Portfolio Update September 2013

Brandon Snow's picture

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.

First, from a bottom-up perspective we are not finding the opportunities in the market we saw a year or two ago. This does not mean we have stopped looking; the list of potential buys is growing while the risk-reward does not yet justify purchasing them in the funds.

Second, while we have seen very good performance for the year-to-date in non-resource sectors (both Canada and the U.S.), it has been driven by multiple expansion rather than fundamental improvement. We always talk about looking for sustainable growth in the companies in which we invest and this is a similar concept when looking at the market as a whole: A higher valuation is not a sustainable source of returns for equity investors. (Watch for a follow-up blog discussing this topic.)

Finally, the combination of higher interest rates and oil prices increases the risk of an economic slowdown in the near term. Oil prices have an impact on consumer spending and trade, potential for war slows business decision making and, with the spike in interest rates, capital expenditures (on homes, cars, new equipment, etc.) have to be re-evaluated. So while higher absolute rates likely won’t detail the recovery in the longer term, the speed of the increase coupled with rising oil prices make us more cautious in the near term.

When you add it up, the lack of bottom-up opportunities, performance driven by valuation expansion and the potential for a slowdown in economic activity have led to rising cash positions across our funds. We believe it is prudent to reduce risk while preparing to take advantage of opportunities when they do arise.


Submitted by Ian on

Thanks for these timely updates. My family has an approximate 3% portfolio weighting in the Canadian Growth Companies Fund. We wish to increase the weighting because of the excellent performance so far. We understand that this is an all-cap, all-country fund. Can you give approximate percentage guidelines for how you structure the fund in regards to cap-size and geographical distribution. We would like to know this information so we can plan appropriate asset allocation for the whole portfolio. Thanks!

Brandon Snow's picture
Submitted by Brandon Snow on

I can’t offer specifics on the weightings because they change depending on where the opportunities are, but I can confirm a few things:

1) 50% of the portfolio has to be allocated in Canada. The balance can be anywhere.

2) The portfolio will always consist mainly of small and mid-cap holdings. These would be names with a market cap under $10 billion, which is a global mid-cap threshold rather than a Canadian one.

3) We like to maintain a high level of liquidity on 50% of the portfolio; we want to be able to increase our cash to 50% within a week (assuming we are 20% of average daily volume).


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