In December of 2015, with Canadian Equities having been the worst performer of the developed nations, the natural re-balancing equation would indicate that a balanced portfolio would be adding this under-performing asset class (because it's allocation % would have fallen relative to the total portfolio), while reducing the % holding of an out-performing asset class to pay for it.
Natural profit-taking and redistribution of assets.
It turned out well, because so far this year the Canadian equity market has been the best performing equity market.
As discretionary portfolio managers, we can accomplish all of our client re-balancing in an instant, because we do not have to wait to discuss the re-balancing with each client at their portfolio review.
With non-discretionary advisors, it is difficult to perform just 5 or 6 reviews per day and properly execute all of the trades required for a re-balancing. A large advisory practice may not even get to each client once per year (unless the client was insistent) in that case.
Believe me, that was my challenge in my previous situation, however we could not agree to re-establish our process (because it meant that everyone had to be licensed as a portfolio manager, but I was the only one).
It really was a disadvantage to the clients. So, in the end, it turns out that building a new, different and better portfolio management operation at High Rock has become a great advantage for our clients.
It also means that we can be more tactical in our approach to re-balancing and add even more value.
The S&P TSX total return (including re-invested dividends) this year to date is + 7.7%.
The S&P 500 total return this year to date (including re-invested dividends and currency adjustments) is -7%.
Combined, that re-balancing alone would have been worth more than 14.5%.
Great added value!
As I said, re-balancing is the secret sauce (and executing it in a timely manner is also important).
Oh and by the way, as you may all know, this is not a recommended trade at this point in time. In fact, it is / has been a good opportunity, but re-balancing again is / was in order and what has occurred historically is never a guarantee of future performance. DIYer's go carefully!
It is webinar Tuesday for our clients, where we discuss the global economy, financial markets and other things wealth management. We will publish the recorded version on our website for all of you who may want to listen / watch at or about 5pm EDT: http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html feel free to tune in.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist