HOW WE ADD VALUE FOR YOU
Different from the Index
Capital markets are often inefficient, as many securities are undervalued or overvalued at any given time.
Our three-pronged strategy for generating excess returns above the market is:
We differ from the index: We look outside the index in order to beat the market. Anyone can buy a low fee Exchange Traded Fund (ETF) and get exposure to an index of stocks or bonds. However, companies that are part of an index tend to be overvalued since they are over-owned by just about every pension fund, mutual fund, and broker. This is why most mutual and pension funds, many of which are “closet indexers” and manage too much money, cannot consistently beat benchmarks. While we generate part of our returns (market return) from the “beta” of large cap stocks that form part of the index, we achieve our above market returns (“alpha”) by having different sectors weightings from the market and by investing in companies that are outside of the index.
We think small is beautiful: We prefer investing in small and mid cap stocks where valuations tend to be much more attractive. In fact, many trade at private market valuations. It is much easier for smaller companies to grow and create shareholder value compared to large companies. The Canadian stock market is very inefficient in regards to smaller companies, due to a lack of analyst coverage, illiquidity or “perceived” risk. We are also very patient when accumulating shares or buying blocks of stock.
We are opportunistic: We exploit opportunities caused by inefficiency and volatility. Capital markets are often inefficient as many securities are undervalued or overvalued at any given time. Volatile markets increase inefficiencies because price movements are magnified. Volatility often results when investor emotions run high due to greed and fear, causing values to rise or fall to unreasonable levels. It also results from excessive fund flows causing certain asset classes, sectors or securities to become overvalued or undervalued. We also look for event-driven catalysts that will enhance shareholder value and remain nimble to exploit unexpected opportunities.
OUR PHILOSOPHY – Different from the Index
INVESTMENT PROCESS – Value Conscious and Event-Driven
VALUE TRUMPS GROWTH – The Underestimated versus the Overhyped