What do you do when you have a great investment manager putting up terrific numbers yet you see something you like better?
That was the dilemma of our Investment Committee this past summer.
One of our corporate bond managers, Canso Investment Counsel Ltd., has steadily and soundly trumped the index for the past several years. And in recent months, even as bonds have been under pressure, they’ve continued to deliver positive returns for client portfolios.
However, as we look forward to the next three to five years, bonds are not our first choice for making money or protecting downside risk.
For that reason, over the past year, our Investment Committee has been steadily increasing the allocation to global and US equities which we view as being more attractive for the next market cycle.
Recently we took the additional step of selling a portion of the corporate bond holdings managed by Canso in both our Newport Fixed Income and Newport Yield Funds and moving the proceeds into cash – for a time.
We did this in anticipation of a buying opportunity in global equities – with a particular eye on the U.S. With the current U.S. debt ceiling discussions looming over equity markets, Fed tapering, global tensions around Syria and the traditional “October effect” (the theory that markets decline in October), it seems to us a small correction is more likely than not and this would provide a good entry point at which to buy.
I don’t imagine we’ll get the timing perfect, but as an Investment Committee it’s a nice problem to have as we move from one good investment to a potentially better one.
We have also been deploying some of our cash proceeds into a sector we have favoured for over a year: U.S. real estate. We are very excited about the sources we have for U.S.-based investments in this space: Proven operators buying at distressed prices. Not a bad combination. Through them, we have built and are continuing to add to a broad and diversified portfolio of properties ranging from residential to commercial.