At Anchor Pacific, we employ a risk-based functional framework for capital allocation within the entire portfolio. Beginning in Q4 2019, we officially introduced our Model Portfolios which are designed to mirror the different respective components of each client portfolio and deconstruct the drivers of return for various functional risk category groups.
The three main Model Portfolios that comprise the long-term core multi-asset portfolio are:
AP-CIO Capital Growth Portfolio (the “Capital Growth Portfolio”)
AP-CIO Stable Portfolio (the “Stable Portfolio”)
AP-CIO Capital Preservation Portfolio (the “Capital Preservation Portfolio”)
Each of the Portfolio Groups is generically exposed to these risk factors to the following degree:
Weights to each Portfolio Group are specific to each particular client’s unique risk tolerance, time horizon, and liquidity needs, as well as the firm’s view of risk and return expectations for specific asset classes and strategies over the near, medium and long-term.
In this quarter’s Portfolio Spotlight, we highlight the AP-CIO Stable Portfolio, which consists of a spectrum of growth, income, and risk managed strategies and assets that exhibit expected returns close to that of global public equities but experience lower levels of volatility.
The Stable Portfolio is almost exclusively actively managed and is designed to target a long-term annualized full-cycle rate of return of CPI + 1.5-3.0% with an expected standard deviation of returns of 6-9%.
The three sub-sets of the Stable Portfolio are as follows:
AP-CIO Risk Managed Equity Portfolio employs strategies with the flexibility, expertise and structure to invest in strategies utilizing equities in some form of hedged or other manner designed to reduce or manage risk.
AP-CIO Absolute Return Portfolio employs strategies with the flexibility, expertise and structure to invest in strategies utilizing asset classes other than equities, in some form of hedged or other manner designed to reduce or manage risk.
AP-CIO Managed Income Portfolio employs various strategies designed to provide income with long directional exposure to various market risk factors that collectively are expected to experience lower levels of volatility than long biased passively managed portfolios. This portfolio holds both “growth-oriented income” strategies as well as higher-yielding income dominant or “yield alternative” strategies.
The Stable Portfolio returned 6.74% during the fourth quarter and 9.13% for all of 2020, outperforming its benchmark (the “Reference Portfolio”) by 0.91% and 0.61% for the quarter and full-year respectively. This was accomplished while undertaking less risk, as measured by historical standard deviation, maximum drawdown and equity market exposure.
*Standard deviation of monthly returns, max drawdown and beta with respect to the S&P 500 Index (in USD) based on the past three years consisting of a backtest from December 31, 2017 to September 30, 2019 prior to the formal establishment of the model portfolios.
2. The Stable Reference Portfolio is a blend of the following Exchange-Traded Funds: 35% iShares Core S&P/TSX Capped Composite Index ETF (XIC.TO), 35% iShares Canadian Corporate Bond Index (XCB.TO), and 30% Horizons Morningstar Hedge Fund Index ETF (HHF.TO)
We are pleased with both the absolute performance as well as the relative outperformance in what was without question the most challenging year we have ever experienced in our lengthy investment careers. Each holding in the Stable Portfolio has been strategically selected with intention and an overall portfolio purpose – the combination of risk managed, low volatility, actively traded, and arbitrage strategies create a very strong equity market defensive position that is intended to prove resilient over time and enable the Stable Portfolio to act as a ballast in stormy waters. Client allocations to the Stable Portfolio are significant (50% of total) with additional money allocated throughout the year, as we foresee higher expected returns and more embedded protection versus the equity markets which we view as fully priced with considerable downside risk.
As of December 31, 2020, the Stable Portfolio consisted of 18 unique holdings across 6 main strategy themes.
The contribution to the total AP-CIO Stable Portfolio return of each strategy theme is indicated in the chart below. Arbitrage strategies continue to be the strongest contributor accounting for almost 50% of the quarterly gains while comprising approximately 22% of the Stable Portfolio’s total allocation.
Download the complete Fourth Quarter 2020 Portfolio Spotlight:
The firm’s model portfolios were established on October 1, 2019. The model portfolios are hypothetical investment portfolios used to showcase how we believe asset allocation may be used within the context of a client portfolio. The models also provide a basis with which to measure the quality of our advice and the effectiveness of our disciplined investment strategy. However, implementation assumptions (which may include but are not limited to the timing and diligence with which the portfolio is rebalanced, the execution price for securities transactions, and any trading and account-related costs, fees, or commissions) have been made when calculating the model returns that may be difficult or impossible for any investor to exactly replicate the model portfolios. For this reason, there is no expectation that the model returns will replicate the actual performance of any client following the same guided portfolio strategy. Performance figures are net of fund level expenses and fees but do not include any allowance for Anchor Pacific’s Investment Management Fees. Past performance is not indicative of future performance.
Anchor Pacific Investment Management Corp. (“Anchor Pacific”) is a Vancouver, BC-based portfolio management firm, which leverages process, technology, and infrastructure to democratize the process of managing endowment and pension style investment portfolios to deliver innovative, high-touch, and transparent investment programs across the full spectrum of asset owners and investment consumers.
To learn more about how Anchor Pacific can help you shelter, protect, and grow your money, contact us at 604-336-9080 or info@anchorpacificgroup.com
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