Financial Planning

Q3 Report and Commentary

Q3 Report and Commentary

I think we can say with certainty that fall has arrived. We hope you and your loved ones are well, and we’re looking forward to connecting with everyone between now and the holidays. We’re working on scheduling your meeting but if you haven’t heard from us yet and you’d like to have a chat, reach out to your advisor and we’ll get the wheels in motion to set it up. In the meantime we have a number of things we’d like to share with you, so please read on!

CH Portfolio Minute

We’ve had a lot of positive feedback and suggestions regarding our weekly Portfolio Minute. We are taking this all into consideration as we continue to refine the message. Note that we are moving this segment to bi-weekly delivery. If you haven’t already subscribed but would like to be on the list subscribe here. As this edition relates to our newly developed quarterly report we’re sending it to everyone, but you must subscribe to receive the regularly curated content.

CH Live Webinar

We recently held our 3rd quarter webinar CH Live: Q&A with President & CEO, Jeremy Clark. If you missed joining us and would like to view it contact Hayley Huskinson for a link to the recording. If you have any suggestions for topics of future webinars we’d love to hear them!

CH Financial 2020 Q3 Portfolio Commentary

For our third quarter commentary, we will address how we construct our portfolios and the philosophy behind that construction. We will also discuss how we monitor those portfolios against the benchmarks we use. The Q3 report is available for you here. We will be refining this report based on your feedback, so please let us know what you think by replying to this email or reaching out to any of our team members directly. We’d also like to let you know that in addition to this commentary, we will be providing comparisons of our top 10 holdings to their relative benchmarks. Coming soon!

Performance Year to Date and Over the Past Ten Years

As always, the key metrics that should be used when evaluating the performance of a portfolio compares how it has performed against its relevant benchmark. For CH’s overall portfolio we use the Morningstar Canadian Balanced Moderate benchmark. Morningstar created this benchmark to provide a guide for any Canadian investor against what the average Canadian investor’s portfolio looks like. In other words, if all Canadians were treated like a single investor, how much of their money would be in cash vs. each of the other asset types. These asset classes are Canadian equity, US Equity, International Equity and Fixed Income. This gives an investor the ability to see how their specific portfolio looks compared to the benchmark and how it has performed.

We will go through the differences between what we will call the CH Average Portfolio and the benchmark in the next section of this article. Below are the performance numbers over the previous ten years:

2010201120122013201420152016201720182019YTD 2020 10 YR
CH Portfolio5.372.7910.1018.2911.935.167.706.98(3.09)13.22(6.25)7.00
MorningStar CDN Bal. Mod3.710.795.688.799.331.547.745.46(1.86)12.804.295.75

Looking at this table a number of facts are quickly observable. First, for CH there have been two negative return years (2018 and year to date 2020) and the benchmark has had one negative year (2018). We can also see that the CH portfolio has outperformed the benchmark in seven of the eleven periods. Finally, the average rate of return, a number we call “Alpha” in the industry, over the previous ten years has been a positive 1.25% per year. This means that AFTER all fees paid to the fund companies, Fundex and CH Financial, our portfolios have outperformed the benchmarks by 1.25% per year. This adds up to a cumulative CH Client Advantage of over 13% during that span!

All of that said, it is also apparent that CH has significantly underperformed the benchmark so far in 2020. We at CH take any underperformance very seriously and are using such periods to check in both with our managers, and also internally on our own investment recommendations.

Active Management and the Benchmarks

As we have noted in previous articles, as well as in client meetings, one of our core philosophical beliefs is that solid active management of assets backed up by a rigorous process will outperform the broader markets over the long term.

Active management takes two forms:

  • The asset allocation recommendations of the advisor, which in this case our team at CH Financial. Just as we expect our investment managers to differ significantly from their benchmarks in order to make outperformance possible, we believe it is critical to construct our portfolios differently from that of the average advisory firm.
  • 2. Within each asset class we also want to have managers that differ from one another in investment style and holdings. We do not believe there is any value in duplication between fund managers.

First, in Canadian fixed income we have been extremely underweight in government bonds, both Federal and provincial. Once interest rates fell to roughly 2-3% for these types of bonds after the financial crisis of 2009 we reduced our exposure in this area. In our view these assets do not offer an attractive enough long-term yield to help our clients maintain their expected rate of return. Instead we focus on corporate bonds, both investment grade and non-investment. In our view we would prefer to have our bond managers evaluate the quality of the bonds rather than relying on the ratings agencies and look for higher yields with manageable additional risk.

Second, in global fixed income we have chosen not to invest in developed world government bonds like US treasuries, and Japanese and Western European government bonds. These yields have been even lower than Canadian governments (and in some cases they are offering negative yields!) and in our opinion are not attractive enough to buy.

Third, we are significantly overweight in real estate investments, both through REITs and real estate mortgages, than the market overall. We believe these assets offer better long-term cash flow and returns than bonds and with lower risk than other equities. This belief arose from our study of endowment, pension and other institutional investor behaviour. In each of these cases we found that these types of managers wanted to stabilize their returns and offer more consistent rates of return than by just purchasing stocks and bonds. We agree with this investment philosophy.

Fourth, in alternative investments we also followed the lead set by institutional investors. With interest rates so low, we believe it is necessary to look for other long-term assets that can provide a stable and reliable source of cash flows. The mangers in this space do so through the use of options strategies, private equity, and the active management of ETFs to take advantage of opportunities that would not otherwise be available to the average investor.

Fifth, we have chosen to significantly underweight our investments in Canada, especially since 2013-14 when oil prices peaked. We became concerned by the level of risk high energy and other resource prices presented to the portfolio. Since Canada is largely an investment story built around these two themes, we chose to cap our exposure to Canada.

Sixth, in global investments we chose to significantly overweight the United States when compared to Europe, Japan and the Emerging Markets (including China, Brazil and Russia). It is our view that over the long term the US will continue to provide more opportunities than these other regions to provide higher risk adjusted rates of return. We understand that these other markets will at times do better than the US, but we believe that over rolling 5-10 year periods the US will continue to outperform.

Finally, we have added Canadian small cap to our portfolios for clients willing to take on the added risk found in this space. Companies in this space are focused on growth, often in exporting to the US and the world. It has traditionally behaved more like non-US small caps but with much less volatility.

What’s Different About 2020?

2020 has been a historical year. By virtually every measure available, this year has not been like any other we or our clients has ever experienced before. The global COVID-19 pandemic caught us and the world by surprise, and the reaction was bigger and faster declines in the market than has been seen before (down about 35% in three weeks in March), and bigger and faster recoveries (especially in May and June).

Most importantly for us and for our clients, two major asset classes benefited greatly this year and our portfolios had limited exposure in these areas.

The first is long term developed world government bonds. This is best represented by the 20-30 year US Treasury market. At its peak in March 2020, the ETF representing this sector (under the symbol “TLT” on the NYSE) was up 24% year to date. As noted above, these securities were yielding only about 2.5% at the start of the year and we did not find them attractive enough to invest in. Their yield dropped to 0.5% in March and have stayed well below 1% since, so we think they are even less attractive now.

The second is the US mega-cap technology and consumer stocks (companies worth over $100B in market cap). CH has limited exposure to this asset class through the Franklin ActiveQuant US fund and the Mackenzie Strategic Income fund but compared to the market we are much lower. On the S&P 500 for example, six stocks now comprise almost 25% of the entire index. In our view this represents far too much concentration risk as more and more investors have herded into these names. In the short run we understand this will cause the portfolio to underperform but over time we remain confident that other less well known companies, but equally well-established, will outperform.

There is a third reason our portfolio has underperformed in 2020 and it is one that has historically helped us to achieve our outperformance. We are much more heavily invested in real estate income trusts (REITs) and mortgages than the benchmark. For comparison, REITs account for about 3% of the total market while in our portfolio it is closer to 15%. Most of this difference comes at the expense of banks and insurance companies where we have significantly less exposure. History has shown us that REITs are less volatile than banks, yet produce comparable rates or return, especially when rental income is factored in. We believe this trend will continue in the future. Our REIT manager, while down in the year, is only down about 7% while the real estate index is down closer to 25%. This gives us confidence that the manager is invested in the right kind of real estate as markets recover.

Real estate mortgages (as well as options and private equity) are also overweight and are managed largely through the Dynamic Alternative Yield fund. Our confidence in this fund has been built over the eight years we have owned it and the consistent rate of return it has provided over that time (just under 6% year to date).


At CH, we remain committed to our philosophy of providing solid long term rates of return from active asset and investment management, a willingness to be different from the market to find ideas built on cash flow at least as much as price growth, and avoiding asset classes that we believe are either too risky or that provide too low of a long term rate of return to add value to our clients’ portfolios. Further, we want to maintain the ability to build customizable portfolios for each of our client families so that we can tailor the expected rate of return to their specific risk profile. Finally, we will remain active in recommending the asset classes that we believe will best achieve those goals and finding the managers that will best manage their respective slice of the investment pie.

As always, we welcome your feedback and if you should have any questions please reach out to your advisor.

Best regards,

Brian Trafford, Chief Investment Officer
& Your CH Financial Team


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Like you, we’re selective about the long-term relationships in which we engage.

We’re looking for aspirational clients who require the whole spectrum of financial services because managing the whole is how we’re able to deliver unbeatable value – it’s our “secret sauce”.

If this describes you, let’s set up a meeting and
get to know each other.

Are we a good fit?

We’re looking for aspirational clients who require the whole spectrum of financial services because managing the whole is how we’re able to deliver unbeatable value – it’s our “secret sauce.”If this describes you, let’s set up a meeting andget to know each other.

Full quote:

I just want to say we have been with your team since 1993, and we have never had any bad advice. The investments you set up for us during this time has paid for university education for our two granddaughters and provided a significant monthly income for us to augment our pensions.

We are with you for the long run and are not going anywhere. Jeremy has told us that at these times the numbers tend to scare you, but you haven’t really lost anything if you don’t panic and sell.

Ken M, Calgary

With CH Financial since 1993

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When I became a client of CHF it was a real game-changer as I was going through a very difficult time both professionally and personally.

I went through a divorce and the loss of a job and a parent, all within a 12-month period. While it was very tough to deal with at the time, I was reassured by the fact that the team at CHF had my back and really cared about me and what I was going through.

Looking back now, I’m not sure how I would have managed without the support of the CHF family.

Jeremy and his team were there every step of the way to help me navigate my way through the complexities of a divorce and inheritance. They got me back on track both financially, as well as emotionally.

I have now been a client of CHF for over 10 years and thanks to their expertise, I know that my family will be well taken care of for many years to come. I am now in a position where I don’t need to worry about money thanks to a solid financial plan.

I would highly recommend the CHF team to others going through life-changing and difficult situations as your financial partner.

Linda, Victoria

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As an investment industry professional, I am constantly on the go and maximizing my peak career earning years in my 40s. With travel and work commitments I am very limited for time to spend with family and do the things I love to do and chose CH Financial to allow me more freedom and lifestyle balance.

Being in the investment industry my whole career and an extremely busy professional, I know I could probably do a good job at managing my money as I work in the industry after all while I rely on and trust the CH Financial team that they will take care of the details, both growing my assets as well as taking care of every aspect of my financial situation, including my tax, investments and insurance, they simply take away the stress of having to worry about it all and help me to navigate the complexities for me so it all meshes together and importantly saves me valuable time and headaches.

At the end of the day, the reality is I truly value my time and the opportunity cost of my time and would rather hire the best in the industry so ultimately my wife and I can do the things that we love to do, have more leisure time, relax and enjoy spending time in the great outdoors, exploring new countries, hiking in the mountains and volunteer work.

Since engaging CHF more than 5 years ago we have enjoyed significant growth in our investments but more importantly, we have peace of mind and sleep much better at night knowing the team at CHF has our financial back and anything financial they will take care of for us.

I would have absolutely no hesitation in recommending the team at CHF to other career-focused busy professionals who really value their time and lifestyle balance.

Kevin & Sharron, Calgary

Financial industry professionals

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Full quote:

Prior to joining CH Financial as a client, I had been partially managing our investments and using a bank-owned broker for many years, with moderate success. When we became clients of CHF, I quickly realized how little I knew about the complexities of managing investments and the importance of seeking out the best specialists in the industry to assist with my family’s full financial picture.

Brian and the team at CHF encouraged us to take an introspective look at our assets and expenditures and even helped us implement a comprehensive budget. The team really stepped up to take care of all aspects of our financial picture, including portfolio design, CH Financial introduced us to a lawyer who took care of everything for us, estate planning and tax, while helping us simplify our financial affairs.

Being of the sandwich generation my wife and I spend considerable time caring for our surviving parents and our grandkids, so

freeing up valuable time is essential to allow us to do the things we love to do. The team at CHF takes care of the details and today my wife and I enjoy a comfortable, stress-free financial situation.

Over the years as a client of CHF, both our portfolio and wealth has grown exponentially, more than we could have ever imagined. Now that we are both happily retired, having the CHF team in our corner helps us to sleep better at night knowing that our somewhat complex financial puzzle is being looked after by a team of people that really care, as opposed to being treated like a number by a big bank.

I would have no hesitation in recommending the CHF team to others looking for a superior financial home in Calgary and a safe place to invest your hard-earned money.

Ian C, Calgary

Comfortably retired thanks to CH Financial