In this quarter’s letter, we would like to review Avenue’s bond portfolio strategy and performance. We will then give an update on why Avenue’s equity strategy is well suited to approaching today’s investment uncertainties. We will conclude with our view on current stock market valuation, given this has been the focus of many client questions over the last few weeks.
read moreWhy should one invest with Avenue as opposed to an index and why does Avenue not use index funds to gain exposure to some harder to invest in sectors?
read morePolitics and subsequent government policy normally affect the level of interest rates, the economy and the stock market gradually, over time. However, the election of Donald Trump as president of the United Sates is a rare exception where market perceptions dramatically changed overnight. In this quarter’s letter, we will discuss what are the most likely US government policy changes and the potential positive impacts on our Avenue Fixed Income and Equity portfolios going into 2017.
read moreUsually politics grabs the news headlines but does not have much effect on investments. Profit margin cycles and the direction of interest rates evolve gradually over decades and are the real long term drivers of investment returns, unless you experience a dramatic and sustained political interference. So while US politics dominates our news cycle and we would argue that the current US election would have some negative consequences from either candidate, it is important to look beyond this noise and fully grasp how intrusive and stifling domestic politics has become.
read moreThe last three months have seen the continuing trend of gradually rising interest rates in both Canada and the US. In this quarter’s letter we will elaborate on Avenue’s bond portfolio strategy where the majority of our investments are in shorter maturity Canadian corporate bonds.
read moreThe annual proxy season can be a tedious time for money managers as public companies send out their annual reports and proxy materials. Tedious as it is, proxy season is an important time of year, when shareholders are given the opportunity to vote for board members, management compensation, as well as other corporate matters. However, aside from the occasional contentious vote, usually the general consensus towards proxy season amongst investment managers is a collective yawn.
read moreWe are experiencing a continuous stream of crises, with the latest being Brexit. The results from all these events (the Greek debt, the slowing Chinese economy and Brazilian corruption) are causing ongoing pressures to lower inflation and subdue growth, which hold down interest rates to very low yields. The world is awash in surplus money that needs to go somewhere and any income generating business, asset or higher yielding bond should become increasingly valuable. However, as investors we will always have to live with short term volatility.
read moreTax rates are going up in Canada for the wealthy and the moderately wealthy. This has a significant impact on after-tax investment return when Avenue does retirement projections for many of our clients. It is an obvious statement but one we haven’t had to formally address because for the most part the previous federal conservative government had spent the last ten years lowering various tax rates. This is important because we need to make sure we use realistic expectations for planning retirement income.
read moreIn the first three months of 2016 we experienced a dramatic stock market sell-off followed by a rapid recovery. At Avenue, we have argued that along with low interest rates, and higher stock market valuations, comes increased volatility. Just a small change in investor perception of the future can trigger a pronounced stock market move in either direction. An important part of Avenue’s investment strategy is to be ready for the unexpected and to take advantage of it.
read moreA very real challenge we face is a lack of liquidity in both the bond and stock market for smaller investments. We see three reasons for this liquidity crisis; two are global issues and one is unique to Canada.
read more2015 was a hard and stressful year. At times it felt like mini-crisis after mini-crisis. By year-end, Avenue’s bond portfolio was up a bit and Avenue’s equity portfolio was down slightly. Low interest rates continue to be a challenge for returns in the Bond portfolio. However, the equity portfolio is faced with multiple challenges from currency, from commodities, and from investors’ perceptions of the future direction of interest rates. On the positive side, the high yielding stock investments that we favour are now at decent valuations and we believe they should offer better returns this coming year.
read moreThis month’s topic, in light of a market sell-off, is about sticking to our strategy when faced with adversity. Again we feel Mr. Bruce Lee is spot on in his Zen approach to conflict, which can also be applied to the mental challenge of stock market investing.
read moreWe have spent the last three quarterly letters saying that not much has changed. Now, almost every corporate bond, stock and asset is being repriced and the rate of change or volatility is up significantly. We believe this environment to be another symptom of low interest rate policies. However, this current sell-off improves our opportunities to invest in quality income-producing securities, which is Avenue’s core investment strategy.
read moreThat we are even talking about this kind of truly esoteric ‘systemic risk’ shows how far markets have progressed since the 2008 financial crisis. We will do our best to explain what this risk is and why it is a hot topic. But first we will start with a few definitions.
read moreThe main financial event in the second quarter was the rise of short term interest rates. As a result, the price of bonds fell but this did not result in a stock market selloff. Therefore, not much has changed since we last wrote three months ago and the equity portfolio has been unusually stable. There are two popular concerns that we would like to address in this quarter’s letter: the risk to corporate profit margins and the danger of illiquidity in some markets.
read moreWarren Buffett has been one of the most successful investors of our time. He is equally good at distilling complicated investment concepts and explaining them in a way that is accessible to everyone. In this year’s Berkshire Hathaway annual report, he presents a clear and simple argument for long term stock investments being more stable and less risky than long term bond investments.
read moreThere is no dramatic difference between the strength of the US economy and that of a core European economy like Germany. However, ultra-low interest rates are magnifying the subtle differences and we are now seeing a large flow of money from Euros to the US dollar as well as the continued rise of asset prices. Avenue has started to incrementally move investments back to Canada.
read moreWe continue to believe that there are few better substitutes for our investable savings than owning quality stocks for growth and certain selective bonds for income and safety. Again, we witnessed two rapid recoveries in the stock market following volatility in October and December. Moreover, corporate share buybacks and acquisitions reinforced the dynamics of the equity bull market. However, potential big risks to North American equity investors are a potential rise in wage inflation and increased geopolitical unrest.
read moreAvenue believes that with time, the price of oil should recover to the $75 to $80 price level. However, lower prices might be needed in the short term to reduce the excess supply from the global oil market.
read moreAvenue Investment Management has now been looking after client money for 10 years. In this quarter’s letter we will revisit our original purpose and discuss our present challenges. This will be followed by our usual discussion of the current investment climate and how we are positioning our investments for 2014.
read moreWe have written about Avenue’s theory regarding equity portfolio volatility, or risk, over the last 10 years in several case studies. Now that we have completed our first decade, we are happy to share with you that the results were much better than what we had hoped for.
read moreAvenue’s Equity Portfolio is designed to accomplish consistent compounding in a diversified mix of assets and not simply to replicate or beat an index. The fundamental reason for creating a portfolio this way is to drive down the overall risk or volatility as it is called in the financial industry. We address this issue occasionally in this part of the letter because there are times that our portfolio does not reflect what is happening in the broad market indexes and we get questions as to why this is the case.
read moreAvenue Investment Management has now been looking after client money for 10 years. In this quarter’s letter we will revisit our original purpose and discuss our present challenges. This will be followed by our usual discussion of the current investment climate and how we are positioning our investments for 2014.
read moreWe are at a unique point in time that clearly demonstrates a universal investment fallacy where growth in Gross Domestic Product (GDP) will somehow translate to positive stock market returns. The performance of the Chinese stock market clearly exposes how simplistic this assumption is in reality.
read moreIt is our belief that the American stimulative monetary policy will be coming to an end. We are witnessing an active realignment of bond and stock prices. We will do our best to describe how this impacts the various parts of our portfolio and how this creates an opportunity for additional investments.
read moreWe would like to share a couple of recent developments which confirm our belief that investing Safely in today’s world is best served by owning a hard asset or business in a sound legal jurisdiction.
read moreIn this letter, we discuss various topics regarding the Fed, the Canadian economy, and our thoughts on gold.
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