(An audio version of this letter can now be found as Episode 2 of The Unlimited Podcast by Ginsler Wealth. Use the link provided or find us on your favourite podcast app.)
To Ginsler Wealth’s Clients:
The new omicron variant was certainly an unwelcome and perhaps unexpected holiday development. I do hope the holiday season found you and your loved ones happy and healthy.
“Uncertainty is the only thing I know with certainty.”
With the arrival of the end of the calendar year comes the requisite financial and market forecasts for the new year. On December 30, 2021, the Globe and Mail ran two articles, one directly on top of the other:
The first, written by my dear friend David Rosenberg entitled, Here’s what investors should expect in 2022, details the potential for a 30 percent equity market correction. The second, written by BMO Capital Markets’ Chief Investment Strategist was titled Why the bull market will be alive and well in 2022. Its content is self-evident by its title.[i]
Which of the above will prove prescient, I don’t know. Nor can I identify the best forecasts from the many other experts who have weighed in. So instead of trying to be right, at Ginsler Wealth we aim to be prudent.
Because the only thing I know with certainty is that there are uncertain roads ahead, we build your portfolios by incorporating a variety of investment strategies with the collective goals of both reasonable performance and commensurately reasonable downside protection. To be clear, the other thing of which we are fairly certain is that over the longer term, equities will remain the best performing asset class and will always be an important and sizeable component of most clients’ investment portfolios. However, the cost of achieving higher returns through equities is always their accompanying volatility.
So how do we strive for equity-like returns[ii] while aiming to protect capital? Among others, we do so in a number of ways:
- Investing in exchange traded funds, for extremely low cost, broad market exposure (no capital protection component here),
- Selecting equity managers that use a variety of strategies to hedge market exposure and reduce volatility,
- Utilizing equity managers with strategies that focus on dividends and income,
- Allocating capital to hedge funds that aim to take a “market neutral” approach to investing, and
- Finding managers with unique and often non- or less-correlated investment strategies.
As an example of the last approach, we have recently begun allocating capital to a specialized SPAC (“Special Purpose Acquisition Corporations”) arbitrage strategy. We believe this strategy is unique in that it has a track record of delivering equity-like returns with principal protection qualities, low downside volatility and low correlation to equity and fixed income markets. In fact, to date, 99% of the fund’s closed positions have resulted in positive realized returns. We believe this strategy’s long-term target return is between 8-10%. As an added benefit, due to our scale, all Ginsler Wealth clients—regardless of the size of their allocation—are able to invest in the fund’s lowest fee class. In a recent Globe and Mail piece entitled How SPACs can tone down your risk, Larry MacDonald[iii] writes on this type of strategy: “…buying and selling pre-acquisition SPACs can be a virtually riskless way to earn positive returns in bear and bull markets.” Our job, as always, is to find the managers with the experience to execute well.
How to Build a Goldilocks Portfolio
This past quarter, a new client asked us to build a portfolio for his family with the following characteristics:
- Limited direct equity exposure
- High single digit target returns
- Tax efficient
- Downside protection
While we thought of calling this portfolio the “Unicorn” portfolio, given the difficulty in finding such a magical collection of investments, we ultimately named this portfolio the “Goldilocks” portfolio by mixing a few asset classes (i.e., not too much, not too little, just right) with the goal of achieving the client’s objectives. The resulting portfolio blends an income-oriented equity strategy (with hedging capabilities), the SPAC strategy mentioned above, a venture debt strategy (closed to most outside investors), a market neutral hedge fund (closed to most outside investors) and a long/short public real estate focused investment strategy. We utilized the family’s registered (non-taxable) accounts to hold the income-producing securities, while keeping capital gains-oriented holdings in taxable accounts. Through a combination of asset allocation, security selection, and asset “location” decisions, we believe we have built a portfolio that meets the client’s needs[iv]. We will be reaching out to all clients as part of our normal portfolio review process and will be happy to discuss this Goldilocks portfolio in more detail.
Incidentally, this past quarter, we reviewed upwards of 40 or so additional investment strategies and ultimately made allocations to two new strategies (both of which we have known and followed for many years). The bar remains very high.
Digital Asset Activity
We remind you that digital asset exposure generally only comprises a very small, single-digit proportion of our clients’ (where applicable) investment portfolios. However, we continue to spend a disproportionate amount of our time and energy on this space. We remain bullish on the long-term outlook for digital assets broadly and the underlying technology more specifically. This was a particularly active quarter for Ginsler Wealth in the following ways:
- We worked with Digital Asset Council of Financial Professionals (DACFP) to bring its certificate program to Canadian advisors at a special, Ginsler Wealth discounted price. We believe it is incumbent on financial advisors to truly understand this space (this goes for the media as well!) prior to making client recommendations. I was also featured on DACFP TV, where I discussed Ginsler Wealth’s approach to digital asset investing.
- We spent an extraordinary amount of time performing due diligence on a Singapore-based digital asset fund manager. Due to the 12-hour time difference, this included many late-night Zooms with the company. When we say we “search the world” for investment strategies for our clients, we really mean it! The core strategy that we have begun allocating to returned 295% for the year through November 2021. While we do not expect this level of return to be repeated, we are confident that we have found a group that are truly experts in this space.
- Finally, we were pleased to get clients access to participate in a highly oversubscribed private investment in Sygnum Bank AG, the world’s first fully-regulated digital asset bank, alongside other major international investors. You can read the announcement and company press release.
Digital asset investing is not appropriate for all clients, but we are always available to discuss the asset class with you.
As we begin 2022, I am hopeful that the end of the COVID pandemic is in sight, as we learn to live with whatever variant or variation of the virus remains. From a financial perspective, I am hopeful that world economies will remain resilient. Most of all, I am hoping that you and your families are, and will remain, happy and healthy.
But, in these uncertain times, hope is not a strategy. We will remain unrelentingly focused on managing your wealth and investments carefully and prudently. Because, unfortunately…we can’t forecast the future.
Thank you for your trust, support, and confidence. We are available 24/7 should you need us.
President & CEO
Alphabet Soup and Tax Savings
RRSPs (Registered Retirement Savings Plans)
Reminder that March 1, 2022 is the deadline to contribute to your 2021 (last year’s) RRSP. The maximum RRSP contribution limit for 2021 is $27,830. However, check your CRA account to confirm your personal contribution room. If you have good visibility into your 2022 earnings, we also encourage you to make your 2022 (this year’s) contribution now to benefit from tax-deferred investing as early as possible. The maximum RRSP contribution for 2022 is $29,210. We can help you determine your best course of action in this regard.
TFSAs (Tax Free Savings Accounts)
Similarly, you now have another $6,000 of TFSA contribution room to utilise. The TFSA is a wonderful way to invest tax-free, forever. For those that have not yet established a TFSA, you may have up to $81,500 of lifetime contribution room. We recommend all our clients make use of this tax saving opportunity.
RESPs (Registered Education Savings Plans)
Finally, for those saving for their children’s education via a RESP, for those who are eligible, you can now earn 2022 CESGs (Canada Education Savings Grants – i.e., “free money from the government”) on your contributions. At Ginsler Wealth, we love helping our clients get free money.
[i] Both articles are only available to Globe and Mail subscribers. Apologies if you are unable to access them.
[ii] While equity markets of late have been returning high double-digit returns, please recall that the historical, long-term compound annualized total return of the S&P 500 has been approximately 10% since 1928. Source: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html.
[iii] This article is also only available to Globe and Mail subscribers. The article references a SPAC strategy offered by a Calgary-based firm. Ginsler Wealth is not familiar with such strategy nor its principals.
[iv] Of course, no investment results are guaranteed and there is no guarantee that this portfolio of strategies will meet the targets and objectives detailed herein.