Month: September 2017

Playing it Safe is Risky

The law of unintended consequences is defined as the actions of people (especially governments) that will usually have an unanticipated impact. In fact, the harder we try to achieve something quite often the exact opposite occurs. In the investment world it is very hard to foresee outcomes beforehand, so the final results can sometimes be surprising.

Some of the greatest investing blunders of all time came from the consequences of unforeseen events. Since one of the primary objectives of investing is to grow your wealth, unintended outcomes are very dangerous to investors’ future wellbeing. While the traditional culprits for potential disaster are “get-rich-quick” schemes or penny stocks, a historically safe harbour is slowly entering the lexicon of potential problems for many investors; bonds.

Traditionally, bonds have been seen as safe, low risk investments and the principal means of preserving wealth. They are also viewed as being an excellent way to diversify your portfolio. While this is normally true over the long run, there are distinct periods where bonds have been simply ineffective at building wealth. Considering today’s very low yields and increasing interest rates, investors’ returns on bonds after inflation, fees and taxes, are minimal. So, unless investors are comfortable with only the safe harbour feature of bonds and unconcerned with the less than stellar return opportunities going forward (or you have more money than you need), the only realistic solution is to hold a higher weighting in equities.

For the vast majority of investors, a balanced approach to asset allocation is normal. Historically, as clients age and approach retirement, they become more conservative and seek safety. Traditionally, this has meant more bonds and fewer equities. This is exactly the wrong approach for efficient portfolio growth or to even maintain the purchasing power of assets given inflation. However, this way of thinking is completely opposite to most aging clients’ mindsets of protecting what they have achieved over their lifetime. So a battle is brewing between the markets and peace of mind and unfortunately the markets are always right.

Retirees or near-retirees are scared to death of losing the value of their assets so they have in the past shifted the majority of their assets into GICs and bonds for “safety”. Of course, for the first few years of retirement this works fine. However, with the steady onslaught of inflation, fees and taxes they are slowly dwindling their nest egg. With people living longer and spending more years in retirement the probability of running out of money increases. The decision to become safer has made them less safe and has created a whole new level of risk; running out of money.

There is no such thing as taking no risk. There is only the choice of which risks to take and when to take them. The risk from owning bonds shows up later in your investment life, while the risk of owning equities can show up earlier. Without assuming risk, meagre results are all that is left to investors. In fact, there is a famous quote from Benjamin Franklin that summarizes this nicely: “those who give up return for security deserve neither return nor security.”

While bonds in the near future are not likely to be wealth builders, they are however necessary. The question is: how much? They do dampen volatility during downturns and are an excellent source of liquidity. Also, since investing often comes down to an emotional decision rather than an analytical one, bonds can act as a form of insurance against panicking when things turn ugly in the markets.

With this situation bearing down on all investors, we have created an entirely new fixed income investment structure that benefits from the strengths of bonds (risk reduction) and the benefits of equities (potential for higher returns). The Provisus Multi-Strategy High Yield Fixed Income Fund is designed to target the risk of short term bonds, but generate greater performance. It attempts to provide an attractive cash yield and stable returns, while investing in a broad range of non-equity assets: corporate bonds, convertible bonds, preferred shares, income trusts, REITs, mortgages, secured real estate backed lending, infrastructure products and alternative investment strategies.

It keeps fees client-friendly using the Pay-for-Performance™ model with a fixed annual management fee of 0.25% (which is less than the pro-rata average MER for all the fixed income ETFs in Canada, 0.28%) plus a performance fee only if the fund outperforms a pre-set benchmark (50% FTSE Short Bond Index and 50% FTSE Mid Bond Index). This fee philosophy provides a very strong incentive for the fund to achieve positive results for clients. In this day and age, it may be one of the few solutions available that plays it safe but still generates meaningful returns.

Transcending Wealth Management


Investment platform is now bringing pay-for- performance to fixed-income space

Last September, Provisus Wealth Management shook up the wealth management space with the
launch of its Transcend platform. Responding to consumers’ frustrations that asset management in
Canada was overpriced for everyday investors, the firm offered a pay-for- performance model within its
equity pooled fund suite.

Under this structure, clients pay a base fee of 0.25%, which covers administrative costs for the
various funds used in a Provisus portfolio. If a fund performs better than the benchmark, a performance
fee equal to 20% of the fund’s return above its benchmark is then charged. It’s a novel approach and one
sure to have many imitators in the future.

So far the response has been great, and Transcend is expanding into the
fixed -income space with the Provisus Multi-Strategy High Yield Fixed Income Fund. Subscribing to the
belief that investors should only pay a nominal amount unless performance results dictate otherwise,
the new fund will charge the same fee as Transcend’s other offerings.

President and CIO of Provisus Chris Ambridge explains why he felt the need to launch a new product with
the same management and pricing structure.

The returns on bonds over the past few years have been poor and GIC rates are
negligible for clients,” he says. “There are not a lot of options out there in fixed income
for people looking for a defensive structure. We have created a fund with lower fees lower than a
bond ETF at 25 basis points. The average MER for an ETF bond is around 28 basis points.”

The fund, set to launch on September 30, will be Canadian-centric, but diversified in terms of assets
through active management. It will hold corporate bonds, convertible bonds,
preferred shares, income trusts, REIT’s, mortgages, secured real-estate backed lending and
infrastructure products, as well as alternative investment strategies and hedge funds.

The investment strategy will generally have a short to mid-term orientation, or as Ambridge puts it: “Essentially the same term structure as a five-year GIC.”

Key to Transcend and the reason it made headlines in investment circles last year is its Pay-for-Performance™ model. The firm takes a great deal of pride in being a trailblazer when it comes to fee structure and offering clients greater transparency. As the Transcend president has pointed out, investors using the Multi-Strategy High Yield Fixed Income Fund won’t pay anything above basic management costs until the fund outperforms the benchmark. The benchmark in this case is 50% of the FTSE Short Bond Index and 50% of the FTSE Mid Bond Index. Ambridge is confident the fund managers at Transcend will achieve its investment goals, regardless of what the Bank of Canada does with interest rates moving forward.

“The historic performance for the benchmark over the last ten years or so has been about 4.5%,” he says. “Based on our back-tested numbers, we are seeing double that. When advisors sell GICs, they get 25 basis points. Here they can take a large advisory fee, up to 1%, and clients will benefit from still having better performance than with GICs or bonds in isolation. GICs from the major banks are yielding about 1%.”

The makeup of the fund will be strictly Canadian, explains Ambridge, a strategy designed to remove any currency risk that could hinder performance.

“We are hoping to replace Canadian bond portfolios and mutual funds,” he says. “We don’t see the need right now to go outside of Canada – the yields are high enough here to generate sufficient returns for Canadians. We prefer to have our foreign currency exposure on the equity side.”

Catering to retail investors, Provisus now has $440 million in assets under management and has been selected as one of Profit 500’s Fastest Growing Companies in each of the last three years. Canadian investors expect greater choice and better value from investment products nowadays and Transcend is clearly a response to that need. For those who plan to purchase the fund, it will be available through the same platform that has proven such a success with its equity pooled funds.

“The fund will be available exclusively through our managed account structure,” says Ambridge. “Having a managed account structure allows Provisus to keep the costs down. Advisors can offer the fund through a referral.”

Are Investment Fees for suckers?

Special to the Financial Independence Hub

Providing a service costs money, but paying a fee deemed as an unnecessary amount has come under attack from consumers at all levels. Think banking fees, or the perception of “hidden fees” on phone bills to brokerage and investment fees. Consumers are demanding more value and in some cases winning the battle.

There is more scrutiny on fees than ever before. Studies have shown many investors either believe they do not pay anything or have no idea what they do pay (Hearts & Wallets: Wants & Pricing — What Investors Buy & Competitive Ratings — 2016).

But everyone understands nothing in life is free and clients have a right to know what they pay.

The long-view of investment fees

For centuries, if an ordinary person had any liquid wealth the best they could hope for was meagre interest on their cash. Then, as the concept of companies developed, the notion of profiting from an equity investment emerged and stock exchanges were established in seventeenth century Europe to trade equities.In Canada, much of the early development was raised in the London market, with public shares of large companies such as the Hudson’s Bay Company. The Toronto Stock Exchange (TSX) was created in 1861, and 17 years later the TSX was the second official stock exchange in Canada.

Asset managers on the rise

For less well-heeled investors, the first modern mutual fund was created in Canada in 1932. They were slow to catch on and grew very little between 1930 and 1970. However this was reversed in the 1970s when investors wanted greater stability following the oil crisis.

The cost of owning mutual funds is made up of three parts: acquisition costs such as front-end load commissions; ongoing costs both embedded and negotiated; and disposition costs such as redemption fees. The cost of ownership, rather than the Management Expense Ratio (or MER, which often contains trailer fees representing the commission paid to brokers and mutual fund dealers for advising clients to purchase the funds) is the most effective way to measure total investment expenses.

Recent developments have provided retail investors with the opportunity to lower investment costs of mutual funds due to the proliferation of no load funds, online/discount brokerage firms, fee based accounts and Exchange Traded Funds (ETFs) which have dramatically altered the investment landscape.

Traditional asset managers charged investors significant fees, ranging from 1.0% to 1.5% of assets under management for high net worth clients, a practice that is still common today.

Success-based Investing

Now a new fee concept is on the market. Last year, Canada’s first Pay-for-Performance™ investment service launched. It shifts power to investors by aligning fees to investment results relative to benchmarks. While a basic admin fee of 0.25% is charged, investors do not pay any more unless the performance of the funds exceeds specific industry benchmarks. Meanwhile, the investment manager earns income only when they deliver superior returns.

The idea here is that clients need to feel their money has value. And when results achieved are better than industry standards, the fee paid seems worthwhile: like it was a good investment.

How to find value

Knowing if you are getting value for your investment portfolio can be tricky for some. Blind loyalty can tie up investments for years with a particular institution. Gains are made, but how do we know we’ve reached our maximum goals with the money available?

Ask yourself three questions:

  1. Are my fees clear and understandable?
  2. Do the fees put my interest first?
  3. Are the fees reasonable for the service provided?

It may not yield all the answers you want, but it’s a start.

September 14, 2017

Written by: Chris Ambridge


Change is in the air: 1 year anniversary of Pay-for-performance

We can’t believe it’s been a year since we launched Canada’s first pay-for-performance investment model. We listened to investors over the years and the message was clear: Canadians are tired of paying high investment costs that aren’t tied to results. So we responded to the overwhelming overpriced asset management landscape with our Transcend platform.

What is it?  Watch our video here.

Investors pay an extremely low base fee of 0.25% (this covers admin costs for various funds).  From there, if a fund performs better than the benchmark, a performance fee equal to 20% of the fund’s return above the benchmark is applied.  You pay one of the lowest fees on the market and nothing more until you see results.

Where is it going?

We’re proud to announce that on September 30 Transcend is launching a fixed income fund!

The past year has been a whirlwind and the response has been great.  We’re now moving into the fixed income space with the Provisus Multi-Strategy High Yield Fixed Income Fund. Continuing the belief that investors should only pay a nominal amount unless performance results dictate otherwise- our new fund will open up more earning possibilities for investors and will charge the same low pay-for-performance fee.

Join the movement
Join the movement of empowered investors who are demanding transparency and advisors striving for freedom and independence.

Crisis Are Buying Opportunity


While it is sad to say, there is always some sort of crisis cropping up around the world and more often than not they can lead to fear as investors become overly pessimistic. Such crises inevitably lead to panic selling and selling into a panic is always a bad idea. In fact, the panic lows in the wake of a crisis are far more often than not a good buying opportunity.

The growing concerns about North Korean’s nuclear threat and terrorist attacks in Europe have caused many investors to try and gauge the risks to the stock market. While every event is different and no one knows which crisis will escalate and which ones will fizzle, stock markets have generally sloughed them off and recouped initial losses. The Canadian stock market has proven remarkably resilient, so doing nothing is almost always the best investment strategy during a geopolitical crisis.

The clear conclusion that can be drawn from the most momentous geopolitical crises of the last 47 years is that stock markets strongly rebound from their post-crisis panic lows, so much so that within six months they are actually higher than where they stood before that crisis erupted. And one year after the event, markets have gained on average 10.1% from the market lows. The average percent decline in the S&P/TSX Canadian Stock index following major international geopolitical crises from 1970 to 2017 was -4.9% for the 17 crises listed to the left. Obviously the list of crises can be debated, but even going further back in time, the pattern of sell-off and recovery holds during such crises as the Fall of France 1940; Attack on Pearl Harbor, 1941; Outbreak of Korean War, 1950; Cuban Missile Crisis, 1962; and the Kennedy assassination, 1963.  Canada has had its share of domestic crises as well: Munsinger Affair – Canada’s first national political sex scandal, 1960; Airbus Affair – PM Mulroney was implicated in a kickback scheme, 1995; and the Sponsorship Scandal – a major misuse of funds by the Liberal governments of the 1990s, yet none of these had a major impact internationally.

Of course, the Canadian stock market did not quickly recover in all 17 cases. However, even in those that did not, the market still rallied meaningfully from the lows. As the chart to the right illustrates, major crises can be disconcerting but they do not spell the end for markets or investment strategies. It seems clear that staying invested through volatile episodes can help keep portfolios on track to achieve long term goals.

Perhaps the most valuable lesson from this analysis is that business cycles have far more influence on the market’s reaction than periods of crisis. The crises that took place during healthy economies are more the exception than the rule. The conflicts that have triggered the biggest declines tend to be associated with economic weakness, something that is not on the horizon at the moment.

The bottom line is that history tells us that the stock market tends to be resilient to crises. So even if a military conflict with North Korea does erupt, investors should not compound the crisis by doing something ill-advised with their portfolio. As always, patience is often rewarded.

Market Data

This report may contain forward looking statements. Forward looking statements are not guarantees of future performance as actual events and results could differ materially from those expressed or implied. The information in this publication does not constitute investment advice by Provisus Wealth Management Limited and is provided for informational purposes only and therefore is not an offer to buy or sell securities. Past performance may not be indicative of future results.

While every effort has been made to ensure the correctness of the numbers and data presented, Provisus Wealth Management does not warrant the accuracy of the data in this publication. This publication is for informational purposes only