Stephen Groff's blog

Approaching Income Differently

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In 2013, Cambridge added three exciting additions to our lineup of dividend funds – Cambridge Canadian Dividend Fund, Cambridge U.S. Dividend Fund and Cambridge Global Dividend Fund. Given the large number of dividend funds in the market today, you may be wondering why we are choosing to highlight these funds and what our view is on rates for the future (higher).

Just like the philosophy we take with our equity mandates, we believe these funds approach yield investing differently than what most investors are used to.

The benefits of taking the longer term view

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We operate in an industry which craves activity and excitement. Many who work in the industry are paid based on trading volume, banking deals or short-term investment performance. I thought this would be a good chance to reflect on the benefits of taking a longer term view through a couple examples.

Buying back stock - why it's not always a good idea

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At Cambridge, we have consistently stressed the importance of capital allocation as a driver of returns for shareholders over time. We were recently asked if our less optimistic view on a company would change given a buyback announcement. The answer in that specific case was “no.” When it comes to buybacks in general, our answer is “it depends.” We thought an explanation of our view on this topic would give people a better understanding of how we think about allocating capital.

To put it simply, buybacks do not always make sense.

Applying a consistent process in a less attractive market

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It has become harder to find opportunities today than it was a year or two ago. Despite this fact, and with more work, we will continue to follow a consistent philosophy to find new ideas. Fortunately, there are still high-quality businesses we think the market is not valuing appropriately.

A chance to speak out against high-frequency trading

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Advisors, portfolio managers and the investing public are rightfully frustrated with the effect that high-frequency trading (HFT) is having on the markets. We have been discussing this with clients for years now and without getting into the details of different HFT strategies, the key point is that HFT allows certain traders to "game the system" and earn a small profit on each trade without taking any risk. This cost is similar to a tax, which is ultimately paid by the investing public for limited to no value.

Europe:The land of opportunity?

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Over the past couple of years, we have been bullish on U.S. equities driven by attractive valuations and a slowly improving economy. This was despite the countless negative headlines which kept many investors on the sidelines during a very good time to stay invested. Using our bottom-up approach, we saw attractive investment opportunities in a number of very strong businesses with exposure to cyclically depressed (but recovering) end markets trading at low valuations.

Does consistency mean less risk?

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Who doesn’t like consistency? People naturally prefer what is highly predictable over what is volatile for obvious reasons. The only issue with consistency is that it's easy to get lulled into a false sense of security when volatility is low. When returns or earnings appear too consistent (good) to be true, in many cases they are. Whether it is earnings management or outright fraud, excessive consistency can often be a red flag.

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