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MANAGED RISK INVESTING Joe Jugovic, CFA President & CEO QV Investors.

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Presentation on theme: "MANAGED RISK INVESTING Joe Jugovic, CFA President & CEO QV Investors."— Presentation transcript:

1 MANAGED RISK INVESTING Joe Jugovic, CFA President & CEO QV Investors

2 History Founded in 1996 on the principles of quality and value Employee-owned, independent investment counsel Repeatable, proven value-based processes Top quartile manager with returns for QV Small-Cap Fund of 15.5% (vs. 5.9% for the benchmark*) and returns of 14.6% for QV Canadian Equity Fund (vs. 6.6% for the benchmark**) over 14 years (July 3113) All employees of QV are personally invested in the funds they manage *BMO Small-Cap Unweighted Index **S&P/TSX Total Return Index QV INVESTORS

3 We buy a portfolio of enduring businesses run by capable, committed, and candid people. We select equities on good value, that is the price we pay for a companys assets and their return on equity. We hold our good business positions for an indefinite period. Investment philosophy Objective: to create a portfolio of companies to provide consistent growth with below average risk EQUITY INVESTING

4 Share ownership, years of leadership, succession planning, compensation, board and operational team, corporate governance. Innovation, service, product or resource development. Competitive position. Business outlook. Demonstrated record of growth in equity, earnings, sales and cash flow or demonstrated management of asset base. Equity financed balance sheet versus debt. Sensible allocation of capital. P/Es, P/CFs, P/Bs and NAVs below market. Reasonable relative to ROEs and ROICs above market. Assessment of downside risk. Dividends and capital allocation Valuation Balance sheet strength Franchise and outlook Financial record Management Free cash flow to increase dividends. Culture of dividends. Sensible capital allocation. Portfolio enhancement New selections enhance quantitative portfolio characteristics – quality, value, diversification and growth. Company analysis and security selection EQUITY INVESTING

5 Book value per shareReturn on equity (%)Dividends / Share Consistent long-term appreciation in firm value with a commitment to shareholders Source: Capital IQ Buy discipline – Empire Company Ltd. EQUITY INVESTING

6 Buy discipline – Empire Company Ltd. EQUITY INVESTING Source: Capital IQ

7 EQUITY INVESTING Buy discipline – Empire Company Ltd. Source: Capital IQ

8 Buy discipline – Atco Ltd. Book Value per ShareReturn on Equity (%)Dividends / Share Consistent long-term appreciation in firm value with a commitment to shareholders Source: Capital IQ EQUITY INVESTING

9 Source: Capital IQ EQUITY INVESTING Buy discipline – Atco Ltd.

10 Source: Capital IQ EQUITY INVESTING Buy discipline – Atco Ltd.

11 Failure of our buying tests or attractive alternative: Management turnover / material change in firm direction Breakdown in profit / cash flow consistency Erosion of competitive position / negative future outlook Increasing financial leverage Excessive valuation / dividend failure Sales discipline EQUITY INVESTING

12 Source: Capital IQ Company analysis & security selection – Canadian equity Sale candidate - Canadian Oil Sands Trust – P/B Price to Book EQUITY INVESTING

13 Source: Capital IQ Company analysis & security selection – Canadian equity Sale candidate - Research In Motion P/B Price to Book EQUITY INVESTING

14 Risk is the permanent loss of our clients capital. We manage the valuation, growth, balance sheet, and diversification risks of the portfolio. Risk management philosophy Our process keeps us consistent over time EQUITY INVESTING

15 Price to earnings Four-year average ROE United Cdn Equity Small-Cap BMO Small Cap Index United Canadian Equity Small-Cap Pool Source: Capital IQ EQUITY RISK MANAGEMENT

16 Debt to equityDividend yield United Cdn Equity Small-Cap BMO Small Cap Index Source: Capital IQ United Canadian Equity Small-Cap Pool EQUITY RISK MANAGEMENT

17 Sector allocation – United Canadian Equity Alpha Corporate Class As of July 31, 2013 Diversification measures Industry 25% maximum Portfolio positioning 29 holdings 1% minimum - limit 6% maximum - limit Source: QV Investors & Capital IQ EQUITY RISK MANAGEMENT

18 Top 10 holdings – United Canadian Equity Alpha Corporate Class As of July 31, 2013 Source: QV Investors & Capital IQ EQUITY RISK MANAGEMENT

19 United Canadian Equity Alpha Annualized returns as at July 31, 2013 United Canadian Equity Alpha Annual calendar returns Source: QV Investors PERFORMANCE REVIEW

20 Sector allocation – CI Can-Am Small Cap Corporate Class As of July 31, 2013 Diversification measures Industry 25% maximum Portfolio positioning 31 holdings 1% minimum - limit 6% maximum - limit Source: QV Investors EQUITY RISK MANAGEMENT

21 Top 10 holdings – CI Can-Am Small Cap Corporate Class As of July 31, 2013 Source: QV Investors EQUITY RISK MANAGEMENT

22 CI Can-Am Small Cap Corporate Class Annualized returns as at July 31, 2013 CI Can-Am Small Cap Corporate Class Annual calendar returns Source: QV Investors PERFORMANCE REVIEW

23 Current environment and outlook

24 Prefer equities over bonds Businesses are generally healthy Would the real economy please stand up! Investor psychology Paying the right price for yield WHATS NEXT?

25 Source: John Aitkens, TD Securities, July 2013 EQUITIES BETTER VALUED

26 Source: John Aitkens, TD Securities, August 2013 VALUATION

27 Source: RBC Capital Markets, Haver Analytics DIVERSIFICATION WILL MATTER

28 After-tax profit margin from current production, Source: Ed Yardeni, The Gloom, Boom & Doom Report, October 2010 ECONOMICS VS. COMPANY ANALYSIS

29 Source: BMO Capital Markets, Global Equity Weekly June 07, 2013 CORPORATE CASH BUFFER

30 Source: Thomson Reuters and A. Gary Shilling & Co., March 2013 S&P 500 Index and quantitative easing Last Point 2/27/13: 1,516 FADING EFFECT OF INTERVENTION

31 Source: Barry Bannister, Stifel Nicolaus PSYCHOLOGY

32 Source: IFIC & BMO PSYCHOLOGY - INDIVIDUALS

33 -GRANTS Interest Rate Observer, Vol. 30, No. 7, April 6, 2012 For the first time in at least 12 years, reports the 2012 Milliman Pension Funding Study, a canvass of corporate Americas 100 largest defined benefit plans, pension managers have ear-marked more funds for fixed income (41.4%) than equities (38.1%). Just five years ago, stocks got twice the allocation of bonds (60.3% vs. 29.3%)… BONDS: THE FAVORED ASSET CLASS

34 Source: RBC Capital Markets Quantitative Research OPPORTUNITY – DIVIDENDS MATTER

35 Source: Ned Davis Research Group (S&P Capital IQ Compustat, S&P Index Alert) THE PRICE OF YIELD

36 Strong companies provide more stability Great businesses provide growing income Risk management protects capital CONCLUSION

37 Thank you Commissions, trailing commissions, management fees and expenses may be associated with mutual fund 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, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. ®CI Investments, the CI Investments design are registered trademarks of CI Investments Inc.


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