of Business (University of Western Ontario) and a B.Comm (1974) from Carleton University.

    Peter is also a chartered financial analyst, a member of the Toronto Society of Financial Analysts, as well as The Association of Investment Management and Research in Charlottesville, Virginia.

    Peter can be reached by email at pchurchillsmith@newportprivatewealth.ca.

    U.S. real estate – no more “low hanging fruit”

    The U.S. real estate market is once again attracting investor interest and there is an abundance of mortgage money available to buyers. Investors in the commercial and multi-family housing sectors appear confident the market recovery is real and sustainable. As a result, prices for these types of properties have been rising.

    The multi-family sector (i.e. apartment buildings) has been one of the strongest performers for many reasons – not the least of which is that since the financial crisis many Americans have abandoned the dream of home ownership.

    MoodysChart PCS 2014 300x241 U.S. real estate – no more “low hanging fruit”We have been investing in the U.S. multi-family space since 2011 and our clients now have interests in apartment buildings in Texas, Georgia, Florida and Tennessee. Our goal was to build a diversified portfolio of properties that would capture an attractive yield and a meaningful capital gain. The capital gain would be the result of both a recovering real estate market and strong growth in rents. Our experience to date has been very positive and if anything, the market has recovered more quickly than we anticipated.

    Venterra Realty, a specialty real estate investment company investing in multi-family residential communities in the southern United States, has been an important partner for Newport Private Wealth in this program.

    John Foresi, CEO, co-founder and director of Venterra, was in our office recently to provide an investment update. He reviewed the changes in the U.S. real estate market in the five years following the financial crisis of 2008.

    In his view, the market was frozen in 2009-2010. There was little activity – mortgage money was scarce and buyers and sellers were paralyzed by the dramatic price declines. For many, it was a game of survival and there were few buyers with money and conviction. Venterra had both.

    By 2011, the market had stabilized and bargain hunters had returned. But only the “best-financed” buyers were in the game as mortgage money remained very scarce. The majority of U.S. lenders were reducing their balance sheets and most doors were shut for new borrowers. For well-financed buyers like Venterra, the 2011-12 period was, according to John, akin to “shooting fish in a barrel.”  In retrospect, he wished that they had been more aggressive, but hindsight is 20/20 and our view is that it is better to be conservatively opportunistic than take on too much risk.

    By 2013, investors of all kinds were back looking for yield and the supply of mortgage money had improved dramatically. The result? “Cap rates” for multi-family projects fell to 5.75% from 6.75%. While this may not seem like much, it means that prices increased 18%! (Note: commercial real estate is valued using a “capitalization rate” i.e. “cap rate”. The lower the cap rate, the higher the price.)

    In John’s view, there is now little left in the way of “low hanging fruit” in the multi-family sector. He reminded us that it is more essential than ever to “buy well, use moderate leverage and be prepared to wait it out if needed.”

    He also reminded us that Venterra has a number of meaningful competitive advantages. They have an unblemished record as a reliable buyer that can close quickly. Quite often, they have bought buildings after the winning bidder failed to close. They are also able to assume existing mortgages. Mortgage lenders are very reluctant to transfer mortgages to new buyers. As a result, an existing mortgage is often viewed as a “negative” and it eliminates many potential buyers from the bidding process; an advantage for well-capitalized buyers like Venterra.

    Finally, there continues to be “underperforming” properties for sale due to absentee ownership or deferred maintenance. In these cases, Venterra’s strategy is twofold. They believe that their operational expertise will improve occupancy and rental rates. In addition, they have the ability to raise enough money to upgrade the property. If successful, the result is increased annual income and a higher sale price in 5 to 6 years.

    WestoverOaks U.S. real estate – no more “low hanging fruit”

    Westover Oaks, San Antonio, TX, acquired Dec. 2012

    Overall, John remains confident that he and his team can continue to secure attractive opportunities for us to consider and invest in for our clients. Success will be less about falling cap rates and more about value-added strategies to increase the net income from each property.

    Is the U.S. market due for a correction?

    Is the U.S. stock market poised for a correction? Is January’s decline of 4% the start of a bigger correction?

    These are perfectly understandable questions. In fact, we hear them repeatedly when meeting with our clients here at Newport Private Wealth. And they are being heavily debated within our Investment Committee and by investment experts whose opinions we value. After all, the S&P 500 has increased by almost 50% in the last two years including 30% in 2013.

    The pessimists are arguing that:

    • the S&P 500 has increased for five consecutive years and a six-year streak has only happened once before (1982-89); and
    • market returns after two consecutive years of double digit returns have typically been modest; and
    • the stock market is expensive at 16x earnings.

    (Source: BMO Nesbitt)

    The optimists have compelling points to make as well. They argue that:

    • stock markets can and have traded well above the current P/E multiple when inflation is under 2%. (inflation is currently less than 1%); and
    • private investors remain very “under-invested” in the stock market. They withdrew $451 billion from 2006-12 and only reinvested $60 billion last year.

    This is a very common dilemma in the life of an investment manager such as Newport Private Wealth. We are repeatedly faced with conflicting facts and viewpoints, most of which are persuasive and compelling on some level.

    Will there be a correction in 2014? We think it’s likely. But corrections are a normal part of the investment cycle and they are often part of a long-term bull market. In fact, corrections are seen by many as a healthy part of the journey. They even provide an opening for those investors who are late to the game to get invested.

    Take a quick look at the chart below. The S&P 500 has doubled in the last five years and there have been four pullbacks along the way, including one correction of almost 20%.

    large decline Jan20141 Is the U.S. market due for a correction?(Source: WSJ Data Group)

    The more important question, in our view, is “are U.S. stocks a good place to make money over the next three or more years?”  We have confidence in our positive view of this question. But we would not be surprised to see one or more corrections along the way.

    However, we do feel that different strategies are in order at this point in the cycle. From our perspective, further gains in the U.S. market will have to be driven more by earnings growth rather than a broad-based market rise. Therefore, we believe that the right approach is to be more selective by way of prudent “stock-picking” as opposed to just owning “the market”. Lastly, we are currently holding healthy cash balances in our equity funds with the hope that we will be able to put the money to work at more attractive prices.

    Meet the asset class specialists

    We hosted our semi-annual Meet the Pros event last week in Toronto where clients had an opportunity to meet some of the independent asset class specialists we retain for specific components of the portfolios we manage. This year’s panel of pundits included Maureen Farrow of Economap (our independent economist), Tye Bousada of Edgepoint Investment Group and John Foresi of Venterra Realty –specialists in global equities and U.S. real estate respectively.

    The key takeaways in my view were:

    • the recovery from the of 2007/08 financial crisis is on a good path and has slow but steady momentum;
    • after a strong run-up in both equity and real estate prices; be very careful not to overpay

    [read more >>]

    Convexity and Bonds

    Yesterday’s Globe and Mail included an interesting article by Boyd Erman on the impact of “convexity” on bond prices. That is, the measure of the sensitivity of the price of a bond to changes in interest rates.

    As advisors, we try to avoid jargon like volatility, duration, correlation and tracking error. One investor friend of mine defines volatility this way: “it means the investment will drop in value as soon as I own it!” The term “convexity” is totally out of bounds and reserved only for bond specialists!

    But Mr. Erman makes a valuable point in the article. Ignore all the discussion about the shape of the yield curve.  This is the key point – when bonds are only yielding 2%, a 1% increase in yields will result in a bigger drop in value when compared to a bond yielding 8%. So today’s investor has to be more acutely aware of the impact of rising interest rates on bonds in their portfolios. [read more >>]

    Is it time for bondholders to rethink their strategy?

    At this time last year, two key issues were front and centre for us.  We were concerned about more fallout from the economic uncertainty in Europe and the U.S.  There did not seem to be any clear plan in place to resolve the debt and deficit issues. We were also concerned that interest rates would finally hit bottom and start to climb.  Both issues caused us to be cautious with our clients’ capital in 2012.

    The threat of rising rates has been hanging over the heads of all investors for some time now.  Quite surprisingly, rates did not rise in 2012. In fact, they fell – about 0.60% in Canada. Why? Because more stimulus like the Federal Reserve’s bond buying programs was needed to re-ignite the economy.

    In anticipation of rising rates last year, we accelerated our plan to diversify our sources of yield for our clients.  We added more income-producing real estate, residential and commercial mortgages, corporate bonds and dividend-paying stocks.  With rates falling, these investments performed well in 2012. [read more >>]

    Looking for income? Try looking south.

    b88c908598614c50b4792285133b98d8 florida 150x150 Looking for income? Try looking south.We look everywhere for income.

    Throughout our history, we have been able to earn attractive income-based returns for our clients ranging from the conventional (i.e. corporate bonds) to the hard to access (i.e. mezzanine debt on a privately-owned self-storage business).

    We are not alone in the pursuit of income.  Investors throughout the world have been seeking yield in an era of low economic growth and mediocre equity returns.  As a result, money has flooded into every popular idea and driven up the prices and, regretfully, driven down yields.

    Specifically, a lot of money has flowed into Canada’s real estate market – a sector that has been a reliable source of income for us and other investors. Much of the interest has come from overseas.  Foreign investors have liked our real estate, our economy, our currency and our stable political environment.  This inflow of capital has pushed up prices to the point that we now think there are more significant risk/reward opportunities elsewhere. [read more >>]

    Finding investment opportunities when the economy isn’t handing them out

    iStock 000014863867Medium priv eq banner 300x94 Finding investment opportunities when the economy isnt handing them outLast week, we organized a lunchtime panel with four outstanding financial minds that are part of the pool of talent we have to draw on for the management of client investment portfolios:

    • Maureen Farrow, (economist), President, Economap
    • Tye Bousada, (global equities), President & Co-CEO, Edgepoint Investment Group Inc.
    • Rick Grafton, (energy), CEO, Grafton Asset Management
    • Corrado Russo, (real estate), Managing Director, Global Securities and Investments, Timbercreek Asset Management Inc.

    It was a lengthy and meaty conversation about the state of the global economy, how Canada is faring and what it all means for clients of Newport Private Wealth. This summary won’t fully do justice to the depth and scope of the presentations, but we will try to boil a 90 minute discussion down to a readable blog post for you.
    [read more >>]