Brandon Snow's blog

Portfolio Update and Outlook for 2014

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A review of 2013
As we look back at 2013, we should all be thankful for a year of great markets. We saw significant returns in the U.S. with the S&P 500 Index up 26.6% year-to-date. In Canada, the market performed reasonably well with the S&P/TSX Composite Index up 7.4% year-to-date. The Canadian dollar, however, had a tough year (-8%).

Correlations Down, Active Management Up

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Correlations Down, Active Management Up

Following the U.S. government shut down (non-event), we have seen a very strong rally across stock markets with the S&P 500 Index reaching new highs. While Q3 results were okay, this rally continues to be driven by multiple expansion rather than upward earnings revisions. Today, the stock market is fairly valued on an absolute basis and annualized standard deviation total returns are what we can reasonably expect from the indexes.

Thinking Through The Fed Balance Sheet

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Recently, there has been a lot of discussion about the U.S. Federal Reserve balance sheet as markets were driven to confusion over the anticipated reduction of the Fed’s economic stimulus measures. I asked two of Cambridge’s newest team members, Analysts Danesh Rohinton (global securities in the financials sector) and Grant Connor (fixed-income), to offer their perspective on the situation and highlight the risks as we see them. Here is a summary of their insights.

Analyzing the Sustainability of Returns

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At Cambridge, we analyze a company's source of growth to look for sustainability. The same analysis can be used when looking at the market by assessing drivers of returns.

With strong performance across markets so far this year, we decided to dissect returns to find out what has been driving them. Is it earnings growth or multiple expansion? You can see the results below:

Volatility and the Art of Doing Nothing

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We are often asked about our target turnover for the portfolios, and as in most cases in the investment world the answer is "it depends." Turnover is really market determined; depending on the opportunities we are seeing in the market our activity levels will go up and down. With that in mind I wanted to offer the following charts (from Credit Suisse):

Portfolio Update September 2013

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Here is a quick update on portfolio positioning as we head into the busy fall season:

We have made a tactical asset allocation call to raise cash in Cambridge Asset Allocation Corporate Class (20% to 30% cash, all from equities). At the same time, our cash positions in the Cambridge Canadian Growth Companies and Cambridge Canadian Equity funds have increased to the high teens. There are a few drivers for this move.

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