WEALTHCo. ASSET MANAGEMENT
SECOND QUARTER 2019
Volatility in Perspective
June 30, 2019 marked an important milestone for WealthCo’s pooled funds. As of June 30, we now have five full years of performance history, and we’re proud to say it has played out almost how we planned it. Our Medium Risk Model Portfolio delivered a 7.07% since inception return (before management fees), and our diversification and exposure to alternative asset classes have smoothed out returns significantly. The last 12 months is a great example of this. Since the middle of last year, the TSX Composite Total return index fell 16% while the WealthCo Medium Risk Model Portfolio lost just 4%. Both Have since rebounded, but over that same time period our model portfolio outperformed the TSX by 1.6%, which is in-part because it is easier to recover from a stumble than a fall. That is - to recover from the 3.9% draw-down, our portfolio only had to recoup 4.1% of its losses while the equity market had to return 19% just to get back to even! That’s more than 4x [four times] the volatility our clients experienced, and a lot of sleepless nights. At WealthCo, we employ strategies of diversified, low volatility investing including alternative asset classes , so you can sleep at night.
Second Quarter Highlights
We estimate that the CAD/USD FX rate had an ~1.5% negative impact on Q2 returns. 50-60% of our investments are generally held in US dollars, which means that when the loonie appreciates, like in June, our client’s returns will suffer. But over the long term, our clients have benefited from a depreciating loonie and the multiple benefits of holding investments in US dollars. Our philosophy continues to focus on the highest quality investments available with the best risk profile rather than speculating on short term shifts in currency.
Two mortgages in the US paid out early in Q2. We held each one for less than 24 months, and they both delivered annualized double digit returns. When borrowers pay back on mortgages earlier than expected, it is both good and bad. Good because we crystallized a healthy yield on our investment, but bad because the money has to be invested elsewhere, which under our comprehensive due diligence process can take time.
In June, the Spartan Ridge industrial project in Spartanburg, South Carolina leased 65% of the square footage to an anchor tenant, causing us to revalue our investment +29%. We have a 50% equity position in this project along with a right to participate in 50% of a second phase, which would more than double the leasable area. Spartanburg is home to one of Amazons largest distribution centres.
Our investment in the Tsawwassen Power Centre in British Columbia was revalued lower in Q2. We have taken a conservative view on valuation for now due to lower than expected occupancy and general market conditions in the Canadian big-box retail sub-sector. The General Partner is currently looking at alternate land uses for the remaining phases of the project.
On the public-markets side our Core Growth and Income fund is up 11.0% YTD (before mgmt. fees) and our Fixed Income fund is up 3.7% YTD. Public markets have performed well due to the growing consensus view that interest rates will be cut several times in the next 12 months but we remain cautious as public markets continue to experience significant volatility.
In early Q3, Timbercreek announced two more dispositions in its GTA Commercial Value Add portfolio on very strong terms. Our investment is held at an unrealized gain of 15% since the initial investment in August 2018.
The results speak for themselves
Over the past five years, as the equity bull market continued to mature, volatility has been more frequent, and the peaks and troughs are even more pronounced. For all the reasons stated above, the WealthCo medium risk model portfolio has come out on top following every significant market pullback over the past five years. This is why many traditional investors are now looking for new alternative investment options. Indeed there were $10 billion of inflows to low-volatility ETFs in the first four months of the year, according to Morningstar. We are proud to have started this low-volatility journey five years ago, before the hype, and we are proud to have a five year history to prove that the strategy works.
Our returns reflect our commitment to provide equal opportunities to investors.
INCLUSION + OPPORTUNITY
DOWNLOAD THE WEALTHCO ASSET MANAGEMENT Q2 2019 FUND FACT, AND SEE HOW EQUAL OPPORTUNITY CAN HELP YOU REACH YOUR GOALS AND OBJECTIVES FOR THE FUTURE.
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KBH Chartered Accountants I 3825, 93rd Street . Edmonton . Alberta . Canada . T6E 5K5
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