Our philosophy in a graph

Brandon Snow's picture

Those who follow Cambridge understand our focus is on downside protection and absolute returns. While it is easy to make that statement (and many do), we wanted to demonstrate how we put this into practice.

We looked back over the last three years and compared the returns of the holdings in the Cambridge Canadian Equity Corporate Class versus the S&P/TSX Composite Index. Starting September 2010 until September 2013, we calculated annual returns of each name on a rolling monthly basis. We then split them into return buckets: +50% or greater annual return, 25-50% return, 10%-25%, 0%-10%, -10%- 0%, -10% to -25%, -25% to -50%, and finally -50% or worse. We plotted both our Canadian equity mandate and the index frequency of returns on the chart below:

As you can see, about 50% of all positions in the Canadian equity fund were +/-10%, which has helped reduce the volatility of the fund while maintaining baseline performance. Second, while the index had nearly 20% of observations +25% or greater over that time period, we had fewer of these “big winners” than the market did. So it wasn’t the big winners that helped us beat the market. The big difference between our results and the market is demonstrated on the right hand side of the chart. While over 20% of all observations for the S&P/TSX Composite Index were -25% or worse (annually) over that time frame, we had less than 7% of the holdings in our Canadian equity fund in that range.

The key message is: by avoiding big losses, you can deliver absolute results without having to take on excess risk.  Delivering attractive risk-adjusted compound returns is not about hitting home runs, but about having fewer strikeouts. While we are not immune to making mistakes, by focusing on the downside our goal is to protect and grow capital over time.

 

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