A topic that sits at the top of the risks ledger for me, and one that I’ve been following for a while, is the lack of liquidity and valuation in the bond market. I first wrote about it last summer. As a follow up to that, I wanted to share an interesting article that the Financial Times recently published on large global asset managers undergoing “shock-tests” of their bond portfolios.
Greg Dean's blog
Judging by the number of questions we have received from advisors and clients, it is clear that many of you are worried about oil prices and the impact it has on energy stocks. If you are looking for our take on this, I apologize but we don’t have a lot to say other than our strategy remains the same. We’re continuously searching for low cost producers with strong balance sheets who are managed by individuals with significant ownership positions and motivated to create shareholder value. We’re also making sure we don’t overpay for them.
I have been meaning to write about the new fund we launched 10 short weeks ago but it has been pretty hectic and I apologize for the delay. We are very excited to introduce something that we think will take advantage of opportunities we are seeing in the market in a way our existing mandates cannot, to the same extent. I'm sure you are all aware that we capped the Cambridge Canadian Growth Companies Fund back in March because we wanted to preserve its ability to take advantage of opportunities in Canadian small and mid-cap stocks which is not a very big or liquid universe.
Whenever we are on the road speaking to advisors or to clients we always get the question, and rightfully so, "What is your biggest fear?” Well over the last year and a half I have been saying, “the bond market”. It doesn't matter who you speak to on our team, we all feel it is a big concern. The unsustainable interest rate environment, created by unprecedented levels of government intervention and anemic global growth, has forced investors to take on significant amounts of risk to achieve what were once very safe, risk adjusted, fixed-income returns.
On March 17, 2014, I wrote about an interesting article from the Financial Times that discussed “active share”. Hopefully many of you were able to read it. If not, it’s available here and worth reading before continuing with this blog entry.
On Friday, I came across an interesting article called “Active fund managers are closet index huggers”* in the Financial Times and couldn't help but pass it along. We have been saying for years now that Cambridge is willing to look significantly different than the index in pursuit of superior risk-adjusted returns (and that is different than our peers and the benchmark). Our clients would certainly agree that they have benefitted from this approach.
I recently spent three days in San Francisco at a Global Technology and Media conference. I was there to investigate sectors that I have yet to cover as an analyst. There were some very clear takeaways, including feelings of rampant euphoria for early stage, high-growth tech companies, and ideas to follow up on (more on these in subsequent posts). What I found really interesting was how big the appetite for risk is right now – this includes investors, analysts and company management teams. For example, investors were wondering why company revenues “only” grew by 30% last year.
Over the last few years, you have likely heard us heap praise on CGI Group, a significant core holding in the Cambridge portfolios. The management team is top-notch and the “ownership” culture established several decades ago is one we continually urge other companies to emulate.