What we have been up to during all of this volatility...

Stephen Groff's picture

There has been no change to what we always do – seek out the best, absolute opportunities we can find for our portfolios, otherwise build cash.

Major market movements can be paralyzing. Volatility isn’t a fun for any of us, but it does create opportunity when you consistently implement an investment philosophy that is positioned to take advantage of it.

We went into this mini-correction with slightly higher levels of cash (most funds were in the
10-20% range, which is not out of the ordinary for us). We did not have a crystal ball telling us there was an imminent correction coming; we did however find the risk/reward across the companies we follow getting less attractive and external risks rising. Our consistent bottom up approach led us to slowly reduce position sizes of names we felt no longer were as attractive and this naturally built up cash given the lack of good places to put it.

During the sell-off, had we known things were going to snap back as they did, we would have put even more cash to work. Unfortunately none of us can predict the future. We do believe we’ve weathered the storm and that we can use this volatility to cycle out some of the holdings which have fared better and add to those we believe have been unfairly punished.

We continue to meet with company management teams on a regular basis. For example, we met with the CEO and CFO of a small German industrial this week. This company is the world leader in a very niche end market. While the stock is off over 15% from recent highs, where it is still viewed as undervalued, the business is as strong as ever. As we are actively buying more shares I can’t reveal the company’s name at this time.

In regards to the Cambridge U.S. Dividend Fund, some of the more meaningful changes we’ve made involved buying in select transports where excellent fundamentals and reasonable valuations continue to present good risk/reward. I have also added to some of our core financial holdings and a couple new names have made it in as well. Cash was raised by selling down holdings that had actually moved higher and were no longer representing attractive risk/reward, especially compared to other opportunities we were finding.

Currency is also something to keep in mind given the positive impact it can have during periods of volatility. For Canadian investors, owning high-quality U.S. companies (in U.S. dollars) has helped to protect capital through the choppiness, given the weakness in the Canadian dollar. For Canadians, having some exposure outside of Canada can often make a lot of sense and I believe the Cambridge U.S. Dividend Fund can be a good complement to many client portfolios.

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