Investment Counsel

Investment specialists: Gary George, Don Nilson

Investment Management Approach

A.F.T. TRIVEST provides investment counsel on a discretionary basis. We also believe that investments require active management; therefore, we review all portfolios on a monthly basis to monitor safety and success.

The core of our investment strategy is diversification and discipline. At Trivest, most of our portfolios are managed using the asset allocation style of investing.

At the macro level, the asset allocation approach requires the investor to apportion the investments amongst the asset classes of cash, fixed income, Canadian equities and foreign equities. The selection of this apportionment will depend upon many factors, including the investors need for cash flow and emergency cash, risk profile, age, net worth and life goals.

One example of apportionment of a $100,000 portfolio across the four asset classes would be described in our policy statement as “5%: 50%: 25%: 20%“. This means, for instance, that we would maintain 5%, or $5000, liquid for emergencies and we would invest 50%, or $50,000, in fixed income assets, which have high security of capital and pay interest either monthly, semi-annually or annually. 25%, or 25,000, would be invested in the Canadian stock market, either through the intermediary of a mutual fund or through direct purchase of stocks in Canadian companies. The final 20%, or $20,000, would be invested outside Canada, likely through foreign-directed mutual funds.

At the micro level, each of these asset classes requires its own sub-strategy. For the portfolio of a couple, we view the two portfolios as one to achieve the objectives.

For fixed income investments (bonds, GICs, strip bonds, etc), the micro policy is to minimize re-investment risk and inflation risk. This is achieved by building a diversified portfolio of multiple fixed income investments with differing (“staggered“) maturities. For small portfolios, the diversification of staggered maturities should be attained through bond or mortgage mutual funds. With a new, larger portfolio, our goal is a series of 6, 9 or 12 month staggered bonds spread over, say, five years. For larger, more mature portfolios, we seek to spread over closer to ten years.

The micro policy for the Canadian equity component is to diversify across broad industry group classifications. At the broadest level, we identify six groups: manufacturing, consumer, resource, utilities, financial services and technology. The portion of the portfolio dedicated to this asset class must be large enough to be able to buy diversified positions across these groups. If it is not, we turn to high quality Canadian equity mutual funds to acquire the diversification that the individual portfolio cannot acquire itself.

The foreign component of your portfolio requires a micro policy, too. Prudent international investing requires localized expertise. Thus, with the exception of the U.S., we rely exclusively on international mutual fund managers to direct our clients’ foreign holdings. In some situations, we attain the U.S. allocation through direct stock purchases.

We establish diversification across international geographic areas by setting allocations, or weightings, to different parts of the world. We break the world into the following regions: U.S., Europe, Latin America, Japan, Pacific Rim and Emerging Markets. The weightings are achieved either by purchasing an international fund which itself allocates
money all around the world, or by building a portfolio of international funds which each have geographic focus.

Executing the foreign component of your portfolio requires detailed analysis of the individual portfolios of the international mutual funds in order to determine where they are investing around the world. This analysis can flush out the fact that, for instance, certain funds
have heavy geographic weighting in certain parts of the world. This over-weighting may be counter-productive to what you seek in your international allocation. Thus, a switch of your foreign mutual fund holdings may be needed to realign your allocation plan.

Diversification reduces the risk factor and achieves better long run returns in your portfolio. The macro and micro aspects of the approach are the engine room of diversification.

Discipline is about “staying the course” of your allocation plan, and not being drawn to the tempting and rocky shoals of “hot markets”. This may include, for instance, taking the seemingly unpleasant medicine of investing in a low-yielding debt instrument when your allocation plan says it is time to buy fixed income, even though the stock market is roaring along. In our view, discipline is an integral part of successful investing.

Lastly, successful investing is about understanding what you are doing. The equity markets allow you to diversify your financial rewards beyond the industry in which you work. Investing is not about owning a “piece of paper” called a stock certificate. Investing is about diversifying your wealth accretion by being in several businesses and industries. Buying a bank stock, for instance, means that you are in the banking business and believe that that is a good business to be in!