This firm’s more complex investing approach has helped it weather the market’s storms, writes Rob Carrick, reporter and columnist for The Globe and Mail.
Welcome to advanced portfolio-building class.
Whereas the investment industry mainly uses stocks and bonds in portfolios, a few firms take a more complex approach that adds significant weightings in assets like hedge funds, real estate, and mortgages to the mix. If done well, the results can beat more conventional portfolios while providing fewer jarring ups and downs.
For an example, let’s take a look at what Vancouver-based Nicola Wealth Management is doing in its balanced income portfolio. Returns from January 1, 2000 through June 30, 2011 averaged 6.7% annually after fees, compared to 3.1% for a traditional portfolio of 60% stocks and 40% bonds.
The traditional portfolio’s returns were based on benchmark indexes for bonds and both Canadian and foreign stocks, and they weren’t reduced by fees. Here’s how the balanced income portfolio is built:
Alternative Strategies
Half of this category is accounted for by hedge funds, and the other half is made up of precious metals and private equity, which means shares in companies that are not listed on stock exchanges.
The point of owning alternative strategy investments is to have assets in a portfolio that don’t follow the ups and downs of the stock and bond markets.
Hedge funds are typically available for minimum investments ranging from $25,000 to $150,000. John Nicola, the chief executive officer at Nicola Wealth Management, highlighted the Vertex Fund and Sprott Hedge L.P. as two hedge funds used at his firm.
Mind the volatility in these and other hedge funds, though. "What these guys are doing are making certain bets about the direction of things," Nicola said.
Canadian Bonds
With interest rates as low as they are, Nicola has only a smal! l positi on in Canadian bonds, and is relying on other types of investments to generate income. "Right now, the way we look at bonds is that they’re another form of cash."
Nicola is using a basic laddering strategy, which means dividing money evenly into bonds maturing in one through five years. As a bond matures, it’s reinvested in a new five-year term. A mix of corporate and government bonds is used.
Nicola formerly used exchange traded funds to get his bond-market exposure because he likes the low fees. Just recently, he’s been able to create what amounts to an in-house bond mutual fund for his firm’s clients.
No comments:
Post a Comment