The Fundamental Minimum Volatility Canadian Equity strategy is a diversified, actively-managed portfolio that aims to provide long-term capital growth by investing in common shares of Canadian corporations. The strategy’s investment process is primarily based in fundamental research, while stock selection decisions are ultimately based on an understanding of the companies, their business, and their outlook.
The strategy is designed to achieve a lower level of volatility of returns than the broader Canadian equity market while adding value. To do so, the strategy seeks companies that are attractively valued, which to the team means that their share price already reflects most of the risks, but ignores much of the upside opportunity.
- Experienced team of dedicated sector specialists and portfolio managers.
- Core large-cap Canadian equity portfolio.
- Emphasis on identifying companies with attractive relative valuations and risk/reward characteristics.
- Scenario-based approach continuously re-evaluates potential reward and risk.
- Investment process is primarily based on fundamental research, and some consideration of quantitative and technical factors.
- Material ESG factors are incorporated into the investment philosophy and process.
Investment philosophy and style
- The investment philosophy underlying the team’s approach is centered on the belief that higher quality companies outperform over the long term, that growth is key to long-term value creation, and that the price paid for a stock matters to long-term returns. The team believes that long-term value creation is more important than near-term valuations.
- Bottom-up fundamental process complemented by the use of quantitative tools and technical analysis.
- Investment universe is defined by the MSCI Canada Minimum Volatility Index.
- This strategy is best described as an ongoing recalculation of scenarios that continually reconsiders the potential reward and risk for every company in the investment universe as market prices shift and/or new information materializes.
- The team uses a robust checklist as a starting point when building the portfolio, which uses a proprietary quantitative model to score each stock in the investment universe. The quantitative ranking measures the operating performance of a business (e.g., leverage, balance sheet strength, sector-specific measures), combined with stock market measures like valuation and price momentum.
- The stocks that pass the quantitative screen undergo fundamental scenario analysis, which includes four primary elements: company analysis, scenario analysis, catalysts, and valuation.
- Analysis and integration of material ESG factors are incorporated in the investment approach. While there is no blanket ESG criteria, the aim of the analysis is to identify, assess, and engage with companies on relevant risks and opportunities.
- By diversifying the sources of expected return, the investment team reduces the potential that any one mistake can have an inappropriately large impact on the overall strategy. Portfolio weights are heavily influenced by risk/reward analysis.
- In constructing the strategy, the team focuses on scenario analysis that indicates where poor fundamental outcomes are anticipated (and are therefore reflected in the price) while trying to avoid stocks where pessimistic outcomes are practically being ignored.