At Cambridge Global Asset Management (“Cambridge”), the vast majority of our time is spent analyzing companies. A common trait found at many of the best companies is a strong culture that is underpinned by a desire to continue improving. In today’s highly competitive world, if you stand still, you’re actually falling behind.
Stephen Groff's blog
With the sharp reversal in investor sentiment over the past couple of years, we have been finding a number of attractive risk/reward opportunities in the Canadian energy sector.
A recent opinion piece by Ian McGugan in The Globe and Mail highlighted a dubious distinction for Canada: it has the highest proportion of unprofitable listed companies in the world, according to research by Aswath Damodaran, Professor of Finance at the Stern School of Business at New York University. Based on Damodaran’s calculation of negative net income based on an equal-weighted metric, Canada topped the list with 75% of public companies failing to meet this measure of profitability, well above the U.S. with 45% and the global average of 30%.
Despite a relatively unremarkable year in terms of market returns to date (+4% for the S&P 500 Index; -4% for the S&P/TSX Composite), it’s been an interesting journey. Here’s an update on some of the things we’ve been working on over the last few months.
Early last year we published "Why we are not owners of Canadian Banks today,” which summarized our rationale for avoiding investing in the industry. Now, nearly 18 months later, we thought it was a good time to provide an update. We will touch on what has changed and then review capital levels, which we believe are important but less frequently discussed. Again, special thanks to our global financials analyst Danesh Rohinton on our team for providing much of the data and insights.
I recently read the book “Capital Returns” (published by Palgrave Macmillan), which highlights how the cyclical nature of capital flows impacts returns.
For lower risk mandates such as the Cambridge dividend suite and Cambridge Asset Allocation, protecting capital from permanent impairment is the primary objective. While this does not mean being immune to market volatility (they are not), it does mean extra emphasis must be placed on focusing on the downside.