Portfolio management
Our Management Philosophy
Our role consists in being well-informed, in forming an opinion based on our own analysis as well as that of others, in recommending portfolio management strategies and investment vehicles to our clients that correspond to their specific needs. We fully embrace our mission to be our clients' principal financial advisor. Under no circumstances do we design or distribute standardized financial products.
We are very seldom involved in the distribution of new issues because this is difficult to reconcile with a structured and systematic approach to portfolios management.
Our choice of individual investment securities is limited to the Canadian market where we seldom use investment funds (only for small portfolios). For the international market, we generally use index investment products and, exceptionally, investment funds.
We consider ourselves responsible for the success of the portfolios entrusted to our management, but also for any setbacks. We have access to research from other Canadian brokerage firms on a regular basis and we subscribe to a variety of specialist publications (Bank Credit Analyst, Capital Economics, Alpine Macro, Stratfor, Geopolitical Future, and more).
M. Dalpé goes abroad on average every two years to meet in person the various managers who advise him or manage the funds of his clients invested in those markets, and with whom he has frequent telephone conversations. For example, he was in India in 2005, in China in 2007, and in Hong Kong, Macau, Mumbai and Dubai in 2010, Singapore and Kaula Lumpur in 2011, Taiwan, Seoul and Manila in 2013, and Hong Kong and Tokyo in 2016.
Marc Dalpé, Portfolio Manager and Independent Thinker
Marc Dalpé is known to be an independent-minded professional with critical sense and an acute ability to analyze prospectively.
Marc Dalpé is registered as Portfolio Manager with the self-regulatory organizations. According to the Regulation 1300 of the CIRO, he is authorized to make investment decisions and to give advice for managed accounts.
Apart from Marc Dalpé, no member of Dalpé Wealth can exert discretionary authority on the account of a client or approve discretionary orders for a managed account or take part in the formulation of investment decisions made in the name of a managed account.
Structured management of assets
Every client portfolio, regardless of its size and investment objectives is structured according to the following model:Every client portfolio, regardless of its size and investment objectives is structured according to the following model:
Portfolio management
Cash
|
|
XXX% |
Fixed income securities
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Canada
| XX% |
|
Denominated in foreign currency
| XX% | XXX% |
Equity securities
| ||
Canada
| XX% |
|
USA
| XX% |
|
Europe
| XX% |
|
Asia
| XX% |
|
Emerging countries
| XX% XXX% | XXX% |
|
| XXX% |
Portfolio management
As a portfolio manager, much of our effort is concentrated on managing the overall composition of the portfolios (cash / fixed income securities / stocks, duration of fixed income securities, international diversification, sectoring, etc.).
Our obsession with asset allocation stems from the following:
- over the long-term, 90% of portfolio returns are the result of the various asset allocation decisions taken and not from the selection of specific securities. That is why, as a portfolio manager, a significant portion of our time is spent reading and thinking about market trends and about what elements might influence the value of asset categories;
- the main asset that the investment advisor can have in managing his client's portfolio is a complete understanding of the client's situation. This knowledge allows the advisor to recommend the appropriate portfolio structure or, in other words, the correct asset allocation. The management of various portfolio components can be done by the advisor himself or delegated to a specialized manager, an investment fund or other. The investment advisor's contribution is significantly higher with respect to his role in asset allocation rather than his role in the choice of securities; and
- the selection of the optimal asset allocation and its maintenance over time will allow to control the level portfolio risk. The client's comfort level will increase and consequently so will that of the investment advisor.
Systematic and Personalized Management
We suggest the same investments (aside from considerations relating to the size of the portfolio) to all clients sharing the same investment objectives. Clients who wish to buy some securities on their own are responsible for monitoring them and for communicating with us when they wish to dispose of them; these securities are maintained in a distinct account and not in the managed one.
We are committed to offering the best service possible with every new client we accept. Whatever the size of his/her portfolio, it will always be managed with the same care and professionalism. Portfolio management is very democratic and is not affected by considerations beyond the meeting of objectives.
The monitoring of many portfolios, while taking into consideration the investment objectives of each client, their degree of conservatism, their tolerance to volatility, and their whims, all of this in the context of a constantly and rapidly changing environment, is the main cause for the slowdown in growth of many an investment advisor.
At Dalpé Wealth, systematized and individualized portfolio management for more than 900 families is not an easy task. The firm gives us access to a powerful and proven computerized system to overcome this challenge.
By and large, we have created approximately ten portfolio profiles, which reflect the investment horizon and objectives, the risk tolerance, the size and the fee structure. These profiles include the weights of various asset classes, the average duration of fixed income securities, the selection of each security in the portfolio, etc. A portfolio profile is allocated to each client. The portfolio profile of each client is compared regularly to his/her real one according to all the predefined criteria and a discrepancy report is produced. When we recommend changes to the portfolio to one or more clients who share certain objectives, the software automatically produces a list of the suggested purchases and sales for each account based on the criteria that we predefined. This is a powerful technology in that it takes into consideration every aspect of portfolio management, including constraints on certain securities, the account in which each security should be held, the overall basket of assets that the client holds, etc.
This allows for an increase in volume without the risk of diminishing the quality of the portfolio management.
Performance
Portfolio performance constitutes one of the main criteria in a client's selection of his/her investment advisor. Documenting this performance is, however, quite a difficult task for the typical investment advisor.
At Dalpé Wealth Partners, we are proud of the performance we have achieved for our clients since 1998. Moreover, we provide each client a report every quarter showing the quarterly and year-to-date performance.
Our systematic portfolio management strategy enables us to calculate accurately the return obtained for each investor profile that we manage. The differences in returns between clients who share the same profile are negligible. Each quarter, we summarily calculate the return for each profile and for each portfolio component, and we prepare more detailed calculations once a year. Through this exercise, we can know the performance of our Canadian shares or to verify results of such and such asset allocation strategy. These calculations have been done systematically since 1998.
Dalpé Wealth Partners does not merely match the performance indices. Our typical client is an individual with an investment objective that includes long-term capital growth and a moderate tolerance to risk or volatility. Since 1990, our typical client has a portfolio composed on average of 50% fixed income securities and 50% in equity. Some 40% of our clients have such a profile.
From 1998 to 2022 (25 years), our equity holdings have produced a compound annual return of 8.6% before management fees, compared to 5.3% for the FTSE All-World Index.
Over 25 years, our Canadian stocks have produced a compound annual return of 10.0% versus 7.0% for the Canadian TSX/SPX stock index. Over the last 25 years, our Canadian stocks have outperformed the Canadian index 17 times or 68% of the years.
It is often difficult at first to realize the long-term difference in the value of accumulated capital, based on the spread in annual returns. For example, is $100,000 invested for 30 years at 5% worth much more than at 4%? Only a financial calculation can answer this question: $100,000 at 5% over 30 years represents a value of $432,200 compared to $324,300 at 4%, a favorable difference of $107,900 or 33%.
It is well known that most managers cannot achieve the results of comparable indices. The May 3rd, 2019, edition of the Globe & Mail indicates that for the 10-year period ended December 31, 2019, only 9.0% of investment funds in Canada beat their benchmark, and only 6.2% for global equity funds.
The March 19th, 2021, edition of Investment Executive states: "2020's volatility offered an opportunity for active managers to outperform; however, that largely wasn't the case, according to the S&P Indices Versus Active (SPIVA) Canada scorecard. Almost nine in 10 (88%) funds in the Canadian equities category underperformed their benchmark in 2020 the report said. The result was in line with the 84% of equities managers underperforming over the past decade. [...] While funds outside Canada provided opportunity for overall better returns, "active management still broadly failed to add value." [...] Over the past decade, close to all U.S. equity funds failed to keep up: 95% fell short of the benchmark, by an average of 4.1% per year on an equal-weighted basis."
An investor who would have obtained, with great luck, a return equal to the FTSE All-World Index in each of the last 25 years with the equity holdings in his/her portfolio, would have earned a cumulative gain of 264% or, in other words, $100 invested would have grown to $364. Over the same period, our typical client saw the equity portion of his portfolio increase from $100 to $787, a cumulative gain of 687%, a considerable difference with respect to the benchmark index.
A profitable tactical allocation strategy
Asset allocation is often the biggest factor in determining a portfolio’s returns and volatility. This is why asset allocation sits as the foundation of just about every portfolio, attempting to find the optimal mix of asset classes to create the highest likelihood of achieving the investor objectives. Asset class characteristics, such as return and volatility, are usually based on history, sometimes a very long-term history. In the end, you have a long-term asset allocation that best matches the investor’s long-term goals. This allocation is then populated with various investment vehicles whether individual securities, pooled funds, ETFs, etc.
This approach works and has worked for investors over the decades, and we believe should remain as the foundational core of properly constructed portfolios. However, we also believe this prescribed asset allocation is not written in stone and value can be added by tactically tilting around this baseline allocation. Here are some additional reasons to support being tactical:
- Markets have evolved: Most investors would agree that markets have changed. To be fair, markets have always changed and evolved. It would seem today that markets are now faster than ever before due to the behavior of participants, technology, and available investment vehicles. This appears to be creating bigger up-swings and downswings, a market environment that appears more suited for a tactical component to asset allocation than a static allocation.
- Muted return expectations: Traditional asset allocation is most often based on long-term performance of equities and bonds. However, given current low bond yields and elevated equity valuations, the years ahead are more likely to be portfolio to have more equity in up-swings and less equity in down-swings will have a more material impact in a lower return world.
The highly competitive performance of our portfolio management since 1998 has been driven by the soundness of our choices with regards to equity holdings, Canadian and international – as noted above. Another contributing factor is our sound management of asset allocation, commonly referred to as tactical allocation, whereby we modify our allocation of equities in anticipation of an unfavorable or positive stock market. Executed within the allowable boundaries of the Investment Policy Statement, the results of successful allocations can be very lucrative.
Over the years, Dalpé Wealth Partners has succeeded in generating excess returns on portfolios by managing them optimally in periods of volatility. For example, our typical client's portfolio targets a split of 50% income securities and 50% equities. For the 19-year period 2004-2022, the average portfolio held 49% in income securities and 51% in equities – that is to say, very close to the target. However, in the short term and on a temporary basis, we actively managed this mix and diverted it from the target. We have calculated that since 2004, the additional return on this tactical management has added 0.68% to the annual return of our typical client, an exceptionally high contribution, which shows that it is possible to take advantage of market gyrations when done in an informed and bold way.
Sabius Private Institutional Mandate
Sabius is an investment mandate replicating an institutional asset allocation strategy. It is exclusive to Dalpé Wealth Partners. Here are some principles that summarize the mandate:
- long-term capital appreciation by investing in a wide range of asset classes that may include equities, fixed income, alternative investments and liquidity;
- access to institutional and private investment mandates difficult to access for individual investors;
- an active approach combining macroeconomic themes and fundamental analysis, with a focus on growth potential; and
- responsible mandate through investments with a concrete
environmental impact, through sectoral exclusion and through
shareholder engagement with public companies held in the
portfolio.
On April 25th, 2023, Morningstar has awarded Sabius Private Institutional Mandate the "Low Carbon" designation: "This fund has relatively low exposure to ESG risk compared with its peers in the Flexible Allocation category, earning it the second highest Morningstar Sustainability Rating of 4 globes. ESG risk provides investors with a signal that reflects to what degree their investments are exposed to risks related to material ESG issues, such as climate change and inequalities, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes. One key area of strength for Sabius Private Institutional Mandate is its low Morningstar Portfolio Carbon Risk Score of 2.39 and low fossil fuel exposure of 3.36% over the past 12 months, which earns it the Morningstar Low Carbon Designation. Thus, the companies held in the portfolio are in general alignment with the transition to a low-carbon economy. Currently, the fund's involvement in fossil fuels is negligible, and compares favorably with 15.94% for its average peer." – Morningstar
Our outside managers
As part of the management of our clients' portfolios, we occasionally make use of investment funds. These may be purchased to expose our portfolios to specific sectors or geographic regions when exchange traded funds do not seem to be the optimal choice.
We also invest in investment funds that are managed by exceptional managers who have demonstrated a knack, over the years, for generating highly competitive results. Their talent, their methodology, as well as their knowledge and access to information help to set them apart from their peers.
