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DYNAMIC ADVISOR • SPRING 2016 • EXPERT ADVICE TO HELP BUILD YOUR BUSINESS GOING FURTHER TO GO FARTHER Bill Smyrnios, VP and Wealth Advisor, and Mark Berry, VP and Wealth Advisor, BMO Nesbitt Burns Inc. and James Di Tomaso, VP Business Development, Dynamic Funds IN THIS ISSUE • Robo-advice • Snapshots millennials • The pitfalls of short-termism SPECIAL PULL OUT Standing Up for Advice: An advisor’s guide to fee transparecy IT TAKES A TEAM TO COVER THE WORLD. Dana Love and the Core Equity Team bring together their global expertise to deliver a world of opportunities through truly active, high-conviction products. Experience portfolio construction excellence, the world over. SEE THE DIFFERENCE LEGITIMATELY ACTIVE MANAGEMENT CAN MAKE. dynamic.ca/CoreTeam Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Dynamic Funds® is a registered trademark of its owner, used under license, and a division of 1832 Asset Management L.P. DYNAMIC ADVISOR • SPRING 2016 • EXPERT ADVICE TO HELP BUILD YOUR BUSINESS IN THIS ISSUE FROM THE TOP PRODUCT 4The volatility paradox by Mark Brisley 20Where to invest: Go global to unlock a world of opportunity COMMENTARY 11 6Dynamic opinions by Dynamic Portfolio Managers INSIGHT 22Here comes the brave new world of advice MEET THE MANAGER 11Solid to the core: At home and away 16 SNAPSHOTS 24Snapshots welcomes millennials ECONOMIC UPDATE WHAT’S NEW AT DYNAMIC? 14The pitfalls of short-termism by Myles Zyblock 26 Updates from Dynamic Funds ADVISOR PROFILE 16Going further to go farther 22 These icons direct you to more information on advisor.dynamic.ca Biographies 24 Webcasts & courses Videos Related documents Economic updates If you have questions or comments about anything you’ve read in Dynamic Advisor, please contact us at [email protected] Editor: Yasminka Marcus Writer: Andrew Trimble Design: Derek Jensen Photography: Lorella Zanetti Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any Dynamic funds. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell. Articles or statements by persons not affiliated with Dynamic are the views of the authors and do not necessarily reflect our views. Dynamic is not responsible for their content and makes no representation as to the accuracy of the information in the articles and does not assume, does not intend to assume, and expressly disclaims any liability for the information or duty to update, or correct such information. This document is not to be distributed or reproduced without the consent of its owner. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Dynamic Funds® is a registered trademark of its owner, used under license, and a division of 1832 Asset Management L.P. This magazine is printed on Forest Stewardship Council® (FSC)® certified paper. FSC certification ensures that the paper in this document contains fibre from wellmanaged and responsibly harvested forests that meet strict environmental and socio-economic standards. Dynamic Funds is committed to continuing to look for ways to protect and preserve our environment for future generations. FROM THE TOP THE VOLATILITY PARADOX Volatility brings out a fascinating paradox in our industry. It’s not the discussion around upside versus downside market volatility. It’s about the good and bad behaviours that can be seen at the same time. On the good side, we see the value of Berry-Smyrnios Group is, in fact, the advice shine through. There is no doubt largest Nesbitt practice in London, investors are seeking professional advice Ontario. I’ve had the pleasure of knowing in times of market angst. Advisors are them for the past 10 years and am proud happy to be purveyors of such counsel to feature their practice in this issue. and guidance. But with more options Their conscious decision to integrate available to Canadians, is any advice professional money management with an good advice? In this issue’s insight piece active bias into their business has allowed on page 22, we explore the industry’s them to focus on their strengths – newest entrant – robo-advice. Is it comprehensive wealth planning with a truly disruptive or is it the first step to passionate commitment to community investors pursuing full-service, face-to- and philanthropic endeavours. face advice? Solid to the core On the bad side, volatility may produce We’re also pleased to feature the Dynamic several poor investment-decision- Core Equity team who know a thing or making behaviours. Recognizing such two about going further. The five-member cognitive traps is what Myles Zyblock, team led by veteran global investor and Dynamic Chief Investment Strategist portfolio manager Dana Love oversees and Portfolio Manager, explains in a more than $6 billion in assets across a timely piece on the pitfalls of short- variety of ‘core’ mandates. Core equity termism. Volatility should also display investing is getting more attention the advantages of active management. as market volatility prompts some to However, active strategies in the guise reconsider the foundations of their of closet indexing have blurred the real portfolios. Dana and team warrant a look value of legitimately active management. on page 11 for their insights on adding Interestingly, regulators in Europe have global exposure to client portfolios. started to classify closet indexing as a harmful practice, one where investors Millennials mean business are not receiving the service or risk/ If you’re looking to provide advice return profile they expect based on beyond client portfolios the recently the fund’s disclosure documents while enhanced Snapshots Starting Out Life potentially paying higher fees. Event is something you want to explore. Mark Brisley Managing Director and Head of Dynamic Funds wealthiest in history. Meet the millennials on page 24. Finally, I bring your attention to the Standing Up for Advice insert included in this edition. The third and final implementation stage of CRM2 comes into effect in June, and there may be no better time to broach the subject of fees and the value of advice. On behalf of the entire team at Dynamic, I thank you for your support. We consider it a privilege and a responsibility to share with you our opinions and also give you access to our thought leaders. I hope this issue gives you some ideas to see the opportunities in front of us all. Sincerely, Mark Brisley Managing Director and Head of Dynamic Funds We’ve added new resources – a CE- 4 London calling accredited course, investor articles Mark Berry and Bill Smyrnios of BMO and an interactive quiz – to the popular Nesbitt Burns have built a $300-million life event to help you speak to this practice by going the extra mile. The generation, which is set to become the ADVISOR USE ONLY Visit advisor.dynamic.ca to access Dynamic Funds profiles and the fund look-up tool. INVESTING IS NOT A SPECTATOR SPORT. A LWAY S A C T I V E , N E V E R PA S S I V E . Legitimately active growth investing requires the expertise that comes from years of experience and a disciplined process to uncover compelling investments in markets worldwide. SERIES F 1 YR 2 YR 3 YR 5 YR 10 YR INCEPTION DYNAMIC POWER AMERICAN GROWTH FUND* 4.6% 9.4% 23.8% 16.1% 9.2% 8.0% DYNAMIC POWER GLOBAL GROWTH CLASS 7.2% 11.4% 22.7% 13.5% 10.3% 10.0% DYNAMIC POWER GLOBAL BALANCED CLASS 4.4% 9.1% 15.4% 10.1% – 8.0% DYNAMIC POWER BALANCED FUND* -0.5% 4.1% 7.3% 3.0% 5.3% 8.1% DYNAMIC POWER CANADIAN GROWTH FUND* -0.7% 5.4% 9.3% 1.3% 3.1% 8.3% DYNAMIC POWER GLOBAL NAVIGATOR CLASS 9.4% 12.0% 17.5% 9.1% – 7.9% SEE THE DIFFERENCE LEGITIMATELY ACTIVE MANAGEMENT CAN MAKE. dynamic.ca/Power Series F units are only available to investors who participate in eligible fee-based or wrap programs with their registered dealer. * Corporate class versions of these funds are also available. Performance for the class version and a trust version of a fund may differ due to differences in inception dates, and there is no guarantee that the funds will deliver similar returns. Performance as at January 31, 2016. Inception date for Series F of Dynamic Power American Growth Fund, Dynamic Power Global Growth Class, Dynamic Power Balanced Fund and Dynamic Power Canadian Growth Fund is March 4, 2002. Inception date for Series F of Dynamic Power Global Balanced Class and Dynamic Power Global Navigator Class is July 2, 2008. Commissions and trailing commissions are not payable on Series F units of the Fund but management fees and expenses may be associated with these investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemptions, distributions or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Dynamic Funds® is a registered trademark of its owner, used under license, and a division of 1832 Asset Management L.P. COMMENTARY DYNAMIC OPINIONS MARCH 2016 Dynamic Fund’s portfolio managers are committed to keeping you up to date with their view of current and future market conditions and the one thing investors may be overlooking in 2016. CORE Dana Love, MSc, CFA Vice President and Portfolio Manager Vishal Patel, B. Comm. (Hons.), CFA Portfolio Manager Focus on the things you can control Seeing the forest for the trees Despite short-term concerns such as market overvaluation, uncertain Fed monetary policy, warning signs from credit markets and the health of China’s economy, we continue to focus on the things that are within our control. That is, identifying exceptional companies with attractive underlying businesses and purchasing an ownership interest in them on behalf of our investors when the market price differs from a reasonable estimate of longterm intrinsic value and offers an adequate margin of safety from permanent loss of capital. With markets as volatile as they’ve been in the first few weeks of 2016, it can be easy to let emotions take over and focus only on short-term noise at the expense of long-term discipline. Although the start of the year has been weak, and we’ve seen a rise in pessimism and fear of the ‘R’ word, as investors we should continue to think long term, focus on fundamentals and stick to finding the right companies, which can deliver compounded wealth over the long term. For more insight into Dana’s perspective, turn to Meet The Manager on page 11. SPECIALTY Amy Glading, MBA, CFA Portfolio Manager Finding the right balance The reality of today’s markets is that shortterm (and often irrational) market volatility is here to stay, which is why it’s important to maintain a long-term, balanced approach to investing. For us, that means having a disciplined and well-thought-out strategic asset allocation, flexibility to adapt to changing markets and a focus on high-quality stocks, bonds and cash. As investors, our emphasis is on identifying great companies to buy and hold rather than focusing on predicting the short-term swings in markets. 6 ADVISOR USE ONLY Robert Cohen, BASc. (Min. Process Eng.), MBA, CFA Vice President and Portfolio Manager Bearish on the Canadian Dollar? This reason alone is enough to show why a Canadian investor should own gold – to protect themselves against the ravages of the Canadian dollar. A number of projections show the Canadian dollar headed into the 60 cent range over the next year on the back of weak oil prices and a struggling economy. Meanwhile, the DXY has been fairly stable, with some signs pointing towards a weakening USD over the coming year. Coupled with negative real rates this should provide an excellent backdrop for the gold sector. EQUITY INCOME Oscar Belaiche, HBA, FICB, CFA Senior Vice President and Portfolio Manager Market uncertainty Global markets have gotten off to one of their worst starts ever in 2016. Fundamentals are weakening but how much of this is priced in? Is the correction fully priced in, or has the market undershot or overshot the weakness in fundamentals? Given the market uncertainty, our focus on high-quality free cash flow generating companies with strong balance sheets and high predictability of earnings should keep us in good standing this year. Jennifer Stevenson, B. Comm., MBA Vice President and Portfolio Manager John Harris, Hons. BA, ICD.D, CIM Vice President and Portfolio Manager Support for supply/demand rebalance Looking for the opportunities The one thing that we expect to support the supply/demand rebalance for oil is the sentiment on supply. Investors continue to focus on the pace of the U.S. production rollover, Q1 inventory builds, and the addition of volumes from Iran, but they are not looking at the non-OPEC non-shale global volumes that are starting to decline and represent ~40% of global oil supply. Annual oil demand growth continues to be over one million barrels per day and the oil supply-demand rebalance is underway, but it will take time to show pervasive inventory draws. In alternatives, macro forces affect most asset classes and, in the current environment, we are cautious. We see attractive opportunities available to non-bank lenders, which have arisen from the widening of credit spreads and the disintermediation of banks from large parts of the market. We feel that commercial real estate finance could be a focus. Heightened volatility is presenting opportunities in our options component while in our closed-end fund portfolio we are seeing wider discounts in asset classes we find appealing. Jason Gibbs, BAcc., CPA, CA, CFA Vice President and Portfolio Manager Tom Dicker, Hons. B. Comm., CFA Portfolio Manager Dividend stocks Safety first The return from stocks is derived from dividend yield, earnings growth and multiple expansion. At this stage in the cycle, when defensiveness and certainty are highly valued, dividends are likely to become an increasing component of the total return. I believe the biggest mistake most investors make is not being conservative enough. Put safety first and remember that bad can get worse. It can take time for value to surface. Damian Hoang, BASc., MBA Vice President and Portfolio Manager Steven Hall, BBE, MBA, CFA Portfolio Manager Options line up in 2016 Winners and losers in retail If the first three weeks of January are any indication, 2016 should be a year with elevated volatility in global equity markets, which should enhance our opportunity set for put writing. Further, with modest return expectations for U.S. equities, option writing should continue to play an important role in generating attractive risk-adjusted yield in the portfolio. The months of November and December recorded their warmest temperatures on record. As unsold coats, boots and shovels piled up at department and specialty stores, investors anticipating weaker sales and reduced margins were quick to reprice their shares materially lower. The one group that could eventually benefit is the "off price" channel, a group of retailers who opportunistically buy unsold merchandise at discounted prices and offer them in a treasure hunt format at any of their own retail locations. SPRING 2016 7 COMMENTARY • DYNAMIC OPINIONS EQUITY INCOME (CONT’D) VALUE Frank Latshaw, CPA, CA, CBV, CFA Portfolio Manager David L. Fingold, BSc. Management Vice President and Portfolio Manager Infrastructure for the long term Speculation is not a retirement plan Looking forward, we believe you can continue to count on stability, predictability and steady growth in the infrastructure sector. These attributes remain highly appealing to many long-term investors. This can be seen in the substantial premiums paid by the private market to acquire publicly traded companies in this sector. As Ben Graham said: “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.” We believe there are many closet indexers who voluntarily overweight and underweight sectors or countries, but rarely zero-weight sectors while we are rarely invested in all ten sectors. We believe as Ben Graham did, that company fundamentals prevail in the long-run, and we aren’t concerned about short-term market fluctuations or the composition of the index. Vim Thasan, MBA, CFA Portfolio Manager Yassen Dimitrov, MBA, CFA Portfolio Manager Can the consumer diverge or decouple? Focusing on quality and valuations In 2016, the focus is on the consumer – the current source of resiliency in the market – and their actions will dictate whether the “industrial” recession is a transitory moment, or whether there is deeper trouble ahead. The consumer seems to have the ability to spend, so it’s a question around their willingness to spend to drive a higher level of growth in the economy. We expect 2016 to be a challenging year considering the late stage of the current business cycle and the early stage of visible deterioration in the credit cycle. Our focus on quality and valuation aims to preserve capital over the next 12 months, while the Dynamic Financial Services Fund’s sizeable cash position provides optionality to take advantage of attractive investment opportunities should they be provided by the market. Noah Blackstein, BA, CFA Vice President and Portfolio Manager Alexander Lane, Hons. B. Comm., CFA Vice President and Portfolio Manager Focus on fundamentals. Not macro factors. Stay active, own predictable growth and preserve capital We have always been bottom-up stock pickers, and we don’t focus on macro-factors. We look for idiosyncratic opportunities and heading into earnings season, we have not seen any changes to the fundamentals of the companies we own. We believe recent volatility in the markets is nothing more than a mid-cycle correction that usually comes with Central Bank policy changes, which recently happened with the U.S. and Chinese Central Banks. While this has been a painful point of time in the markets, we believe that like other difficult periods, it too shall pass. Look for growth stocks that are large, liquid, high quality and predictable with strong balance sheets that are less economically sensitive. We believe they should also have high sustainable return on invested capital and a record of dividend growth and/or share buybacks. Having some cash may make sense to take advantage of market volatility. POWER 8 ADVISOR USE ONLY Don Simpson, BBA, CFA Portfolio Manager Chuk Wong, BBA, MSc, CPA, CGA, CFA Vice President and Portfolio Manager Take advantage of uncertainty in the market A bull in a China shop 2015 was a very volatile and challenging year for Canadian and global equity markets. Inevitable market swings will continue, causing emotional investors to react; however, it’s important to remember that short-term volatility can be a great tool for long-term investors as it gives us the opportunity to take advantage of uncertainty in the market. As 2016 begins, we hope to deploy some of our available cash into highquality businesses at attractive prices. I recently returned from China where I was meeting with companies. Despite the economic headwinds posed by weaker demographics, high levels of debt and disinflationary pressures, I don’t expect economic growth to collapse and believe that long-term fundamentals remain intact. Growth will likely slow a bit further and stabilize throughout 2016. Patient investors can, in our opinion, generate much greater wealth from bear markets than bull markets, so it’s important to stay focused and calm, not follow the herd and take advantage of the current market volatility. Cecilia Mo, MBA Vice President and Portfolio Manager Ben Zhan, MBA, CFA Portfolio Manager Canadian banks look interesting (and cheap) again Continental Europe remains a promising spot In recent years, I have been fairly bearish on Canadian banks; however, with a number of names in the sector having been heavily discounted in recent months, I believe that valuations are now looking attractive. We’re seeing some Canadian banks trading at multiples not seen since the financial crisis in the early months of 2009. As most of the major banks continue to cut costs and try to streamline their operations, we have been selectively adding positions to our portfolios. A broad, albeit slow, European economic recovery is still underway with valuations of European equities remaining attractive. In the long run, with its unparalleled premium consumer brands and leadership in industrial technologies, Europe is well-positioned to ride the secular uptrend in emerging middle-class consumers. Many of these global champions are centuries in the making but have seen their stock prices more than halved over the past couple of years. To us, short-term volatility has created great value opportunities for patient investors. FIXED INCOME Michael McHugh, Hons. BA, MA, CFA Vice President and Portfolio Manager Domenic Bellissimo, MBA, CFA Vice President and Portfolio Manager The risk of valuations being volatile Where we are in the credit market We expect high levels of volatility in the bond market this year linked to valuations, liquidity and investor sentiment in response to unfolding conditions. We expect bond yields to remain historically low, around levels defined over the last three years, and valuations to remain volatile throughout the year. Opportunities will undoubtedly unfold this year to increase risk exposure, both duration and credit, at better valuations. To benefit from these allocations an investor must identify those levels where they feel it is prudent to reduce their risk exposure. With aggregate corporate revenue growth slowing, profit margins gradually declining and leverage near post financial crisis highs, corporate defaults and risk premiums are expected to rise in response. The opportunities this may create should be approached in a measured fashion, as market illiquidity coupled with deteriorating fundamentals will likely favour an up-in-quality positioning into the foreseeable future. Ultimately, the current volatility is less consistent with the turbulence experienced in 2011 and 2012, but rather reflects the stresses inherent with the late stages of the credit cycle. SPRING 2016 9 COMMENTARY • DYNAMIC OPINIONS FIXED INCOME Marc-André Gaudreau, CPA, CGA, CFA Vice President and Portfolio Manager Roger Rouleau, B. Comm., CFA Portfolio Manager Contagion in credit Happy new issuance! The impact of the falling price of oil has spread to non-energy sectors of the credit market and spreads have widened to levels not seen since 2011 as the cost of capital has risen and access to capital has started shrinking. This has created a flurry of selling activity and severe pressure on global markets, which has driven volatility higher. With yields approaching 9%, we are finding opportunities in the non-energy sectors of the high yields market. With the strong close to 2015 now in the rearview mirror, significant new issuance is making for a difficult start to 2016. In the first two weeks of the year, we have already seen issuance equivalent to 1/3 of the total net issuance seen in 2015. Looking forward, we see potential tailwinds from buybacks, a slowdown in supply, and nontraditional buyers becoming active in the asset class. Meanwhile, we remain keenly aware of risks that potentially lie ahead, such as the Bank of Canada, issuer downgrades and incremental new supply. Volatility creates opportunities and lots of volatility creates lots of opportunities. PORTFOLIO SOLUTIONS Jason Agaby, CFA, CIM, FCSI, CFP® Vice President and Portfolio Manager Known unknowns In the past few years, easy money, improving economies and contained geopolitics propelled markets and made them predictable. Those who tactically positioned their portfolios, benefited and gained confidence in their ability to call short-term market fluctuations. We believe diverging monetary policies, uncertain growth and escalating geopolitical tensions will make markets unpredictable and miscalculated tactical moves costly in 2016. Portfolio Solutions maintain a strategic long-term focus while delegating to proven active portfolio managers the ability to make the right calls during a market cycle. AURION CAPITAL MANAGEMENT Christine Horoyski, CFA, MBA, CA Aurion Capital Management Greg A. Taylor, CFA, BBA Aurion Capital Management Credit risk and deflationary signals are a focus Fleeing investors creates opportunities Two primary themes that we’re approaching with caution in 2016 are deflationary signals being sent by the stubbornly low longterm bond yields, and the risk of rising defaults in credit due to "lower for longer" commodity prices. Credit spreads are widening throughout the risk spectrum, and inflation expectations have plummeted on the slide in oil prices. Our active and tactical management style will allow us to be nimble and find opportunities in this cautionary environment. The S&P/TSX has underperformed the S&P 500 for over six years. Everyone is well aware of the problems in Canada, but there will be opportunities to make money. When everyone is fleeing a market, it is a perfect time to look for value and find attractive names. Active managers who are able to be nimble and move between sectors will be able to take advantage of these valuation gaps. For more opinions from our Portfolio Managers, watch their videos on the Dynamic Advisor site advisor.dynamic.ca or visit dynamicopinions.ca 10 ADVISOR USE ONLY MEET THE MANAGER SOLID TO THE CORE: AT HOME AND AWAY There’s nothing new about core investing. It may, in fact, be older than its value or growth cousins. But core investing rarely gets the same attention. Designed to be dependable, reliable and Vishal Patel, Dana Love, Amy Glading as predictable as possible, core investing isn’t always as exciting as riding a high growth stock or uncovering a deep value gem. But what core investing may lack of Portfolio Managers Vishal Patel selling. That said, we’re in the process of in excitement, it more than makes up and Amy Glading. Both are proven, evolving two of the portfolios – Dynamic for in importance. The core investment experienced managers who have spent Blue Chip Equity Fund and Dynamic Blue style may, in fact, account for 50% to many years at Dynamic managing and Chip Balanced Fund – to become more 60% or even 70% of equity assets in co-managing equity mandates. We globally focused. Both were launched a well-diversified portfolio depending expect core equity investors to benefit as global mandates but have historically on individual circumstances. This is one from the enhanced collective expertise been North American in focus. I’ve been reason why Dynamic is increasing the and knowledge we bring to the portfolios, managing global equities for my entire depth and breadth of its Core Equity and we’ll work together to find the best career, so it makes sense to leverage the team and the investment resources and investment opportunities possible for capability and migrate the portfolios capabilities available to it. The team, unitholders. to a more global context. In addition which currently manages over $6 billion to selectively increasing the funds’ in assets, is welcoming two new portfolio Q: What about the Dynamic Blue managers, taking the number of core Chip Funds? equity investment professionals to five. Dana: Along with the addition of Amy and Led by veteran portfolio manager and Vishal to the Core Equity team, the other global investor Dana Love, the Core Equity big news was our assuming stewardship team has also assumed responsibility for and lead portfolio management duties on Dynamic’s Blue Chip suite of funds. the Dynamic Blue Chip Funds – balanced, Q. Where are the global investment U.S. balanced and equity – in December opportunities? last year. At the time of the transition Dana: It’s important to note that we don’t announcement, we said any changes take a top-down approach to investing to the portfolios would be incremental at either the geographic or sector levels. Q: Tell us about the team. and implemented over time. We also We build our portfolios company-by- What’s changed? said we would execute the transition company using fundamental research. Dana: We’ve significantly increased with consideration paid to the valuations All investment decisions are based on our bench strength with the addition of the companies we were buying and our view of finding the best risk-adjusted We sat down with the team to catch up on the recent expansion, its new mandates and their view of the world. weighting to markets outside North America, I expect to hold additional positions – 20-40 holdings versus 25 previously – to increase diversification and reduce company-specific risk. SPRING 2016 11 MEET THE MANAGER opportunities for our investors without regard to sector or country allocations CORE EQUITY TEAM of an index. Fundamentally, from stage one our mindset is that of a business owner – a business owner who may or may not take a fractional ownership position in a publicly traded company on behalf of the unitholders in the Fund. Q. What is your investment process? Vishal: We start by filtering the universe Kevin Kaminski, Dana Love, Hui Wang, Amy Glading, Vishal Patel of stocks down to a manageable size of about 200. The next step is performing The managers and the funds detailed fundamental research to find There are five members of the Core Equity team, which is led by veteran portfolio manager and global investor Dana Love. Dana is supported by Portfolio Managers Amy Glading and Vishal Patel as well as Portfolio Analysts Kevin Kaminski and Hui Wang. The Core Equity team also leverages the depth and breadth of the entire Dynamic investment team across all investment styles to create value-added, risk-adjusted investment opportunities for investors. companies that may be worthy of investment. After the quantitative work is complete, we move into more qualitative areas. We travel to dozens of countries each year to meet with hundreds of companies to find the best investment opportunities. When we’re there, we talk to management, suppliers, customers and so on. Ultimately, the investment candidate has to clear three hurdles: Is it a good business? Is it a good company? Is it good value? Q. Is it getting harder to find businesses that meet the criteria? Dana: Finding good companies today is no different than when I started in the 1990s. There are a lot of great companies out there, but they’re just not priced well and there are lots of unattractive companies out there that look very attractively priced. We want both great quality and attractive valuations, which is why we find it easy to run concentrated portfolios. There are only a select number of great franchise companies that meet our criteria at the right price. Q. What’s your average holding period? Vishal: In a nutshell, long term. That’s another defining characteristic of our investment style; we’re buying companies to own them not to sell them at some predetermined price. When we find a business we like, we remain owners for a very long time. And the reason we’re patient is because patience works. It’s worked for a lot of private enterprises. It’s worked for Warren Buffett. And it’s worked for us. It’s not about trading quarter to quarter. It’s about taking a concentrated approach and owning great businesses for the long term. 12 ADVISOR USE ONLY Dana Love MSc, CFA, Head of Core Equities, VP and Portfolio Manager Dana joined Dynamic in 2013 as Vice President and Portfolio Manager as part of the core team. He has more than 17 years of experience overseeing global equity investments across a wide variety of mandates and has held the position of Head of Global Equities at two of Canada’s largest asset managers. Dana holds the master of finance designation from the U.K.’s London Business School and is a CFA charter holder. Vishal Patel BComm. (Hons.), CFA, Portfolio Manager Vishal joined Dynamic as an analyst in 2005 and was promoted to Portfolio Manager in 2010 and in 2015 joined the Core Equity team. Vishal has 12 years of industry experience incorporating fundamental company and macro investment analysis to find the best investment opportunities. Vishal has a BComm. with distinction from the John Molson School of Business at Concordia University and is a Calvin C. Potter Fellow. He was awarded the CFA designation in 2009. Amy Glading MBA, CFA, Portfolio Manager Amy joined Dynamic in 2007 as an investment analyst and was promoted to Associate Portfolio Manager in 2014. She joined the Core Equity team as a Portfolio Manager in 2016. After Amy started her career at a global management consulting firm, she joined the equity research team at CIBC World Markets in 2003. Amy holds an MBA degree in Finance from McMaster University as well as a BSc. degree from Queen’s University. She earned the CFA designation in 2006. Kevin Kaminski MBA (Hons.), CFA, Senior Portfolio Analyst Kevin Kaminski joined Dynamic in 2013 as an investment analyst for the Core Equity team working closely with Dana Love. Prior to joining Dynamic, Kevin spent more than nine years as an investment analyst at two different firms – Invesco Trimark and Scotia Capital. Kevin holds an MBA from Schulich School of Business, a Bachelor of Administration degree from the University of Regina and was awarded the CFA designation in 2005. Hui Wang MBA, CFA, CAIA, Portfolio Analyst Hui joined Dynamic in 2014 as a Portfolio Analyst for the Core Equity team. Prior to joining Dynamic, he spent four years supporting wealth and asset management businesses at Scotiabank and before that, nine years in various roles and industries including cyber security. Hui holds an honours MBA from the Schulich School of Business, a Master’s degree from Peking University and a Bachelor of Computer Science degree from the Beijing Information Technology Institute. Hui earned the CFA designation in 2012 and the CAIA in 2013. Q. What flexibility do you have to invest CORE EQUITY FUNDS LINEUP around the world? Vishal: We’re registered in 70 countries including all developed markets and Global equity Balanced emerging markets in Africa, Asia, Europe Dynamic Global Equity Fund Dynamic Blue Chip Equity Fund Dynamic Global Balanced Fund Dynamic Blue Chip Balanced Fund Dynamic Blue Chip U.S. Balanced Fund and Latin America. This often leads to portfolios that look very different from the index. Q. How will the team work in terms of geographic and sector focus? Amy: Vishal and I have been collectively analyzing Canadian and U.S. stocks for over 25 years, so it makes sense for the team to leverage that experience just as we can leverage the global experience that Dana, Kevin and Hui bring to the BLUE-CHIP FUNDS TRANSITION Effective December 1, 2015, the Core Equity team assumed management of the Dynamic Family of Blue Chip Funds. The transition is proceeding smoothly largely because ‘blue-chip’ and ‘core’ investing share similar investment philosophies. Further, there are relatively few differences between ‘core’ stocks and ‘blue-chip’ stocks. Both are considered to be of high quality, they normally generate steady dividends and most are less volatile than small-company stocks. Core and bluechip companies are also considered to be financially healthy with strong balance sheets and sustainable competitive advantages. table. When it comes to sectors, we’re all generalists, which gives us great flexibility to find the best companies both locally and around the globe. Regional focus Plus, we have access to the broader Existing Core funds Blue Chips funds Blue Chip funds (current) (post transition) Developed and emerging markets Developed markets Developed markets with a North American focus All-cap Large and mega cap focus Large and mega cap bias 25 stocks 20-40 stocks team of investment professionals at Dynamic/1832 Asset Management L.P., which allows us to tap into the views Market capitalization of a number of sector specialists, analysts and Portfolio Managers. (small, mid, large and mega) Concentration 30-40 stocks Currency hedging Selectively hedged. Active currency hedging Neutral position is unhedged. Selectively hedged. Neutral position is unhedged. Fixed-income allocation Global focus North American focus Q. Why do you approach your research in this fashion? Amy: There’s nothing wrong with having sector specialists, but you have to be careful. Sometimes you feel like you have to own certain sectors simply because you have a sector specialist. And someone focusing on a specific North American focus (Balanced funds only) sector is rarely going to tell you to go to zero weight in their area of specialty, which could put them out of a job. sector in every geography around changes will be slow and only made when Dana: I think the practice of having an the world. we have evidence that allows us to make analyst for every sector of the market Q. How do you interact with the fixed is useful if you’re going to be closet income team on the balanced mandates? judgments with a high level of conviction. But I don’t expect that will be happening frequently. We don’t make large asset benchmarking your portfolio. Dividing Dana: We have regular formal and the work that way gives you exposure informal conversations with Domenic to every sector at any given point in (Bellissimo) who tells us what he’s seeing time, just like the index. But if you’re in terms of opportunities and risks on the Dana: Ultimately, I feel we’ve got all the taking a truly active approach, building fixed-income side. We do the same from right ingredients for a successful team. concentrated portfolios and trying to the equity side and then we come to a We adhere to an investment discipline select investments on the merits of conclusion as to what allocations should that’s been proven to add value for the individual companies, you don’t need be appropriate. The allocation is currently past 20 years through market cycles, a battalion of analysts covering every 70% equity and 30% fixed income. Any recessions and bear markets. allocation calls. Q. Any final words? For more insights from Dynamic’s Core Equity Team, visit advisor.dynamic.ca for recent videos, webcasts and commentaries. SPRING 2016 13 ECONOMIC UPDATE THE PITFALLS OF SHORT-TERMISM The market has turned more volatile, which makes it a particularly challenging time to stick to a long-term investment program. Yet, it is critical to have a commitment strategy in place in order to avoid the pitfalls of short-termism. An inventory of behavioural research the average experience. Importantly, built up since the late 1970s lends a great work by Daniel Kahneman, Amos deal of support to Benjamin Graham’s Tversky and other thought leaders in the casual observation that investment behavioural field estimate that investors decision-making is riddled with error. feel twice the pain from a dollar loss as Our cognitive processes do not reflect the elation from a dollar gain. And, there’s those of an optimizing automaton taught the rub: In order to harvest the full benefit by our economics textbooks, rather they of long-term returns, we have to find it embed a complex interaction between deep within ourselves to sit through reasoning and emotion that – at least in the context of investing – can generate undesirable outcomes. A pertinent finding in the literature is the over- the discomfort of some shorter-term and possibly sharp losses. The data clearly argues that most whelming presence of time-inconsistent investors find it difficult to stick with and present-biased preferences, wherein a long-term investment discipline. In we favour immediate rewards and avoid fact, the hard-wiring embedded within The challenges we face do not stop here. immediate costs often to the antipathy many of us more often than not leads to While equity markets are generally quite of our "long-run selves". immediate (re)actions that detract from volatile over short time horizons, we our long-term goals. Depending on the believe that the odds of large short-term Reaping most of the benefits of an equity 14 Myles Zyblock, B.A. (Hons.), M.A., CFA Chief Investment Strategist investment program requires patience. methodology and time period, studies price swings either up or down are much While average annualized equity returns find that our ill-timed short-term buy and greater today given where we stand in through the past century have been sell decisions in the equity market have the market cycle. We calculate that 74% roughly constant at +10% over holding diminished our portfolio’s performance of the top percentile of daily price swings periods from three months out to by anywhere from 1.2% to 4.3% per (i.e., those moves in the order of 10 years, annualized volatility is five to six year (graph 2). While this might not since 1928 occur during periods when the S&P 500’s 200-day moving average 5%) times greater at the shorter time interval sound substantial, a 30-year-old who (graph 1). In fact, two-thirds of the time, initially invested $1,000, has left behind is declining; a development whose a quarterly annualized return is likely to a meaningful $15,000 to $22,000 by most recent start can be traced back range between -12% and +36% despite retirement age. to August 20, 2015. ADVISOR USE ONLY “The investor’s chief problem – and even his worst enemy – is likely to be himself.” Benjamin Graham, 1949 1: Equity returns by holding period (since 1926) 1 standard deviation Annualized average return 40% 30% 20% 10% 0% -10% -20% Quarterly Annual 3 Year 5 Year 10 Year Dichev -3.20% 2)Raise the cost of submitting to “temptation”. An easy example is to provide oneself with objective reminders of the likely periodic and long-term risks and rewards of equity investing. 2: Estimated annualized cost of short-termism (various studies) Dalbar Cass Friesen Sinha Bullard Barber -1.62% -1.50% -1.17% -1% -1.56% -2.14% -2% -3% -4% -4.30% 3)Most importantly, look at the market quotation screen as infrequently as possible. Work by Thaler, Tversky and Kahneman (1997) suggests that the less often an investor evaluates outcomes, the more likely he is to avoid noise trading and build a portfolio consistent with long-term risk-adjusted goals. -5% Source: Dynamic Funds 3: NYSE average holding period (years, 1956-2015) 8.0 7.0 7.2 6.0 5.0 4.0 3.6 3.0 2.5 2.0 1.0 0.0 1.3 1956-65 1966-75 1976-85 While we could write an entire book on this topic alone, we believe there are several steps an investor can take in order to stick to a long-term investment program. A few of the basics are as follows: 1)Have a commitment strategy in place. What we mean by this is to establish a framework that will limit one’s choices to those consistent with a long-term goal. An idea as simple as the involvement in a dollar-cost averaging program might do the trick. Source: Dynamic Funds, Prof. Kenneth French 0% At the same time, we appear to be more short-term oriented than ever when it comes to investing. The average time we hold onto a stock is about 0.8 years versus 7.2 years back in the 1950-60s (graph 3). Technological innovation, the influence of around-the-clock financial news, and corporate communication and reporting practices might all be contributing to this increasingly myopic trend. Nonetheless, the greater draw towards noise trading is doing little to augment our terminal wealth. 1986-95 0.9 0.8 1996-2005 2006-15 Investing is not easy, particularly in volatile times. However, having solid strategies in place that obligate one to align with longer-term goals will most likely build the pathway to a more rewarding investment outcome through time. Source: Dynamic Funds Keep up to date with Myles Zyblock’s latest market views by reading his weekly Macro Musings and monthly Investment Junction reports on advisor.dynamic.ca or contact your Sales Representative for more details. SPRING 2016 15 ADVISOR PROFILE GOING FURTHER TO GO FARTHER It was the depths of the Great Recession – It’s something the two advisors have been doing for years when it comes to client communication, education and service. It is, in fact, a defining RRSP season 2009 – when London, Ontario- characteristic of the practice. But that’s based advisors Bill Smyrnios and Mark Berry at work. The areas in which Bill and held an informal town hall meeting for their considered. They understand where clients – about 100 families – at a local venue. cannot. They don’t, in other words, try not all. There’s another success factor Mark choose to go further are carefully they can best add value and where they to be the best at everything. The BMO Nesbitt Burns Vice-Presidents wanted to do. Yes, it may have been “We play to our strengths,” says Mark, and Senior Wealth Advisors partnered easier to have client conversations over “which means comprehensive wealth 10 years earlier to form The Berry- the phone or face-to-face meetings Smyrnios Group. They felt an open behind closed doors, but the veteran forum would be the best way to answer questions, address common concerns and build trust among their clients. Gutsy? planning not stock picking.” advisors thought it was best to bring Strong asset growth everyone together. The approach is working. The practice “We felt the extra step was necessary,” says Bill who admits he faced some was originally formed in 1999 with a handful of clients and just over difficult questions that night but still $10 million in assets. That figure has now credits the meeting for building grown substantially to over $290 million difficult as it was to get up on stage that stronger relationships and by de facto, with the Berry-Smyrnios Group serving evening, both say it was something they a stronger practice. over 350 households. Not according to Bill and Mark. As 16 Going further that evening was not new. ADVISOR USE ONLY Nicole Smyrnios, Mark Berry, Stephen Smyrnios, Tanya Petersen, Bill Smyrnios Bill and Mark are Senior Wealth Advisors, Stephen Smyrnios (Bill’s son) is an The two advisors met as a result of the Investment Advisor, Nicole Smyrnios Nesbitt Thompson, Burns Fry purchases (Bill’s daughter) is head of operations by BMO in the late eighties and early while Tanya Petersen oversees nineties. The bank acquired Nesbitt in administration. 1987 and Burns Fry in 1994 with the three That’s because Bill and Mark uncoupled entities ultimately forming BMO Nesbitt their practice from the vagaries of the Burns. In a stroke of coincidence, Mark market long ago. They say the bursting was the last hire for Nesbitt Thompson of the technology bubble in 2000 sent a prior to the acquisition of Burns Fry powerful message they decided to heed. in 1994 and Bill was the first hire for Nesbitt Burns. “We actually merged the offices together,” explains Mark, “so there were Burns Fry people we didn’t really know and Nesbitt Thompson people they didn’t know. When the firms merged, Bill and I met. He was working on a group RRSP and I happened to have the group RRSP specialty designation. Bill asked me to “It highlighted the dangers of being a stock jockey,” says Bill. That’s when the two advisors decided to delegate investing to focus full-time on strictly holistic endeavours; a transition they found easy to make. Their practice was already fee-based, they had both been through Nesbitt’s Advanced Wealth Advisor Program and, although registered lend a hand on a project and it lent itself with IIROC, Bill and Mark (CERTIFIED to other things, so we eventually decided FINANCIAL PLANNER® Professionals) to merge our books.” were already philosophically predisposed to financial planning rather than That was in 1999 and now their practice is the largest for BMO in London, which is home to almost half a million people. The team starts every week with a Monday morning meeting that Nicole coordinates. Tanya starts the meeting with a list of events and appointments as well as providing updates on client service issues. Nicole ensures the team is aware of and focused on any pressing matters. “While the value we bring to our clients will include products – it will also include our team, our resources, our ideas and our experiences,” says Bill. “They were way ahead of the curve when it came to adding value beyond client portfolios,” says James Di Tomaso, Vice President, Business Development at Dynamic Funds. He has been serving The Berry-Smyrnios Group for two years as their wholesaler. stock-picking. “We have a strict process – delivering Active funds only The next step was deputizing investment The practice’s growth trajectory was not, long-term perspective to our clients however, straight up. Nor was it uneven. while preferring not to make short- or track individual stocks for client Steady and predictable are probably the term predictions on the markets,” portfolios, nor do they research or best ways to describe it. Interestingly, says Mark who works with three other buy government or corporate bonds. growth did not significantly wane even professionals – in addition to Bill – If a client is interested in stocks, they in the aforementioned 2009. at the five-member practice. will turn to BMO’s Guided Portfolio management. They no longer research SPRING 2016 17 ADVISOR PROFILE • GOING FARTHER TO GO FURTHER AT A GLANCE The Berry-Smyrnios Group Founded 1999 AUM $300 million Households 350 Staff 5 Specialties Financial, Estate and Tax Planning Clients Professionals, business owners, HNW families MissionOur goal is to provide a true wealth advisory experience. Our process is focused on candid discussions with our clients that allow us to identify their true goals and objectives. We then draw on the full scope of BMO Nesbitt Burns, a leader in research, financial planning, tax, insurance and estate planning to deliver comprehensive solutions. holding company makes sense versus a partnership. They also make sure to be tuned into their clients’ life events – career change, divorce and ailing parents for instance – so they can be there to offer planning tips, suggestions and services. recommendations lists, but they will only Private Investment Pools for some use North American securities. Actively of their higher-net worth clients. managed mutual funds are exclusively used to gain global, international, specialty and certain fixed-income on Dynamic for 15 products accounting for more than $70 million in assets. Keeping exposure. current with so many products is not easy, The rationale which is where James proves valuable. “We feel that having active managers with expertise in picking stocks in “He knows the funds really well and does a great job updating us on managers, of their wealth plan, we want them to think of us,” says Mark. Europe, Asia and so on makes sense. product and research. James also does It’s important for our clients to have a great job coming to us with new ideas,” Strong bench strength exposure to these – and other – regions says Bill. If a client is in need of highly specialized of the world,” says Mark. Communication is key And why the predilection to active With Mark and Bill delegating stock management? picking, it allows them to focus on the “We believe active managers can, over time, beat the market. Our partnership at Dynamic is proof of that belief, and the bigger wealth management picture for their clients. That starts with a complete review of each client’s financial picture advice, services or products that fall outside of their core competencies, the advisors have additional resources at BMO to draw upon in everything from commercial and private banking to insurance and custodial services. to help them understand their individual The bench strength has aided their relationship has worked out perfectly for needs. The next step is creating a efforts to hold onto intergenerational our clients,” says Mark. custom financial plan designed to help asset transfers. The advisors have, in Some of the Dynamic products currently each client achieve their goals. The fact, been quite successful in this area used by The Berry-Smyrnios Group common thread throughout this process thanks, in part, to Bill’s son Stephen. He is communication – both before, during plays an important but still emerging role include Dynamic Alternative Yield Fund, Dynamic Value Fund of Canada, Dynamic 18 All told, The Berry-Smyrnios Group relies “When a client thinks and after the process. building relationships with the children of existing clients. Power American Growth Fund, Dynamic Education is another area of strength Global Navigator Fund, Dynamic Power for Mark and Bill who take time to A recent example: the death of a client Global Growth Fund as well as Dynamic explain how a trust works or why a who had four children and no spouse – ADVISOR USE ONLY their time and contributing money to Mark Berry, Stephen Smyrnios, Bill Smyrnios, James Di Tomaso, Nicole Smyrnios support their kids’ sports teams, Bill and Mark are active helping larger organizations make a difference. Making a difference Bill, a musician, formed a band several years ago that consists of a few other Nesbitt advisors as well as a couple of two children were already clients and two BMO. Regardless, Stephen is the one who clients. The band – Accrued Interest – were not. Stephen reached out to the reaches out to make initial contact and, regularly performs in and around the two who were not clients, introducing if successful, the lead is passed onto one London area to raise money for a variety himself and the practice in advance of of the senior partners. If all goes well, the of causes including the MS Society and the mother’s passing. next step is inviting potential clients to Wellspring. They are most proud of the He recommended that they get qualified the office. tax and legal advice to prepare them for “We want them to understand our wealth the death. If they did not have a lawyer process and see the resources we have or accountant, the team could assist at our disposal,” says Mark. Although the them in connecting them with one from their professional network. When she did pass away and it came time to distribute assets, the two siblings asked if they could become clients. Old-fashioned prospecting In addition to helping with intergenerational wealth transfers, Stephen is active in the area of prospecting. He focuses on business owners doing it the old fashioned way – cold calling. Some prospecting strategy may be simple, Mark says it’s effective. The key is to keep at it and go further to develop a prospect. That’s something James has always stressed. In fact, James has been a big plus when it comes to prospecting. “He shares his ideas in terms of contacting $250,000 raised for the William Singeris National Centre for Myotonic Dystrophy at the London Health Sciences Centre. When it comes to the future and where they want to take the practice, Bill and Mark are equally optimistic. Both are confident they’ve created a repeatable wealth process that can last for the next 30 years. Although Mark says it’s too early to determine if one of his three children is interested in succession, it’s clear that Bill’s son Stephen is ready. prospects and how to build a trusted Ready enough to stand in front of all their relationship to earn their business,” clients if there’s another Great Recession? says Stephen. of the leads are generated from lists Going further for The Berry-Smyrnios while others – warmer ones – come from Group even applies to charity and Bill, Mark or others in the practice and community. In addition to volunteering “I’ll always be ready to stand in front of our clients,” says Stephen with a smile, “but I’m not sure if I’m ready for another Great Recession.” SPRING 2016 19 PRODUCT WHERE TO INVEST: GO GLOBAL TO UNLOCK A WORLD OF OPPORTUNITY With the pace market conditions. Here’s a look at some over a global frame. If you multiply the of the reasons why global investing number of industries (67) in the MSCI of global growth is on professional investors’ minds. Global Industry Classification Standard by slowing and the number of countries (46) in the MSCI Breadth All Country World Index, it creates more The global equity structure significantly than 3,000 possible country/industry uncertainty rising, increases the universe of possible positions open to investment; in Canada, investments. As illustrated by the chart there are 10. where might one below, a global index may contain significantly more stock holdings across Correlation look for investment an ever-increasing number of countries Another reason why global investing has when compared to a Canada-only index. entered the conversation of late has to opportunity? That’s a big sand box for bottom-up stock do with correlation. Correlation is the pickers to play in because they rely on degree to which two investments move research to identify the most promising in relation to one another. Perfect positive The answer may lie in global equities. companies to invest in. More companies correlation implies that as one security Although counter-intuitive, that’s equals more opportunity. moves, either up or down, the other where a growing number of advisors, institutional investors and plan sponsors direction. Alternatively, perfect negative are focusing their attentions even amid Index Holdings Countries correlation means that if one security the darkening clouds around China, 300 1 (Developed) moves in either direction, the security commodities and emerging markets. S&P/TSX Composite Why? MSCI World 1,653 23 (Developed) will move in the opposite direction. MSCI All Country 2,491 46 (Developed/ Undeveloped) If the correlation is 0, the movements Global equity investing not only allows S&P/ Citigroup Broad Market 11,000 (approx.) 52 (Developed/ Undeveloped) The chart shows the levels of correlation that is perfectly negatively correlated you to expand the number of investment opportunities beyond domestic borders, but it gives you the flexibility to invest anywhere, across a wide swath of industries in developed and developing 20 security will move in lockstep, in the same The opportunity set of the securities are said to have no correlation; they are completely random. or ‘spread’ between global regions and sectors around the world. As you can see, the regions and sectors were more markets. That gives global equity Top-down stock pickers welcome an correlated from about 2003 through managers the ability to fully leverage expanded investment universe but for 2014. Since then, they have become more their skills and resources versus more different reasons. They generally prefer independent; moving less in lockstep. geographically constrained mandates. to invest where the sun shines brightest, That’s a welcome development for global They can, in other words, go where their which are economically sound countries equity managers. They have greater research takes them unencumbered or sectors that are growing or poised for opportunities to add value when regions by borders, which may be particularly growth. Simple math illustrates how big and sectors are performing differently beneficial in changing and more volatile the canvass can get when it’s stretched instead of moving as one. ADVISOR USE ONLY The spread investment style – growth, value or core – Average pairwise correlations: Major regions and economic sectors in the MSCI ACWI1 24-month moving averages, 17 years ending June 30, 2015 and some vary by market-cap constraints. Additionally, there are standalone and managed funds options as well as private 1.0 Global regions pool structures. If tax efficiency is of Global sectors importance, you may want to consider 0.8 a global fund corporation. As always, your client’s return objectives, risk appetite and investment time horizon 0.6 will greatly impact these decisions. 0.4 GLOBAL EQUITY STRUCTURES 0.2 1998 2000 2002 2004 2006 2008 2010 2012 2014 Sources: MSCI, FactSet 1 Regional benchmarks: S&P 500, MSCI Europe, MSCI Japan, MSCI AC Asia ex Japan, MSCI EM Latin America, MSCI Australia Returns Investment considerations Lower levels of correlation are, in fact, associated with higher levels of possible returns. That’s because individual stock returns will be ‘dispersed’ over a greater range. Instead of stocks moving in a similar fashion – up or down – they will move more independently. The dispersion of individual stock returns is, as a result, a critical indicator of active return potential. As you can see, global equity managers have historically outperformed the most when dispersion is greatest. That’s because they have more opportunities to add value through security, sector and country rotation. Although many advisors may be considering or actively incorporating global equity strategies into their manager lineups, it’s important to remember there is no right or wrong way to do it. Some may be adding a global equity mandate to existing client allocations without making any changes while others are adjusting allocations to make room for or fund new global equity positions. In addition to choosing the method that works best for each client circumstance, advisors will also have to choose from a wide range of global equity investment options. Some of those options vary depending upon The excess Dispersion influences active returns Excess returns of global equity active managers based on dispersion in MSCI World 1990-2014 14% 12% 10% 8% 6% 4% 2% 0% -2% 11.99% Top-quartile active managers Median active managers Dynamic has a wide range of global equity products to choose from across a variety of investment styles and structures. The ones listed below do not include global managed, balanced and asset allocation funds as well as those with specialty or constrained mandates. Standalone mutual funds Core Dynamic Blue Chip Equity Fund Dynamic Global Equity Fund Power Dynamic Power Global Growth Class Dynamic Power Global Navigator Class Value Dynamic Global Discovery Fund/Class Dynamic Global Dividend Fund/Class Dynamic Global Value Fund/Class Hedge Dynamic Global Growth Opportunities Fund Private Investment Pools 1.94% 2.00% -1.16% Most dispersed markets The greater differences between highest and lowest stock returns Least dispersed markets The lesser differences between highest and lowest stock returns Source: Analysis based on Factset and Morningstar data. Market dispersion based on the calendar year return difference between companies in the 10 th and 90 th percentile from 1990-2014. Calendar years with market dispersion in the top and bottom quartile considered more or less dispersed, respectively. Top quartile and median taken from the Morningstar World Stock category. Excess returns, net of all fees (including 12b-1) but excluding sales charges, calculated against the MSCI World NR USD. Analysis covers all share classes and includes funds that have since been liquidated or merged but excludes index funds. Most dispersed markets (1993, 1997, 1998, 2000 and 2009) had average dispersion of 105%. Least dispersed markets (1994, 2005, 2010, 2011, 2012 and 2014) had average dispersion of 62%. Dynamic Global Yield Private Pool/Class Dynamic Global Equity Private Pool/Class To find out more about Dynamic’s global equity investment solutions, visit advisor.dynamic.ca or contact your Sales Representative. SPRING 2016 21 INSIGHT HERE COMES THE BRAVE NEW WORLD OF ADVICE Is robo-advice here to stay? That’s the question a growing number of under management as more investors advisors, analysts and industry watchers choose robo-investing. are asking as the number of robo-firms and the assets they manage continues to rise. The latest robo-entrant in Canada – a Vancouver-based firm called Modern Advisor – was launched at the end of January. It joins an array of standalone ‘robo-firms’ and established players across Canada offering a ‘robo-advice’ component. five years, we can be reasonably certain of some things. Further disruption Robo-firms are just the beginning. Big data and advanced analytics have the As eye catching as the growth may be potential to broaden the scope of robo- for robo-firms, it’s important to note that advising dramatically, incorporating the numbers appear almost trivial beside financial planning into broader retirement, the estimated $US25 trillion in total retail health, and wellbeing, and enabling quasi- investor assets south of the border. So institutional research. Robo-advice could is robo-advising more sizzle than steak? then impact all investor segments, not More hype than reality? The answer just the mass-market and mass affluent appears to be yes and no. Yes, robo- retail investors. advising may have gotten more ink This may also, in turn, lead to ‘virtual Although it’s difficult to determine total than it deserves as a digital asset advice’ according to McKinsey & Co. assets under management for Canadian allocation service, but there’s no Virtual advice retains the high level of robo-firms, a look south shows U.S. robo- mistaking the fact that robo-firms are personal service that characterizes a firms collectively managing US$21 billion a new breed of wealth management firm traditional advisor/client relationship but by mid-2015 according to Corporate that warrants attention. Athough it’s Insight. By 2020, robo-firms are forecast impossible to predict where robo-firms to grow to an estimated US$225 billion and robo-advising will be in ten or even leverages the connective power of digital communications (videoconferencing, co-browsing) to remotely deliver this service. Such virtual advice, says McKinsey, may be provided by independent advisors or in groups who WE THE NORTH are accessible after business hours and Canadian robo-firms with advisors at their own convenience. on weekends, enabling clients to engage There are seven firms in Canada that carry the robo-firm label. Although each offers a slightly different set of products and experiences, all provide advice through an online conduit. That’s what makes them ‘robo’. The majority of these firms are private start-ups and remain independent of manufacturing or bank ownership. That may change sooner rather than later as the advance of technology and its prevalence in daily life may take online advice mainstream. Firm Nest Wealth Asset Management Wealthsimple Financial Wealthbar Financial Services Questrade Wealth Management Smart Money Capital Management Invisor Investment Management Modern Advisor Source: Investor Economics Inception August 2014 September 2014 November 2014 November 2014 December 2014 December 2014 January 2016 These centres would concentrate a large pool of advisors and would match clients with advisors and specialists who are uniquely suited to meeting their needs. An example of this approach in the U.S. is Personal Capital’s wealth management services and Vanguard Personal Advisor Services. Enhanced potential Do robo-firms spell the end for advisors? Hardly. In fact, robo-advice may make a lot of sense to a wide range of advisors who manage accounts on behalf of smaller investors or those with less need for hands-on, full-blown financial advice. Using a robo-service would enable advisors to effectively segment 22 ADVISOR USE ONLY their business, thus devoting more time to larger clients who need a higher level of personal care. Further, using a robo-platform may bring simplicity and efficiency to a practice since many recurring duties – including back- and middle-office tasks – are automated. Advisors who embrace a robo-model for part of their practice may also position themselves to capture millennial assets. Robo-investing plays into millennial preferences, and if you can combine the high tech with your high touch, it may be the best of both worlds. New players As technology continues to lower barriers to entry for new firms breaking into wealth management, look for more financial and non-financial services firms to take advantage of this new technology according to Deloitte Consulting LLP. Deloitte sees more asset management and insurance-only firms adding wealth advice to their existing offerings effectively entering wealth management. Non-financial service firms with access to large numbers of retail investors and leading-edge technology firms may also enter wealth management. That includes social media companies such as Snapchat, which is said to be building WHAT IS ROBOADVICE AND WHERE DID IT START? Interestingly, there are no robots when it comes to robo-advice. No, a better name for the process may be algorithms advice. That’s because algorithms, which perform step-by-step operations to solve problems, are what’s at the heart of robo-advising. When an investor inputs their personal data such as investment time horizon, objective and level of risk into a robo-program, a computer running an algorithm develops automated portfolio allocations and investment recommendations tailored to the user. Although robo-advising got its start in America and continues to grow fastest south of the border, it’s also making a name for itself around the world. There are now robofirms in the U.K., Australia, Europe and in Asia offering a wide variety of investments including mutual funds, ETFs, pooled funds and managed funds. its own robo-advice offering. Looking ahead It would appear robo-firms are here to stay and poised to spawn new entrants and new opportunities. One enduring question is how robo-firms, which arrived after 2008, will fare during bear markets. During difficult times, the low fees that initially drew investors to robos may become less important while the value of hand-holding skyrockets. No matter how good the technology, robo-advisors If you’re a steward of financial wealth interested in making an even greater impact in your clients’ lives, consider enrolling in the Real Wealth Management designation program. It’s available through Dynamic’s Education Zone at advisor.dynamic.ca/educationzone. just can’t do that. SPRING 2016 23 SNAPSHOTS SNAPSHOTS WELCOMES MILLENNIALS The millennial cohort – Too big to ignore Canadians born between 12,000 1980 and 2000 – is now the largest, most diverse in the country. Projected population by generation, thousands 8,000 familiar with the millennial stereotype – hooked on social media, wellness and causes – a more balanced description might include the words smart, savvy and soon-to-be wealthy. Gen X 6,000 4,000 Boomers PreBoomers 2,000 0 And while we may be Millennials 10,000 2015 2025 2035 2045 Source: Statistics Canada, Medium Projection 2014 Family growth 10-year projections of households, millions 6 5.6 5.5 Millennials 5.2 Boomers 5 4 3 4.5 Gen X 4.1 2.8 2 2015 2025 Source: Environics Analytics, 2015 DemoStats Millennials at work Percentage of total civilian labour force 50% Global wealth is, in fact, set to rise by 36% on the backs of the millennial generation with the number 40% of millennial millionaires in Canada increasing by 30% 50% by 2020. The demographic does, as a result, present a significant opportunity for advisors to 20% drive the future growth of their practices. That’s 10% why we’ve added resources on millennials – a CEaccredited course, investor articles and a client quiz – to the Starting Out Life Event in Snapshots. 24 ADVISOR USE ONLY 0% Millennials Gen X Boomers 2000 2005 2010 Source: Bureau of Labor Statistics, Current Population Survey 4/2015 (U.S.) 2015 MORE SUPPORT FOR MILLENNIALS ACROSS SNAPSHOTS Resources in the Starting Out Life Event are just some of the materials that may be of interest to millennials in Snapshots. Starting Out Life Event Depending on the individual circumstances and life stage of each millennial client or prospect, there’s a broad range of articles, tools, checklists and sample budgets that can help you connect with them. •Details on renegotiating student loans and interest relief plans •The true cost of owning a vehicle CULTIVATING MILLENNIAL CLIENTS As attractive as the millennial opportunity may be, the successful pursuit of this demographic requires forethought and planning. Millennials have grown up amid times of change – technological disruption, economic uncertainty, globalization – and the long-term outlook appears uncertain at best. Millennials face significant challenges due to depopulation, tax reform and technological change, but they’ll also create and inherit unprecedented wealth. The following materials have been added •Considerations for renters when taking out property insurance •A sample monthly budget •The benefits of starting to invest early Owning and Managing a Small Business Life Event Self-employed millennial clients or prospects may be especially interested in the Owning and Managing a Small Business Life Event, which provides guidance on business structures. •Financing a business – help your clients determine the best way to finance a business depending on its business structure. •Creating current and projected budgets – how to create budgets to run a successful business •Compensation and benefits – explore different compensation options for the owner of each business structure •Regulatory responsibilities – highlight regulatory requirements to which your clients may be subjected to the Snapshots Starting Out Life Event to help you add outstanding value to current and future millennial client relationships. CE course or groups that share similar personalities, get advice – do-it-yourself, robo-investing – outlooks, and traits. This variation has and the best way to get advice: advisors. The Millennials consequences for advisors wanting To better understand to prospect for millennial clients and Snapshots eNewsletter Builder the millennial work with them more closely. Given their love for anything tech, the opportunity – who they are, why they matter and how to Includes an interactive quiz to determine the user’s millennial category. Snapshots eNewsletter Builder may be the ideal vehicle to reach and prospect for millennial clients. The eNewsletter attract/retain them – Millennials: Tough times ahead easily enables you to build and brand an we have created a special CE course that This article explores the difficult economic electronic newsletter using client-friendly focuses on the next great generation and investment landscape millennials face articles across the entire Snapshots 16 of wealth. and identifies the various ways they can Life Events. Investor articles Millennials: We are not all the same This article identifies the six unique To access Snapshots 16 Life Events, including Starting Out and the new resources for millennials, go to advisor.dynamic.ca/Snapshots Canadian millennial sub-segments SPRING 2016 25 WHAT’S NEW AT DYNAMIC? UPDATES FROM DYNAMIC FUNDS PRODUCT SNAPSHOTS NEW Dynamic Private Investment Pools Snapshots wins 2015 Morningstar Award for Investor Education We recently launched Dynamic Premium Bond Private Pool and its tax-advantaged Corporate Class version, Dynamic Premium Bond Private Pool Class. This uniquely diversified fixed-income solution offers a 40% allocation to each of Dynamic Active Core Bond Private Pool and Dynamic Tactical Bond Private Pool. The remaining 20% allocation is in Dynamic Premium Yield Fund to enhance diversification and offer equity exposure with reduced volatility through options writing. win the 2015 Morningstar IFIC Investor Education Award for the Snapshots Newcomers Life Event! Discover the best-in-class wealth of educational articles and resources that can help you turn newcomers into new clients. Investor articles available in English, French, Spanish, Punjabi and Chinese. Visit advisor.dynamic.ca/Snapshots today. NEW Managers for Dynamic Blue Chip Funds Starting Out Life Event refresh Dana Love, Vice President, Portfolio Manager and Head of Dynamic’s Core Equity team has assumed lead management duties for Dynamic Blue Chip Balanced Fund, Dynamic Blue Chip U.S. Balanced Class and Dynamic Blue Chip Equity Fund. Assisting Dana on the Funds are fellow Core Equity team members and Portfolio Managers Amy Glading and Vishal Patel. The Funds’ investment objectives and strategies are unchanged. The popular Starting Out Life Event has been refreshed with Dynamic Power Managed Growth Class becomes Dynamic Power Dividend Growth Class materials and resources targeting millennials. They present a significant opportunity to drive the future growth of practices across Canada, so we’ve added two articles, a client quiz and a CE course on millennials. EDUCATION ZONE NEW Compliance CE course We’ve added a new eight compliance credits course – A Compliance Framework for Seniors’ Issues focusing on key Effective January 1, Dynamic Power Managed Growth Class was renamed Dynamic Power Dividend Growth Class to better align with its new investment objective to focus on dividend growth securities. elements of compliance and its implications for advisors and Reduced fees for Dynamic Power Dividend Growth Class NEW Millennial CE course Several enhancements have been made to Dynamic Power Dividend Growth Class (formerly Dynamic Power Managed Growth Class), now managed by Alexander Lane and Stephan Smith. The Fund’s management fees were reduced to 0.85% (Series F and I) and 1.85% (Series A and T), all performance fees for the Fund have been eliminated. prospect and advise this fast-growing, soon-to-be-wealthiest Reintroducing Dynamic Alternative Investments Private Pool Class Late last year, Dynamic Alternative Investments Private Pool Class underwent changes to its investment structure. We are now pleased to reintroduce the Pool with the following benefits: access to multiple alternative investment strategies, low correlation to traditional stocks and bonds and a strong focus on downside protection and volatility reduction. 26 Dynamic Funds was thrilled to ADVISOR USE ONLY their senior clients. An IIROC Compliance Rulebook companion piece was also added and is worth six compliance credits. Visit advisor.dynamic.ca and go to Education Zone > Compliance. The new Snapshots Millennial CE course shows you how to demographic. Millennials will inherit unprecedented wealth in the coming years and this course may help you position your practice to take advantage of it. Register for the course at advisor.dynamic.ca > Education Zone > Snapshots. To find out more about any of these products or initiatives, or to request printed copies of any materials, please contact your Dynamic Sales Representative. Register for regular Portfolio Manager webcasts, or listen to the replays online. We frequently update our Portfolio Manager videos and add new content to the Opinions microsite at dynamic.ca/opinions Visit advisor.dynamic.ca to access PDFs of Dynamic Advisor articles. DO NOT BE BOUND BY BOUNDARIES. A LWAY S A C T I V E , N E V E R PA S S I V E . Dynamic’s Core Equity Team brings together their global expertise with an active, disciplined, business owner approach to deliver a world of opportunities. SERIES F 1 YR 2 YR 3 YR 5 YR 10 YR INCEPTION DYNAMIC GLOBAL BALANCED FUND 6.6% 9.7% – – – 9.1% DYNAMIC GLOBAL EQUITY FUND 11.3% 14.1% – – – 13.4% SEE THE DIFFERENCE LEGITIMATELY ACTIVE MANAGEMENT CAN MAKE. dynamic.ca/Core Series F units are only available to investors who participate in eligible fee-based or wrap programs with their registered dealer. Performance as at January 31, 2016. Inception date for Series F of Dynamic Global Balanced Fund and Dynamic Global Equity Fund is November 29, 2013. Commissions and trailing commissions are not payable on Series F units of the Fund but management fees and expenses may be associated with these investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemptions, distributions or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Dynamic Funds® is a registered trademark of its owner, used under license, and a division of 1832 Asset Management L.P. ALWAYS ACTIVE, NEVER PASSIVE. At Dynamic Funds, we firmly believe that legitimately active asset management matters. We consider it to be the cornerstone of exceptional portfolio construction. Leave conventional thinking to the rest of the pack and see the difference true active management can make. SEE THE DIFFERENCE LEGITIMATELY ACTIVE MANAGEMENT CAN MAKE. dynamic.ca/Active Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Dynamic Funds® is a registered trademark of its owner, used under license, and a division of 1832 Asset Management L.P. 15DYN123_DF_Advisor_Spring2016_EN_V1_3 DOP0216 MOE5100