Quarterly Strategic Review - 4th Quarter (Oct-Dec 2024)
Introduction to the “AllINsync” Pool!
Two years ago, after arriving at Raymond James, deciding to postpone the launch of the AllINsync pool, for a variety of reasons, wasn’t an easy decision. But, here we go, and it’s happening(ed)! If all goes well, the new fund will have already launched by the time you read this. It’s a complicated and mentally burdensome process to undertake, but the opportunities for long-term gains are rich and abundant.
Most of you realize that, in the course of managing your investment assets (some of you for more than 20+ years now!), there are a lot of decisions that get made. I love making decisions, and the responsibility of navigating our investment dollars through up and down markets, is without a doubt, a passion of mine. But making a decision to take profits, cutaloss, and increase or decrease risk exposure isn’t always easy, as a Portfolio Manager. Especially not when faced with many accounts, all with varying risk tolerances and so forth. Making a unified decision, on behalf of every client, is an ideal one and will now be much more practical in implementation.
Yes, it will look different; yes, there will be some things that you (and me both!) will have to get used to, but I am confident beyond the shadow of a reasonable doubt that this is a considerable improvement in the way things are being done.
The Pool!
Those of you with taxable accounts (i.e., non-registered and/or corporate accounts) now have a considerable advantage tax-wise with the AllINsync pool. Why? At tax time, there will be a T3 issued and any dividends, income and capital gains will only be distributed notionally (meaning they won’t be distributed out) and will instead come in the form of a reduction in the adjusted cost base (which will only affect the eventual sale of said units). So, if you were to hold the pool for the next 10 years, it can grow without having to pay taxes along the way, effectively deferring the tax indefinitely.
Almost all of us (save for a few non-resident clients and U.S. clients) now own units of the pool in some proportion, in some and/or all of your accounts. The proportions have been designed as a starting point, based on a variety of factors, and I'd like you to think of the AllINsync pool as a one-stop-solution for equity. There will be lots of large-cap stocks showing strength and uptrends (i.e., Broadcom, Axon, Costco, Google, Intact and Coke), there will be some exchange traded funds (ETFs) that are demonstrating both absolute and relative uptrends (i.e., Adaptiv Select $ADPV, Cl Munro Global Growth $CMAG) and there will be some growth stock leaders that come from the INvertigo type process (i.e., Roblox and Tesla). I have much clean up to do to get the account in line, after the in-kind contributions that we all made.
There is also the opportunity to use some options in the pool. Options can be used in many ways and most commonly represent a way to gain exposure to a given stock with a smaller outlay (measured risk), using a call option and/or to protect against a portfolio decline via the purchase of put options. As these tools are contemplated and implemented, please expect me to communicate accordingly to those of you that are interested.
There will also have been a major clean-up of random cash balances in your accounts, many of which were unproductive leftovers from previous transactions. Going forward, I can effectively and efficiently manage the cash balances and foreign currency positions through a single account and in a timely manner. Refreshing!
Like any investment in your account, we can acquire more units of the AllINsync fund and we can redeem units, should you need cash. No difference from the past.
A New Era Begins With Trump 2.0 and Next Up Is Trudeau’s Replacement?
At no time in history has such divisiveness existed politically and there is radical change underway, as many leftist governments around the world and in major countries/continents, like the U.S. and Europe, are changing hands. Big companies are abandoning diversity, equity and inclusion processes in favour of merit-based employment again, and ESG push has slowed down, and reversed course. You see, it turns out that all these companies are in the business of trying to make a profit, so they can employ and engage productive work forces. The voice that led the march towards some of these initiatives came without financial backing and the costs weren’t feasible to still generate returns for those risking capital. Without risk-taking, there can’t be innovation and, if the risk-takers are forced through regulation or policy to act contrary to their ability to receive compensation for the risk they take, they move to another country where they can, and take jobs and opportunities with them.
Will a massive set of tariffs be put on Canadian goods? I don’t know and you don’t know. Headlines are headlines until there is substance behind them, but I'm sure many of you know that any politician, whether it be Trump or Trudeau, is capable of saying things that will not come to fruition. We’ll see.
I think the biggest picture issue continuing to plague much of the world is the trouble with commercial real estate, which remains very overleveraged with a growing vacancy rate, which isn’t easy to fill with another Amazon distribution centre. There is much debt that has financed all these buildings and the collateral is deteriorating. As the Bank of Canada and the Federal Reserve have been dropping interest rates, actual yields (that can’t be controlled by the central banks) have been rising, and not making it easy for these governments. Excessive borrowing is costly and more so with each year. Add to that a backdrop with rising Canadian unemployment and we have some questionable times ahead in Canada.
Since the U.S. election on November 6, the offensively oriented stocks, i.e., consumer discretionary and technology, have fared well and communications and financials too, are strong. This isNOT a defensive posture, in fact, it’s the consumer staples (food companies, drug stores, etc.) stocks that are among the weakest. I expect the uptrend in stocks to continue as we look forward through the rest of the first quarter and through the strongest time of the year, seasonally, which runs through April and May.
Consistent vs. Inconsistent Investing
In some ways, the difference between our clients who are classified as “long-term growth” and “aggressive”, both of whom are able and willing to embrace a 100% equity stance, is variability and volatility. Greater variability of returns should mean greater returns, but that does not mean over any or all time periods. Markets ebb and flow, and time frame matters.
The year 2024, was a great case in point. Aggressive investors did very well in the first quarter and then watched all those gains (and then some) disappear in the second and third quarters, only to see strong gains as the year finished off. But when the dust settled on 2024, those of you who are NOT aggressive investors fared better, and those of you who are even less risk-exposed (i.e., Balanced) did even better than that!
I cannot underestimate the value of stabilizing and reducing unnecessary volatility en route to a rising (lower left to upper right) equity curve for any given account or strategy. That is why all clients, even those who are Aggressive, own and now have exposure to the pool. At the risk of repeating myself, there is no reason whatsoever to see the AllINsync pool as boring, incapable or limiting in future opportunity. I personally fit amongst the most aggressive of clients and I am absolutely invested in the pool (and excited to be!).
With new efficiencies possible via the pool, the INvertigo type process, used to seek higher growth (for Aggressive clients and/or aggressive-type accounts like some TFSAs), will be enhanced considerably with new modelling tools and this too will be a marked improvement to come! My list of portfolio management and research initiatives has been long, and pursuing innovative and more optimal ways to better manage your portfolios is ultimately my desire.
From Inception and Beyond
I have many things to work out to get things rolling along on our end, although the heavy lifting is done. I will figure out how best to help you understand how we're exposed, and provide insight into our strategy, our positioning and to discuss our progress as time goes on. I will appreciate your feedback and I will experiment with a few different methods. Do let me know what works and what doesn’t. Either way, and no matter what, I am here, our team is in major rebuild as 2025 gets underway and I'm crazy excited for what lays ahead. I hope you are too!
Some of you have already met Brian Potter, by email or on the phone already, who started with Financially INsync last week! The next chapter has begun.
Your questions, your comments and your feedback are always welcome. Thanks!
Sincerely,
David Cox, CFA, CMT, FMA, FCSI, BMath
Senior Portfolio Manager, Wealth Advisor
Raymond James Ltd.
Phone: 519.883.6031
Unit 1 – 595 Parkside Drive I Waterloo, ON I N2L 0C7
www.financiallyinsync.com
@DavidCoxRJ
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