Download going further to go farther

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