Last week we discussed the security selection process of one of our firm’s widely used discretionary portfolio pools. We reviewed the screening process used to identify quality securities and the requirement for those securities to be positively trending.
Today, we’ll discuss another discretionary portfolio used by a number of our firm’s clients. Generally speaking, the Hudson Total Mandate Portfolio (HTMP) is available to accredited investors, however, certain exemptions exist for our clients in various provinces. BC has many provisions that allow most investors to access such a portfolio, while the rest of the provinces offer certain exemptions which may differ from one province to another. For more detailed information on qualifications and exemptions, please check with the advisor in your province.
The HTMP is defensive in nature and places emphasis on protecting capital during market contractions, while capturing upside during market rallies. In order to accomplish this, diversification exists among a number of asset classes, geographical jurisdictions, management styles and the portfolio also includes alternative investments. Unlike traditional managed portfolios, the HTMP has no requirement to maintain an allocation to certain asset classes or geographical areas and has the ability to move a portion or the entire allocation to cash or cash-like securities. A total of seven portfolio management groups have been engaged to manage the portfolio with both Canadian and international offices. I’ve summarized the approach of a handful of the portfolio’s management teams below.
A core piece of the global equity exposure is managed by Mawer Investment Management out of their Toronto, Calgary and Singapore offices. The manager systematically creates a broadly diversified portfolio of wealth-creating companies with excellent management teams bought at discounts to their intrinsic values. The amount invested in any one country will vary depending upon individual company by company opportunities in each area. The portfolio will diversify through currencies, industries, and countries to increase safety along with the growth and liquidity of the investments.
Three management companies handle the portfolio’s fixed income allocation, including Aurion Capital. While Aurion is Toronto-based, it invests in international fixed income instruments. To be mindful of the current interest rate environment, the manager is not constrained to any specific sectors and can actively shift to multiple industries of the fixed income market. The manager contributes to the pool’s interest income and capital gains through tactical trading within its portfolio.
To take advantage of the largest energy slump since the Great Recession, much of the portfolio’s energy allocation is managed by Sprott Asset Management. Sprott focuses mainly on mid-cap oil and gas companies where more upside exists, and manages the allocation in a tactical manner. As is the theme with many of the HTMP’s managers, Sprott actively trades the securities in order to take profits and purchase oversold names, and has full flexibility to move the entire position to cash.
To further minimize risk, 1832 Asset Management handles the portfolio’s hedging strategy with a focus on absolute returns. The positions are also actively managed with consideration to both risk and return. For a true hedge, the manager has the ability to short unfavourable securities providing a fixed income proxy for the HTMP.
While the HTMP isn’t readily accessible by all Canadian investors, it is our understanding that the portfolio management company will structure a modified version of the investment vehicle, which will be available to all retail investors.
Have a great weekend!
Daniel Popescu CFP, CIM, FMA, FCSI
President & CEO
MNP Tower, 3100-1021 West Hastings St.
Vancouver, BC V6E 0C3
T: 604-558-6830/1(877) 588-6822
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