Foresight - Winter 2021

Environmental, Social and Corporate Governance (ESG) issues are taking a larger role in the decision-making process for investors, investment managers and corporate boards.

Blackrock’s iShares is our largest exchange traded fund provider. It’s Founder and CEO, Larry Fink, announced to shareholders 3 years ago that Blackrock would be holding corporate boards accountable to the ESG initiatives of climate risk, improved disclosure and accountable, transparent capitalism. With over US$9 Trillion in assets under management, its votes carry significant weight. Blackrock is holding corporate managements and boards accountable when those companies are not making sufficient progress on sustainability. Over the last year Blackrock voted against, or withheld votes from, 4800 directors at 2700 companies.

As stewards of your capital, we look to balance ESG concerns along with meeting a portfolio’s asset allocation plan and long term return expectations. We continue to transition portfolios, lowering equity volatility and increasing the weighting of ESG companies.

Clean and renewable energy is not a new concept for our portfolios. We first added Innergex Renewable Energy Inc (INE) to portfolios in 2013 and have been adding positions since. It is a Canadian-based independent producer of hydro-electric, solar and wind generated electricity. More recently, we have added the direct renewable energy provider Brookfield Renewable Partners LP, the BMO Global Clean Energy ETF (ZCLN-C$), iShares Global Clean Energy ETF (ICLN-US$) and the CI Munro Global Climate Leaders ETF (CLML-C$). Brookfield Renewable Partners is like INE in its power generation model; however it is approximately 5 times the size of INE and has a more global portfolio of assets. ZCLN has been designed to replicate the S&P Global Clean Energy Index, which invests in companies whose primary businesses are clean energy production and clean energy equipment and technology. ICLN is very similar to ZCLN but is traded in US$ on NASDAQ. CLML’s objective is to invest primarily in companies focused on decarbonization and climate change anywhere globally. Munro Partners views this area as a multi-Trillion US$ opportunity in the coming decades. The companies in this ETF include electric passenger vehicles and buses, energy efficiency, renewable power providers (like Brookfield and Innergex), hydrogen, charging stations, batteries and transmission grids. Through the adoption of new technologies, these companies look to facilitate the transformative shift towards renewable energy, sustainable processes and the improved management of waste and resources.

The global pandemic has caused supply chain disruptions, resulting in inflation concerns taking centre stage in the economy. Consumers are certainly feeling the effects of the recent price increases: October’s 12 month rise in the Canadian Consumer Price Index (CPI) was up 4.7% while the U.S. CPI was up 6.2%. For more than ten years, we have strategically used inflation-hedged government bonds (real rate of return bonds) in both Canada and the U.S. to mitigate inflation’s negative effect on a bond portfolio’s purchasing power. Although inflation has only become headlines recently, over the last 10 years these two bonds have significantly relatively outperformed, for instance, the Government of Canada 1-to-5 Year Bond Ladder ETF, albeit with more volatility. Inflation-hedged bonds currently make up approximately 20% of our overall bond portfolio. This Fall, we added a new metric that tracks this statistic in every portfolio.

President’s Report to Stakeholders

As we commence our 43^rd year of serving you, and on the heels of our recent quadrennial client survey below, I thought it was an appropriate time to report to you, our clients, as you effectively are “stakeholders” in everything Trivest does.

There are many layers to what Gary, Mike and I do over the course of a business year:

Monthly strategic management of your portfolios	Ongoing portfolio administration
Monitoring long term adherence to your goals	Interactions with the Accounting/Tax Team
Monitoring to your formal Financial Plan	Maintenance of industry affiliations
Monitoring your contributions and withdrawals	Adherence to regulatory requirements
Day-to-day response to your needs	Ongoing pursuit of innovations in investment management
Annual portfolio reporting to you	Quarterly writing on investment topics
Daily appraisal of market conditions	Annual strategic planning retreat
Regular research of new investment vehicles	Reflection time

 And we have the immense pleasure of providing the following “extracurricular” events, seminars, and more for our clients!

Annual education seminar	P.I.E.R.
Appreciation events & gifts	Trivest Travels!

The 2021 Survey Results

We recently sent out our quadrennial survey, which had a 42% response rate and we thank you.

KEY SURVEY RESULTS	Excellent	Good	Combined
Frequency of our communication	43%	52%	95%
Usefulness of Annual Report	54%	43%	97%
Your understanding of the Annual report	26%	65%	91%
Fit between portfolio strategy and personal goals	61%	37%	98%
Adherence to the portfolio strategy	70%	30%	100%
Portfolio returns	37%	54%	91%
Investment management approach	70%	30%	100%
Value of Foresight newsletter	39%	56%	95%
Overall value as investment managers	70%	30%	100%

We asked you to rate the importance of various sub-areas to your financial well-being, which many of you reported to be “very important”. The results are listed below. Also shown below is a visual representation of your responses when asked what the most important issue is today in your family finances (bigger text represents more comments on that issue).

Investment management	100%
Financial planning	84%
Investment strategy	96%
Tax management	75%
Estate planning	54%

From our last survey in 2017, tax management dropped notably in importance, investment strategy grew notably and financial planning grew somewhat. Our response: We will continue to focus on what is most important to you. A strong investment strategy and a disciplined investment management approach is critical in today’s investing environment, as recently evidenced during the March 2020 Covid Crash and post-Covid economic recovery. While we expect the Global economy to expand through the balance of this year and next, we have made adjustments to your portfolio in anticipation of market headwinds such as increasing inflationary pressures due to labour shortages and supply constraints, rising interest rates, and reduced government stimulus. We will continue striving to provide one of the most comprehensive and integrated approaches to investment management in the industry, by adding tax-smart investing principles and indices, modular and long-term financial planning, as well as estate planning. 

We asked you about our custodian, National Bank (“NBIN”), and about our website:

National Bank	Excellent	Good	Combined
The clarity of your monthly NBIN statements	31%	63%	94%
The NBIN online account access	58%	39%	97%

Investoru.com website	Often	Occasionally	Never
How often do you visit our website	4%	58%	38%
	Very helpful	Somewhat helpful
The content on our website is	40%	60%	-

Our response:  This Fall, NBIN has announced a “green” initiative to encourage our clients to go online in place of paper statements and trade tickets. We recently have assisted many of you with this. It now has been several years since the last major facelift of our website. It is our current project for a fresh make-over of the design and editing of the content.

We received 64 comments along with the survey responses.

We asked you: What is the most important issue today in your family finances?

Almost half of those responses spoke to the need for security - of both capital and income streams. 

Our response: the on-going low interest rate environment for bondholders has negatively impacted  cash flow production to fund lifestyle… to the point where tax-preferred dividend yields from the stock market are competitive with bond yields….and add the possibility of extra “lift” from price appreciation. The catch, of course, is that the stock market can go down through a period of time, causing angst to investors. Exacerbating matters further, this Covid period has seen a significant spike in inflation. We are addressing these issues in a number of ways:

· Buying inflation-protected bonds

· Buying bond portfolios of short duration

· Carefully re-assessing, client-by-client, the Strategic Asset Allocation Plan between bonds and the stock market

· Where the portfolio has a monthly draw call, managing the funding of these calls for 6-12 months forward 

· Harvesting price appreciation in the stock market, as flagged by our proprietary investment management software

· Seizing opportunities when the market falls, creating a “sale” on stocks

We also invited “open comments”:

• 71% of these responses conveyed gratitude to us for the relationships we have fostered together. Again, we thank you.

• 8% asked us to provide clearer information re our fees and the impact upon your portfolio return.

  
  

Our response: we now have endeavoured to address this with amendments to the format of your annual report.

One comment referred back to a long-ago seminar, in which we taught you how to understand your NBIN statements and Annual Report. Covid has nixed our seminars in 2020 and 2021. Our response: we will resurrect the March education event in 2022, and will consider this area as a topic.

Another comment requested assistance with “financial planning” that didn’t involve a full-blown formal financial plan costing $2-3,000. Our response: we “rent” sophisticated software for $2,000+ per year to produce these plans. We have tried to build internally a “Volkswagen Beetle” version, but there is too much complexity in the process to successfully “dumb it down”. That said,  the Planning profession practices “modular” financial planning, which addresses financial issues as they develop through life’s ages and stages. We are always here to help, as the “F” in “AFT Trivest” stands for “Financial planning”.  

Another comment said “I love the concept of being part of a Family rather than just being an investor”. Our response: thank you! We have aspired for 43 years to achieve this, and it overlays everything we do.

We asked you about the value of our quarterly newsletter, Foresight: 39% responded that it was “excellent” and 56% said it was “good”. This was consistent with 2017. Our response: our quarterly obligation to “journalism” starts each time facing the fear of a tabula rasa. We are obliged to step out of the day-to-day trenches and think about the bigger picture, often leading to fresh research and new insights. After over-coming the initial tabula rasa for 100+ issues of Foresight, there hasn't been a single edition that we weren’t proud of. All of the material in those issues archive onto our website at www.investoru.ca.

In closing, it is always a pleasure and a privilege to serve you, that we never take for granted.