Investment Philosophy
Long Term Approach
We believe in taking a long-term approach to investing rather than trying to capitalize on day-to-day movements in the markets. We build diversified portfolios that are managed using a multi-asset, total return approach. This investment strategy has considerable flexibility that enables Bluenose to customize the return and risk characteristics to suit each client’s investment objectives and allows diversification both across and within asset classes.
We view the control and management of risk within the context of our client’s investment objectives as one of our prime responsibilities.
Asset Allocation
We use a strategic asset allocation approach in determining our client’s asset allocation. Our methodology involves using information gathered from each client and combining it with the return and risk characteristics of different asset classes to determine an asset mix that is appropriate for each client.
When developing a client’s asset allocation we start by allocating assets between fixed income, equities and cash. Depending on the portfolio size and investment objectives, we may further divide the asset classes into subcategories with respective allocation targets.
After determining the long-term asset targets, we also specify a range within which the asset allocation boundaries will typically fluctuate. We are unique in our approach as the portfolio manager has discretion to structure the portfolio outside these ranges should the portfolio manager decide that it is appropriate to do so due to market conditions and/or their investment outlook. This flexible approach has allowed us to significantly reduce portfolio risk and volatility over the past several years when the markets have been susceptible to major corrections.
The strategic asset allocation approach is dynamic in that our client’s long-term targets can be altered by a change in circumstances or by long term return and risk changes in asset categories.
Rebalance Regularly
The differing performance of asset classes in a portfolio will cause the allocation between classes to drift away from the target allocations. A portfolio that is not rebalanced tends to contain an increasing portion of risky asset classes as higher returns cause riskier positions to increase in proportion. Asset rebalancing is needed in order to bring the asset allocation back to the long-term target. Therefore we believe that the primary purpose of rebalancing is to control risk, not enhance returns.
We believe that asset rebalancing must be done periodically but it must be done with consideration to the potential consequences such as triggering income taxes on capital gains and transaction costs. We regularly compare the current and target asset allocation for each portfolio and rebalance as appropriate. Rebalancing is performed more frequently if warranted by circumstances such as a change to an investment policy or significant cash inflows/outflows.
Equity Security Selection
Individual equity securities are selected based on in-house proprietary research and third party research reports. All in-house research is based on fundamental security analysis. For equities, we have a strong preference for a value investing, bottom-up approach to our analysis and security selection. We tend to focus on high quality, “blue chip”, companies that have a history of stable and growing dividends.
Fixed Income Security Selection
The fixed income portion of portfolios is typically managed to be high quality and low risk. Government bonds form the core of the fixed income component of client portfolios. Investment grade corporate bonds and preferred shares are often purchased to enhance return. Where suitable, high yield bonds may be included as a component of a fixed income portfolio.
Tax Sensitivity
Taxes can represent a significant cost for investors. The minimization of income taxes over a long period of time can significantly add to our client’s wealth and the achievement of their goals. Bluenose is sensitive to taxation issues in the selection and management of investments in both taxable and tax-sheltered accounts. However, we believe that taxation issues are a secondary consideration and should not dominate our portfolio management process.