Alternative Investment Ideas

Need an Expert Second Opinion? ... A Fresh Set of Eyes?

For over two years now, in our e-Wealth Report, we have been actively making the case for:

  • Protecting Wealth: through proactive asset allocation, and
  • Hedging Against Risk: the application and maintenance of tactical strategies that complement one's long term outlook.


Since inception, our core investment strategy has been successfully weathering a multitude of market worries and global economic conditions. The Tax AlphaTM Strategy is up +6.87% year-to-date, net of fees, as at March 31, 2016. What is of greater importance than pure comparison of investment results to us, is how those results are achieved on a risk-adjusted basis - ie, a smoother ride with reduced downside volatility.

Total Return Comparison (net of fees): Smooth Ride
       Chart Source: ©StockCharts.com

We are pleased with our risk management process and constantly embracing the next wave - whatever it may be.

StennerZohny Investment Partners+ is a multi-family office, as such, we work with top industry thought leaders and institutions to build upon our opinions. Lately, we have been receiving a higher level of inquiry about our current defensive market posture. To further our communication, we have created the contact form below to:

  • Help investors reach out to us and start a dialogue about portfolio positioning, and to
  • Help identify possible risk factors in one's portfolio.

Second Opinion Contact Form

To further a discussion, the contact form below simply sends us a confidential email, with the information you have provided, and we will respond in kind.

*Required fields

Richardson GMP’s Questionnaire is not a comprehensive financial planning tool. It is intended to address the requirement to invest in appropriate assets and should be used in conjunction with proper suitability analysis. Richardson GMP Limited, Member Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under the license by Richardson GMP Limited.

e-Wealth Report
"Investors continuing to buy bonds, even when they pay next to nothing, suggests deep concern over the state of the global economy ..."

How Central Banks Trapped The World In Bonds
- ZeroHedge
'Bond'-'age'

The hands of central bankers are finally tied, and they have forced duration risk upon the global economy (risk of a bond price decline due to an incremental increase in interest rates).

By keeping yields at all-time lows, and fabricating negative interest rate conditions for investors, they have signaled their lack of confidence in the ability of economies to grow 'all-by-themselves'. That's not even the biggest concern though.

When bond yields are forced to such lows, institutional investors (ie, pension funds, insurance co's) are made to seek return elsewhere. Since the valuation/risk profile of many equities makes no sense, these funds often increase the maturity of their bond holdings, ie, they start to purchase 20 ,30 ,40 year dated bonds).

So, let's think. The cumulative global Fed(s) have effectively increased systemic risk, within the more sensitive bond pools, by inadvertently pushing capital flows towards them.
 
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StennerZohny Investment Partners Team Photo

Where Smart Money Thrives.
Longer Term.TM
"    
"Time is against the long end of the bond market. Even if an increase in bond yields may not be so strong, the positions are so huge that the damage can be massive"
- Fabrizio Fiorini

It's getting unconscionably ugly out there, and we want no part of it. In fact, we would only touch bonds right now at negative durations, ie, some funds have the ability to make money when bonds lose money and interest rates rise. Currently we are not deploying the above strategy as the collective Fed(s) of the world have painted themselves into a corner, and will likely keep their feet on the 'easy money pedal'.
 
A Joke (the Fed that is)
- Hedgeye Daily Cartoons

Why is all this such a problem right now? The fact that central banks have forced markets to take on excess risk when economic conditions are trending at recent lows creates a situation whereby they can't feasibly increase interest rates without taking the most sensitive part of the bond market lower.

We have no exposure to this mess, and so have no concern, but it is disconcerting from an observational standpoint as investors take on more risk in high yield (junk) rated debt and/or increase their bond maturities (note: a short-term scenario will likely see the above mentioned long maturity bond pools do well as yields remain suppressed and there becomes a flight to safety in the face of macro/market headwinds. High yield/junk bonds would do the opposite and lose value do to their underlying credit exposure. We have drafted a nice visual representation here).

When you think about how equity markets have been recently reacting to increased rate expectations, and decreased quantitative easing, you will notice a visible pattern:
  • Equity sell-off = when interest rates are projected to rise and central banks threaten to decrease/stop the flow of asset-purchases,
  • Equities rise = when there is a prospect of low rates and the potential for more 'helicopter money'.
     
Markets are cheering weak global growth as a proxy for lower yields, for a longer period of time. This only makes sense in a world where inflation is effectively hovering near zero and companies need cheap money to survive. This bide-your-time policy may have worked too, if we were cutting rates from double digits to mid-single, as observed in the '90s; however, that is not the case today.

And yes, credit is a growth engine in times of fiscal progress, strong productivity, inflation, and real/equitable employment gains (the kind that don't have the current labour participation rate sitting at historic lows). But using debt to constantly bail-out the world economy, and 'hope for the best' is a recipe for a disorderly wind-down of equity, bond, and currency markets (not to mention increased volatility).
lol
lol2
- Hedgeye Daily Cartoons

Enough said, what's the solution? A non-traditional asset allocation (endowment style), with an increased emphasis on alternatives, such as private equity, is definitely half the answer (think 30/30/30/10 and not 60/40). The second part is that Canadian investors have one of the largest domestic equity biases across retail and institutional portfolios we have ever seen and it is really, really dangerous. Good times are good, but bad will be atrocious.

Recently we penned an update for the Globe and Mail on the current portfolio trends of High Net Worth Investors (HNWIs) investors. What we find is consistent with our own observations and daily dealings.
  • An increase to defensive areas of the market by HNWIs - private equity @ 23% (up from 18% a year earlier and the highest level since 2007), fixed income @ 11%, hedge funds @ 8%.
  • A decrease to risk areas of the market by HNWIs - real estate @ 25%, public equity @ 22%.
     
This trend has been in motion for the better part of twelve months now as the HNW realize a defensive posture is appropriate for the raised level of risk persisting in the market. Remember, the best long-term performing assets are generally the unloved, not the overly-liked. Such a low allocation to global public equity is suggestive, and with a solid grasp of main street, HNWIs are generally first to position appropriately.

We hope you have a great weekend,
Thane, Youssef, and Simon
Speaking Truth:

Even More Signs Of A Possible Reversal In The Wealth Effect
- Jesse Felder

"If you build a bridge it has to reach the other side. So I think a bridge that relies on wealth effects, you better hope that you got enough growth to justify the asset price increase which created the wealth effect in the first place. So there is some sort of virtuous cycle that gets kicked off which becomes self-fulfilling over time. The alternative is you kick off the wealth effect now, but over time people realize the wealth ain't coming and then you have an asset price adjustment" -Raghuram Rajan, current head of the Reserve Bank of India and former chief economist at the IMF
 
Chart of the Week:

High-Yield Defaults On The Rise
- Image/Article Source: Seeking Alpha

HY-Default Rate
We Agree:

Short-Seller Takes Aim at Canadian Housing
- BNN

Why are the shorts hated so? Well, because they challenge comfort, convention, and complacency
 
Long Term Trend:

Are US Equities Overvalued?
- Russell Investments

Check out the distortion created by Fed policy. We call this multiple expansion, and nothing more
 
Dose of Reality:

When Easing Gets Hard
- The Economist

If you want a base case for the future of the US, look no further than Japan
Asset Allocation:

HNWI Quarterly Asset Allocation Report
- TIGER 21 / Globe and Mail / Thane Stenner

Want to be, or remain, wealthy? Study what TIGER 21 investors are doing with their portfolios.

By emulating the investment moves of those who have shown they know how to create wealth and protect it, you stand a significantly better chance of joining or maintaining their ranks one day.
 
Asset Allocation:

Ultrawealthy Investors Commit more to Private Equity than Stock
- Wall Street Journal
Psychology:

Not All Practice Makes Perfect
- Image/Article Source: Nautilus

Practice Makes?
Chartology:

180 Years of Market Drawdowns
- A Wealth of Common Sense

"We tend to be inadequate historians" - Robert Frey

In a sense risk is easier to predict than returns. Market losses are the one constant that don't change over time
 
Manipulation:

Fantasy Math Is Helping Companies Spin Losses Into Profits
- Wall Street Journal

"Selectively ignoring facts can lead to investor carelessness in evaluating a company's performance and lead to sloppy investment decisions" ... they are "giving managers a free pass on their effectiveness in managing all shareholder resources"
Feedback:

Let us Know
- StennerZohny Investment Partners+

If you haven't already, in this second week of the new mobile platform, let us know if you are enjoying the new/improved mobile layout of the e-Wealth Report this week? Please click 'Yes' or 'No', as it helps us to better cater your experience (note: only visible while viewing on mobile devices)
 
As always, we are here to assist and are happy to share our thoughts in more detail - so don't hesitate to reach out to us.

Thane.Stenner@Richardsongmp.com
Youssef.Zohny@Richardsongmp.com
Simon.Jochlin@Richardsongmp.com

StennerZohny Investment Partners+
A Leading Multi-Family Office, Serving High Net Worth Investors, and Family Office Professionals
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The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances. Insurance services are offered through Richardson GMP Insurance Services Limited in BC, AB, SK, MB, NWT, ON, QC, NB, NS, PEI and NL. Additional administrative support and policy management are provided by PPI Partners. Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.

Commissions, trailing commissions, management fees/expenses may be associated with mutual fund investments. Read the prospectus before investing. Mutual funds are not guaranteed, their values will change and past performance may not be repeated.
StennerZohny Investment Partners+  |  Richardson GMP
500 - 550 Burrard Street, Vancouver, BC V6C 2B5 Canada



More information about our Tax AlphaTM Balanced Strategy performance can be found here. Also, at the bottom of every e-Wealth Report we provide access to our current and past Outlooks, as well as our Outlook Scorecards.