March 2023
Arthur Heinmaa, CFA, Chief Investment Officer, examines the rapid failure of the Silicon Valley Bank.
Click here to read more.
January 2023
Charles Lannon, CFA, discusses Cidel’s Global Equity Strategy and new investments made in the last quarter of 2022. He elaborates on equity performance for 2022 and shares his views on the outlook for 2023.
Click here to read.
November 2022
We are pleased to present our Q3 insights and commentaries.
Click here to read it in full.
October 2022
Autumn reminds us of heading back to school. Therefore, with the back-to-school feeling in mind we are going back-to-basics about how we invest at Cidel.
Click here to read more.
August 2022
Please enjoy our teams insights, commentaries and Cidel In The News.
Click here to read it in full.
July 2022
The dominant narrative in the market this quarter was, unsurprisingly, a debate surrounding whether or not the global economy would fall into recession, when that might be, and how severe?
Click here to read more.
June 2022
If you are feeling uneasy or anxious about the current state of the markets, you’re not alone. Our latest post is a reminder that, in the long-run, things almost always work out for the better.
May 2022
This report covers topics including Cidel’s performance summary, our estate planning overview, a breakdown of stock rivalries and more. Enjoy!
Click here to read it in full.
April 2022
Equities had a memorable first quarter of 2022, but entirely for awful reasons.
Early in the quarter markets exhibited weakness as they continued to digest the reality that persistent inflation was helping to bring the era of extreme central bank and fiscal liquidity to a close.
Click here to read more.
February 2022
Click here to read Arthur Heinmaa’s, Chief Investment Officer, views on the Russian invasion of Ukraine.
January 2022
Our Charles Lannon, Senior Vice President and Head of Equities, provides his commentary on our Global Equity Strategy. He begins:
“2021 was another year of double digit returns in global equities, with the MSCI World Index returning 22.3% in U.S. dollar terms (or 21.2% in Canadian dollar terms). This strong annual return is consistent with a sharp rebound in both economic growth and earnings. It is projected that global GDP growth in 2021 will come in around 5.9% the best result in well over a decade.”
October 2021
Our Q3 2021 Quarterly Report is out!
This report covers topics including Cidel’s performance summary, our partnership with TwinRiver Capital Group, a podcast recording from our Latin American team and more. Enjoy!
Click here to read it in full.
August 2021
Our Q2 2021 Quarterly Report is out!
This report covers topics including Cidel’s performance summary, our acquisition of Lorica, a recording on timing the market and more. Enjoy!
April 2021
Our Q1 2021 Quarterly Report is out!
This report covers topics including Cidel’s performance summary, investment team research, a recording of our ESG strategy and more. Enjoy!
March 2021
Our Q4 2020 Quarterly Report is out!
This report covers topics including Cidel’s performance summary, vaccines on investing, a recording of our investment conference and more. Enjoy!
December 2020
Our Barbados office partnered with Lions International for ‘Operation Christmas’ to supply household goods and food for 200 families.
They worked together to fill these hampers with food, toiletries and other essential household goods.
Watch our Barbados team in action!
November 2020
Our Q3 2020 Quarterly Report is out!
This report covers topics including Cidel’s performance summary, a podcast on ESG, award nomination outcomes and more. Enjoy!
October 2020
During October, Cidel was joined by leaders in the Not-for-Profit (NFP) community for a virtual session on governance.
Our guest speaker, Don McCreesh, a Not-for-Profit (NFP) governance expert, was hosted by Cidel’s Christy DeCosimo and Catherine Jackman.
Many NFP organizations have faced increased stakeholder concern with governance policies and fundraising during the pandemic. Governance is more key than ever.
For Cidel it was a wonderful opportunity to celebrate the great work that these organizations do across Canada and elsewhere. It is a privilege for us to be involved with those who work so hard to build stronger communities which is near and dear to our firm culture.
Cidel is proud to contribute to worthy causes and even more proud of our staff who use their own time to volunteer. Whether it is coaching hockey, serving meals at shelters or working on boards – we should all celebrate the great accomplishments and critical role NFPs play.
A big thank you to Don, to our attendees and to all the volunteers and staff at NFPs who are so dedicated to their missions.
Click here for the presentation.
August 2020
Our Q2 2020 Quarterly Report is out!
This report covers topics including Cidel’s performance summary, non-profit organizations, award nominations and more. Enjoy!
April 2020
Our Q1 2020 Quarterly Report is out! This report covers topics including Cidel’s equity strategy, pension plans, non-profit organizations and more. Enjoy!
March 2020
Click Here to read a message from our Chief Investment Officer.
Click Here to read a message from our Chief Investment Officer.
February 2020
Cidel’s Q4 2019 Quarterly Report is out! This report covers topics including impeachment, Japanification, non-profit organizations and more.
Enjoy!
July 2019
Our Q2 2019 Quarterly Report is out and highlights Cidel Executor Services and Multi-Asset Class Strategies.
May 2019
Q1 Quarterly Report is out. Hope you enjoy!
February 2019
Our Q4 Quarterly Report is out. Hope you enjoy!
January 2019
Great exposure for Cidel!
We are one of the sponsors of the Foundations & Endowment Investment conference taking place in Toronto on January 30th – 31st 2019.
Environmental, Social, and Governance (ESG) information has received increased attention from investors in recent years. As of 2017, 75% of major companies around the world produced some form of Corporate Social Responsibility (CSR) report, up from 19% in 2002.
In these articles Cidel Asset Management explores the Rise of ESG disclosures and takes a closer look at why Corporate Governance matters.
To read more Click Here
December 2018
Click Here to read a message from the Chief Investment Officer to our clients.
Cidel’s investment research and portfolio management team travels the world to learn more about firms and industries and to interview senior management.
Philip Young is presently travelling in Asia and has sent along some insights.
To read more about Philip’s travels Click Here
November 2018
Cidel discusses market implications of potential presidential impeachment!
At Cidel, analyzing the risks to … While we view the potential impeachment of President Trump as unlikely at this time, the odds may have marginally increased and we are monitoring factors that could change our view….The likelihood of the President being impeached remains low. but the odds of it becoming a political discussion point are higher with the results of the recent mid-term election. The Republicans did retain their majority in the Senate, but no longer hold the largest number of seats in Congress.
Our Q3 Quarterly Report is out. Hope you enjoy!
August 2018
Our Quarterly Report is out – Looking back at Q2 and moving forward into Q3, with the impact of tariffs, yield curves and forward earnings. Hope you enjoy!
March 2018
February 2018
Cidel’s Quarterly Report is out – a look back at 2017 and our investment team’s key themes for 2018.
November 2017
Our Q3 Investment Report is out – Looking Back on Q3, Looking Forward at Q4, and spotlights on active vs. passive and global infrastructure.
October 2017
An inspiring piece on the Invictus Games plus spotlights on distressed investing, cancer research and why you should question widely held investment maxims.
Click Here: http://cidel.com/newsletters/august-2017/
September 2017
Cidel’s August Newsletter – A Coda to Summer: Jimmy Buffet, your kid’s sports, and kale salads.
Click Here: http://cidel.com/newsletters/august-2017/
July 2017
Our Quarterly Report is out – looking back on Q2, what’s on our radar for Q3 and spotlights on our trust services and the Fed’s balance sheet.
http://cidel.com/downloads/QuarterlyInvestment/QuarterlyInvestment.html
Cidel’s June Newsletter – Steves Schwarzman and Jobs, Lefty’s insider trading issues and the myths of working philanthropically.
Click Here: http://cidel.com/newsletters/june-newsletter/
June 2017
Cidel’s May Newsletter – an interesting range of perspectives on pricing
Click Here: http://cidel.com/newsletters/may-2017/
April 2017
Our March newsletter looks at Toronto’s rise as a VC hub, Henry VIII’s role in Brexit, and why you see so many puffer jackets.
Click Here: http://cidel.com/newsletters/march-2017-newsletter/
March 2017
In our February newsletter we feature an interview with a uniquely modest private equity manager, Howard Marks of Oaktree Capital, and a remarkable Canadian medical device that lets blind people see.
Click here: http://cidel.com/newsletters/february-2017/
February 2017
Our Q4 Quarterly Report is out – our investment team’s quick take on the important stories of the prior quarter and what could impact portfolios looking forward, plus more in-depth analysis of important themes or presentations we think might interest you.
January 2017
The first Cidel Newsletter of 2017: a look at Uber and AirBnB’s beginnings; an intimate account of mental illness; the magic of thinking long-term when investing; and a timely list of ways to keep your productivity going strong through the new year.
Click Here: http://cidel.com/newsletters/january-newsletter/
December 2016
Our last newsletter of the year: Dalio on Trump, Tiffany’s troubles, and the best books of 2016. See you in 2017!
Click Here: http://cidel.com/newsletters/december-2016/
November 2016
We never really expected to write the words “President Trump” in any commentary but that is where we are today. It has been an emotional rollercoaster that has left many clients, friends and family concerned, disheartened and perhaps afraid. It is at moments like this that we have to distance ourselves from the passion of the moment and reframe the issue. Emotional considerations aside, where is the real risk? The bottom line is this: in the aftermath of the Trump victory we have greater uncertainty which will entail lower economic growth rates and higher premiums for risky assets.
During the past few years we have witnessed a continued movement in market prices towards safety, resulting in a considerable sacrifice of potential upside. Corporations have continued to amass record amounts of cash as a cushion against another downturn. Investors have withdrawn money from equities and sought the perceived safety of fixed income. In Switzerland, where I write this commentary, the entire yield curve is negative, meaning investors buying Swiss government bonds in fact pay for the privilege instead of earning from it. Even investing your money for 50 years in Swiss bonds yields nothing. With the election of Trump it is unlikely that any of these situations will change soon.
In general, things never turn out as badly as you fear they might. Even if President Trump wants to enact some of his election promises, he will have to work through Congress to get the bills passed. In the past we have certainly seen many governments and presidents come and go without a dramatic impact on businesses. The problem today is that we can easily envision a number of bleak outcomes. Initially, as with Brexit, we suspect that the markets will stabilize because very little will change in the short run. But leaving aside social and moral judgements, we believe that in this economic environment, the investment risks are somewhat greater – not so much from a legislative perspective but from an economic policy perspective.
For us, the real concern is what will occur in the event that slower US growth slips into a recession? Let’s look at how this could play out over the next few years. First, we expect that at some point during the next year Trump will announce a replacement for Janet Yellen, the current Chair of the Federal Reserve, whose term expires in February 2018. Unless we are pleasantly surprised, her replacement could be someone without the experience or credentials that all Federal Reserve Presidents in recent memory possess. Moreover, Trump has indicated that he would like to reform the Fed, which may well compromise its traditional independence. It is likely that the replacement will be much more beholden to the President and even the Republican Party, which implies a greater focus on inflation and less on the goal of full employment.
Second, if the economy moves into recession, what will be the likely policy response from President Trump? The average decline in interest rates during previous recessions has been about 5%. The Federal Reserve does not have the ability to drop rates further. Previously we would have expected the government to step in and increase spending to stimulate the economy. However, it is more likely that a businessman and Republican will try to restore confidence by cutting spending in a recession, when government revenues are declining. The result would be a more pronounced recession. The result could be a long and particularly nasty economic slowdown. We are not forecasting this outcome; however, the possibility of such a scenario is higher now.
For investors, managing risk though judicious equity selection and geographic exposure will be even more important as uncertainty rises. Investors can not blithely assume that the US economy will be the engine of growth that it once was because the possibility of policy mistakes is higher. Our expectation is that economic growth will continue to disappoint and be revised lower and interest rates as a consequence will remain low. At Cidel, we will re-examine our allocations and individual investments in light of this event, as we continually do, to determine appropriate changes in this new environment.
The US 10-year bond yield climbed almost one quarter of a percent to 1.83% amid increasing expectations that the Fed was on the cusp of a second interest rate hike in the US this cycle and that problems arising from negative interest rates marked a low point for yields-pressured bond markets. This expectation undermined equity markets, with the MSCI World falling 2%. The Canadian Dollar weakened against its US counterpart.
Historically, the healthcare sector has been popular with growth investors, and for good reason. Positive long-term demand trends due to an aging population, combined with significant barriers to entry underpinning the ability to raise prices combine to offer the prospect of above average earnings growth, largely independent from the economic cycle. This combination should have particular appeal in the current environment of moribund growth and weak pricing power, however the sector has been underperforming the broad market significantly. What are the issues frightening investors, and what can we expect going forward?
Two main factors are causing investors to question assumptions around the historical business model of pharmaceutical companies, particularly their ability to raise prices at will: political pressure from government, and commercial pressure from large scale drug purchasers.
The US Government is the largest payer for prescription drugs, so it has a vested interest in the trajectory of drug prices. However, elections create the potential for a change in the balance between the various competing interests. The Republican platform is largely focussed on replacing the Affordable Care Act with some alternative offering patients greater choice and reducing the burden on employers. Hilary Clinton’s goals include improving the Affordable Care Act, and improving Drug Affordability. Proposals to increase affordability include making it easier for generic/biosimilar drugs to get to market, creating a watchdog to ‘respond’ to excessive price hikes in older drugs, and allowing Medicare to directly negotiate for drug prices. While both platforms could result in changes, the ability to pass legislation obviously depends largely on who controls Congress, so if gridlock persists, any radical overhaul is ultimately unlikely. However, due to pre-election uncertainty, it’s no surprise that investors are avoiding the sector until the outcome is known.
Additionally, there are state-level initiatives which create uncertainty in future earnings potential for the pharma sector. Most prominently, Proposition 61 in California proposes mandated best pricing for state employees/retirees. While it seems likely to pass, how drug companies will respond remains to be seen. In our view, any proposal to impose direct Medicare price controls are the most concerning for investors, although the current system has already resulted in concentrated buyers negotiating with drug companies, demanding and receiving considerable economies of scale.
This increasing pressure by drug purchasers (insurance companies and their Pharmacy Benefit Management agents) to reduce net drug prices is the second serious source of pushback to pharma earning potential, and it seems to be intensifying and affecting additional areas. For example in diabetes treatment, Novo Nordisk (a former portfolio holding) recently revealed that an inability to get sufficient pricing on its new drugs to offset negative pricing on older treatments, caused a 50% cut in its medium term growth target. In our opinion, this ongoing pressure from purchasers is a bigger fundamental concern than political headlines.
So where next? The consensus from a recent healthcare conference we attended is that the sector should perform better post-election, although the pricing environment will likely remain tougher for some time. Given that price increases more or less fall 100% to the bottom line, valuations will likely adjust downwards, and it’s not clear that this process is complete. However, while price pressure is a challenge for the industry, the inexorable increase in healthcare costs is a real longer term challenge for government finances, and any ability to reign them in without hampering innovation would be a welcome ‘big picture’ development. In any case, change always creates opportunities, so Cidel – and investors – will be on the lookout.
October 2016
September saw equity markets close to their all-time highs, with gains in both Canada and the United States. For the third quarter the MSCI was up 5.25%, the TSX was up 5.45% and the S&P 500 was up 4.23%. The bond market was also up by 0.44% for the same period. Despite positive equity market returns, clients and institutions remain concerned as the US election approaches.
The most common question that we get from clients is – what changes we are going to make to portfolios ahead of the US presidential election? With emotions running high many clients feel that preemptively moving to a cash position may be a prudent decision. Stepping away from the emotions associated with the presidential candidates, we can examine this question from the perspective of market timing and market efficiency. The answers provide an interesting insight into markets and returns.
Make no mistake about it, aggressively timing the market does not add any value to investment returns – in fact it is a big detractor to long term performance. Constantly bouncing from cash to a fully invested position only makes money for the brokers. For market timing to be successful, a trader (notice we didn’t use the word investor) must identify the correct moment to exit the market and ALSO identify the correct moment to re-enter the market. In addition, the trade must cover all the commissions and taxes that are associated with the decision. Over long periods of time equity markets tend to rise, so by timing the market you are also swimming against the tide of growth. The likelihood is that all those factors will work against any market timing strategy. So under what conditions would such a strategy be successful if at all?
The answer lies in the arena of market efficiency. At Cidel we believe that markets are semi-efficient, which means that markets incorporate all public information into prices and that if there are gains to be made it is from insights uncovered through detailed proprietary research. Putting this into perspective, ask yourself how many people in the market don’t know that Donald Trump is running for president, and that there is some possibility that he may win. Of course most people know this fact and have been incorporating this possibility into the prices of assets, not only in the US but across the globe (e.g. recent gyrations of the Mexican peso). For any trading strategy to be successful, a trader must have access to information that is not public or, in this case, have an insight into Trump’s presidency that other traders do not possess. So a position on Trump or no Trump based simply on personal opinion is unlikely to yield any edge.
If there is an edge to be gained, it is likely in the form of scenario analysis. By that I am referring to possibilities that the market has not priced in because they are not widely considered. For instance, consider the following possibilities. What if Trump drops out of the running prior to the election date? What if Trump wins a narrow majority in the electoral college but loses the vote? Will the electors vote with the win or will they vote contrary to the pledge? What if Clinton wins by a landslide and the Democrats also win majorities in the House and Senate? By working through these scenarios we can get an idea of what markets are likely to do and how we would respond either by buying or selling a specific stock(s). Scenarios combined with our proprietary equity research give us the opportunity to react quickly if there is an exaggerated market movement, no matter how brief.
Ultimately, it is knowing how to manage the risk/opportunity associated with unexpected news that generates returns, rather than trying to aggressively time an event for which the whole market is prepared.
Arthur Heinmaa, CFA
September 2016
Global equities produced modest gains in August, with emerging markets continuing to perform well. 10-year bond yields climbed as investors continued to fixate on the outlook for US monetary policy.
When considering what to do with cash not earmarked for internal investment, corporations have two basic options for returning it to shareholders: either to pay a dividend or to repurchase shares in the market. Market analytics firm FactSet notes that US firms bought back $166.3 billion in shares in the first quarter of 2016, an increase of 15.1% over the same period last year. To put this into context, FactSet calculates that this represents a “buyback yield” of 3.3% for the S&P500 index. Should investors care?
The debate over the relative merits of dividends and buybacks can generate surprising levels of passion in the hearts of finance practitioners. Academics would argue that, assuming a company’s share price is fairly valued, there’s no real difference – if company A paid a 10% dividend while company B bought back 10% of their shares, shareholders in company B wanting immediate income could sell 10% of their holdings to have the same amount of cash and proportional interest in the company as their counterparts in company A. Without selling, their percentage interest in the company would have increased by 10%, so while the total value of the company would be unchanged, the value of each holding would be 10% higher. Logistics company Expeditors International described it as the corporate finance equivalent of a Miller Lite (“Tastes Great/Less Filling”) commercial. In the real world, however, there are some more nuanced factors to take into consideration.
When buybacks initially rose to popularity in the 1990s, dividends were taxed at a higher rate than capital gains – a bias that created a clear argument in favour of buybacks. After the tax treatment of dividends was reformed, this argument evaporated, though buybacks didn’t. A popular justification, particularly considering broader market supply and demand for equities, is that ongoing buyback activity creates a natural demand for stock and can act as a tailwind to share prices. Goldman Sachs expects $450 billion in total share repurchases during 2016, creating the largest single source of demand for US equities. However, buybacks invariably dry up in a sharp market downturn. Ideally, a company would buy back stock when its share price is trading at an overly depressed level and stop (or issue stock) when shares are overvalued. Canadian insurer Fairfax Financial is one of the few companies that (tries) to do this.
There are counterarguments, of course. Firstly, many companies buy back substantial amounts of shares to offset incentive shares issued to management, leaving the total number of shares outstanding unchanged while simultaneously downplaying the income statement impact of share options. More broadly, share repurchases can interact with badly designed management incentive schemes to encourage decisions not necessarily in the shareholders best long-term interest, for example aggressively buying back shares rather than investing in a long-term project, or borrowing large sums of money to finance buybacks. While the mathematical justification certainly exists in the current low interest rate environment, the potential for unintended consequences down the road exists as well.
At Cidel, we ultimately have a bias in favour of dividends not least because of their tangible nature, however, a solid understanding of a company’s sustainability and underlying cash flows is the most important basis for sound investment decisions.
Cidel Asset Management Inc. manages the Toron AMI Balanced Strategy.
Toron AMI’s Balanced Portfolio fund is designed for a broad range of investors as a complete
portfolio solution. Investors benefit from access to the firm’s multiple investment strategies in one
balanced investment. Read the Fact Sheet for a full overview of this strategy.
For information about performance, view this summary from the eVestment Database.
Note: Toron AMI and Benchmark performance is gross of applicable management fees.