View
1
Download
0
Category
Preview:
Citation preview
SIGMA MANAGEMENT
Index based solutions
WHY THE MOVE TO FEE-BASED ?A strategic perspective
Standard & Poor’s MasterclassSeptember 28th 2017
Sigma ManagementIndex based solutions
2
▪ Guy Lalonde: CIM, CAIA, discretionary portfolio manager.
▪ Christian Lamarre: CIM, discretionary portfolio manager.
▪ François Beaucage: CIM, IQPF, discretionary PM, Fincl Pln.
▪ Marie-Ève De L’étoile: :Licensed investment assistant.
▪ Marie- Claude Décary: Licensed investment assistant.
Sigma Management
Index based solutions
3
Because we had to?• Regulatory pressures such as CRM1-CRM2-CRM..n?• Because our firm wanted us to?
To seize a great opportunity• More competitive.• Greater control over our pricing.• Made sense with an ETF-based model.• Greater differenciation.• Give ourselves a unique identity.• Powerful branding
4
• Strategy• Focus• Structure and processes.• Awareness of and adjusts to its competitive environment.
A business has
• Strengths• Weaknesses• Opportunities.• Threats.
SWOT
5
Clients were ready for a more balanced approach.Clients were ready to talk about risk management vs hitting homeruns. Investors’ confidence in individual stocks is shaken.
• (Nortel, Enron and Worldcom)
Tech bubble Hangover + Accounting scandals
• Offer a « managed solution ».• Huge inflow from deposits to mutual funds• Funds are still new to Canadian investors.• Funds promise superior management in exchange for their MERs.
Massive inflows into mutual funds
6
Source: Vanguard, IFIC,Investor Economics
7
Source: nvestor Economics
8
1 year 5 years
Canadian equities (2004)(Index S&P/TSX RT)
US equities (S&P 500) (2004)
International stocks (S&P EPAC) (2007)
Canadian dividend equities(Index S&P/TSX Aristocrats div) (2007)
Source: SPIVA December 2016 (average over 8 years)
9
Source: SPIVA December 2016 (USA)
1 yr 3 yr 5 yr 10 yr 15 yr
All large cap
funds
S&P 500 Index 66.00% 93.39% 88.30% 84.60% 92.15%
All Mid Cap funds S&P Mid-Cap
400 Index89.37% 94.21% 89.95% 96.03% 95.40%
All Small Cap
funds
S&P Small-Cap
600 Index85.54% 95.69% 96.57% 95.64% 93.21%
International
funds
S&P Int’l 700
Index84.94% 71.09% 66.95% 83.89% 89.36%
Long investment
grade
Barcley’s LT
Gov Index75.00% 98.04% 74.80% 96.30% 97.44%
10
5 years
Canadian equities(Index S&P/TSX RT)
US equities (S&P 500)
International stocks (S&P EPAC)
Canadian dividend equities (Index S&P/TSX Aristocrats div)
Source: SPIVA Canada scoreboard December 2016
40/60 mutual fund portfolio
underperforms by 2,16%
11
Institutional managers: Canadian equities
1st quartile
median
3rd quartile
4th quartile
19 4
4
5
4
4 years ending December 2012 4 years ending December 2016
Source: Mercer pooled fund survey, déc 2016
1717
12
Institutional managers: Canadian equities
1st quartile
médiane
3rd quartile
4rd quartile
19 5
1
2
7
4 years ending December 2011 4 years ending December 2015
Source: Mercer pooled fund survey, dec 2015
1515
13
Canadian equities three year average
1st quartile
mediane
3rd quartile
4th quartile
100% 19%
17%
21%
26%
Source: Mercer pooled fund survey
83%83%
14
US equities three year average
1st quartile
mediane
3rd quartile
4th quartile
100% 26%
22%
13%
18%
Source: Mercer pooled fund survey
79%79%
15
EAFE equities three year average
1st quartile
médiane
3rd quartile
4th quartile
100% 32%
7%
16%
24%
Source: Mercer pooled fund survey
79%79%
16
Canadian bonds three year average
1st quartile
mediane
3rd quartile
4th quartile
100% 29%
25%
13%
13%
Source: Mercer pooled fund survey
80%80%
17 Source: SPIVA Canada scoreboard December 2016
CATEGORY 1st 3rd DIFFERENCE
Large Cap funds 13.36% 4.80% 8.56%
Small Cap funds 22.45% 17.27% 5.18%
International stocks 2.37% -1.77% 4.14%
Emerging market stocks 12.74% 4.54% 8.20%
18 Source: SPIVA Canada scoreboard December 2016
CATEGORY 1st 3rd DIFFERENCE
Large Cap funds 14.34% 11.83 2.51%
Small Cap funds 16.17% 12.82% 3.35%
International stocks 7.77% 5.72% 2.05%
Emerging market stocks 3.60% 1.00% 2.60%
19
Source: Investor Economics
20
Source: Vanguard
21
O N L Y F E E F E E
MF MF E T F S
2.25%
0.98%
0.15%
0.00%
1.00%
1.00%
COMPARATIVE COST TO CLIENT FOR 1% REVENUE
Source: Vanguard, Investor Economics
22 Source: SPIVA USA scoreboard December 2016
CATEGORY 1st 3rd DIFFERENCE
Large Cap funds 14.34% 11.83 2.51%
Small Cap funds 16.17% 12.82% 3.35%
International stocks 7.77% 5.72% 2.05%
Emerging market stocks 3.60% 1.00% 2.60%
23
2000 - 2015 – Annual return by asset class
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
29.23% 29.92% 24.80% 46.74% 18.15% 35.81% 28.88% 33.55% 6.41% 62.76% 22.61% 21.67% 16.97% 41.53% 24,43% 20,68
24.86% 13.67% 15.28% 30.86% 17.53% 29.54% 24.73% 31.35% 5.53% 55.25% 21.94% 16.75% 16.05% 35.97% 22,76% 18,49%
21.40% 12.44% 8.73% 28.68% 16.99% 25.25% 22.95% 9.83% 0.42% 44.46% 17.61% 11.46% 14.77% 31.26% 13.18% 17,66%
16.99% 9.27% 8.58% 27.46% 16.45% 24.84% 19.56% 5.49% 0.23% 37.83% 13.32% 9.75% 14.14% 20.14% 10.55% 7,69%
16.61% 8.08% 7.37% 26.72% 14.48% 24.13% 17.26% 3.97% -16.85% 35.05% 12.22% 9.02% 13.48% 12.99% 10.36% 5,44%
10.24% 7.91% 2.25% 25.90% 13.99% 18.36% 16.94% 3.68% -23.87% 26.97% 10.75% 8.60% 9.37% 6.87% 10.01% 3,52%
9.08% 3.60% -2.29% 20.78% 13.09% 15.20% 16.06% 1.79% -30.80% 26.46% 10.19% 5.24% 8.67% 4.71% 8.79% 2,79%
7.41% 1.97% -4.73% 19.58% 10.88% 6.46% 15.80% 1.60% -32.61% 25.36% 8.33% 4.82% 7.19% 0.39% 8.66% 2,71%
4.95% 0.52% -7.12% 19.50% 10.14% 6.01% 9.66% 0.71% -33.00% 23.96% 7.73% 4.08% 6.22% -1.19% 7.24% -4.65%
-6.14% 0.17% -8.84% 13.31% 7.29% 4.91% 4.56% -0.41% -37.00% 16.26% 6.74% 3.04% 4.87% -2.64% 7.14% 5,03%
-7.11% -11.89% -12.44% 10.49% 7.15% 3.53% 4.39% -4.85% -38.28% 14.50% 6.00% -7.57% 3.60% -5.52% 4.17% -8.32%
-9.10% -12.57% -22.10% 8.50% 5.74% 3.30% 4.06% -5.65% -39.93% 13.46% 5.43% -8.83% 2.85% -13.08% 3.22% -12.53%
-25.30% -16.04% -25.82% 6.69% 5.36% 2.05% -2.89% -6.56% -45.75% 5.41% 2.15% -20.65% -16.86% -23.07% 0% -14.95%
Canadian bonds Canadian dividend shares Emerging market
Real return bonds S&P/TSX large cap MSCI EAFE C$
Corporate bonds US dividend shares Real etstate investment trusts
High yield bonds S&P500 C$ Gold
Preferred shares
24
ASSET CLASS 1980 1984 1988 1995 1999 2002 2010
Domestic Equity 66% 47% 46% 38% 24% 15% 11%
Foreign Equity 0% 0% 0% 20% 24% 15% 22%
Private Equity 0% 7% 12% 12% 12% 13% 11%
Real Assets 0% 3% 5% 15% 17% 29% 23%
Fixed Income 34% 43% 37% 17% 17% 16% 15%
Alternatives 0% 0% 0% 0% 6% 12% 16%
1980 1988 1999 2010
Source: Arrowfunds, National Association of College and University Business Office
25Source: Arrow funds 2010
Endowments have evolved
26
Source: Dalbar Dec 2014
S&P500
Investors
11,06%
3,79%
Barclay’s
Aggregate
Bonds
7,38%
Investors
1,76%
27
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Benchmark portfolio: 40% DEX, 30%TSX, 15% S&P500, 15% EAFE
28
Reliability
• No manager selection risk
• Greater diversification.
• No performance chasing.
• Better behavior.
Low-cost
• Take out the expensive middle man.
• Don’t pay for what you don’t get.
Institutional inspired
management
• Portfolio structure akin to largest pension funds.
29
The need to create a whole new language
• Reliability vs performance chasing.• Portrfolio structure vs manager selection.• Resist emotions.
The transition process
• Converted the book within one year• Met each client individually.• 90 minute meeting per client.• Explain the reasons behind the changes.• Why didn’t we do this before?
30
The conversation changes
• YOU are the one charging the fees, not some third party.• The client SEES the fees that are charged• Client more prone to challenge the level of fees:
• Can’t you lower your fees?• What have you done for me lately?
What have you done for me lately?: Your value proposition
• Lower cost.• Greater reliability of future returns.• Lower volatility• Better reflexes during turbulent times.• Better reflexes during good times too!
31
Alternatives
Extenalmanagers,
Corporate funds, Hedge funds
Fixed income
Structures products
Stock picking
(discount brokerage)
Core: Mutilple asset class index investingCore: Mutilple asset class index investing
CoreSigma balanced, Sigma income
- Superior risk control
- Superior reliability of resutls
Tactical complementSigma Asset class rotation
32
DISCLAIMER
o The contents of this document are intellectual property of Christian Lamarre and Guy Lalonde.
o The information contained herein was prepared by Guy Lalonde and Christian Lamarre, Investment Advisor of National
Bank Financial. The particulars contained herein come from sources believed to be reliable but are not guaranteed by us and
may be incomplete.
o NBF is an indirect wholly-owned subsidiary of National Bank of Canada.
o The National Bank of Canada is a public company listed on Canadian stock exchanges.
o NBFI may act as financial advisor, fiscal agent or underwriter for certain of the companies mentioned herein and may receive
remuneration for its services.
o NBF and/or its officers, directors, representatives or associates may have a position in the securities mentioned herein and
may make purchases and/or sales of these securities from time to time in the open market or otherwise.
o National Bank Financial is a member of the Canadian Investor Protection Fund.
o Neither returns nor capital are guaranteed.
o Not all securities listed above are suitable for all investors. .
o You should consult your investment advisor regarding investments suitable to your unique circumstances.
o This is not an offer to buy or sell securities.
o National Bank Financial is not a tax advisor and we recommend that clients seek independent advice on tax-related matters.
Recommended