Cameron Passmore CIM, FMA, FCSI

Portfolio Manager

Benjamin Felix MBA, CFA, CFP

Associate Portfolio Manager
  • T613.237.5544 x 313
  • 1.800.230.5544
  • F613.237.5949
  • 265 Carling Avenue,
    8th Floor,
  • Ottawa, Ontario K1S 2E1

Why hire a firm that uses index funds and ETFs?

PWL Capital uses index funds and exchange traded funds to gain exposure to thousands of stocks and bonds for a very low cost. This aligns with the foundation of our investment philosophy; we believe that nobody can truly predict which company or fund manager will produce strong returns, so we want to diversify broadly and maintain consistent exposure to the global markets.

Many of the asset management firms that we compete with try to demonstrate their value as their ability to predict which company or fund manager is going to produce the best returns in the future. These firms are likely to think that using index funds and ETFs to gain exposure to the broad market is foolish; it contradicts the notion that they are able to determine which stocks an investor should be holding at a given time, or which fund manager is about to have a good year.

The evidence continues to build in favour of PWL’s investment philosophy, and using ETFs and index funds to build efficient portfolios is becoming widely accepted as the best practice for most types of investors. This is a direct threat to the business model that the brokerage industry exists on. Most firms have been slow to accept change, and they are being left in the dust as investors discover the merits of implementing a portfolio strategy such as PWL  Capital’s.

Our competitors tend to think that firms like ours don’t provide any value, but we are simply in a unique position where we do not need to claim our value as an ability to pick stocks, pick fund managers, or predict the future. We stick to an evidence-based investment approach and create value through deliberate, strategic portfolio construction, tax minimization, and involved management of the overall investment experience.

By: Ben Felix | 0 comments

Active fund management in a bull market vs. a bear market

The SPIVA® U.S. mid-year Scorecard came out on September 8th. This is a set of data prepared by S&P to show the percentage of active fund managers that have unperformed their benchmark index over the previous one, three, and five year periods. This most recent data for U.S. domiciled equity mutual funds showed that a staggering percentage of actively managed funds have been outperformed by their relevant index over the previous 12 month period; 60% of U.S. domestic equity funds, 70% of global equity funds, 75% of international equity funds, 81% of international small cap funds, and 65% of emerging markets funds have failed to outperform their benchmarks. Maybe this could be expected in a bull market; when stocks everywhere are increasing in value, it might be harder to outperform the index without holding all of the stocks in the index. One might argue that a bear market is when active managers should really be able to use their analysis and predictive abilities to show their value, right?

I looked back to the SPIVA® U.S. year-end Scorecard from 2008. In the twelve months that encompassed 2008, one of the worst global bear markets in history, U.S. domestic equity funds underperformed 64% of the time, global equity funds underperformed 60% of the time, international funds underperformed 64% of the time, international small cap funds underperformed 50% of the time, and emerging markets funds underperformed 65% of the time. It can be seen that active funds outperformed their benchmarks more often in the bear market of 2008 than in the bull market of 2013/2014, but we are still talking about a significant majority of funds in all categories underperforming their benchmarks.

Does active management prove its value in a bear market? Maybe. In this data sample active management appears to have been helpful, but investors were still better off holding the global market portfolio.

Data source: Standard & Poor’s

By: Ben Felix | 0 comments

Sorry, we aren’t selling

Jason Zweig once wrote that “good advice rarely changes, while markets change constantly. The temptation to pander is almost irresistible. And while people need good advice, what they want is advice that sounds good.” This statement is true in practice.

There are three broad categories of people that consider hiring PWL to manage their portfolios. There are people that have done a tremendous amount of research, followed the mountain of evidence that points to our investment philosophy, and discovered us as a result; there are people that have been told about our sensible investment philosophy, high level of service, and excellent advice by someone that they trust; there are people that find us in a Google search and decide to include us as a candidate in a portfolio manager selection process.

In my experience, the first two types of people are quick to become clients; these people have almost made up their minds about investing with PWL before requesting an initial meeting. They either understand how we invest, or have been referred to us by someone that they trust to make these types of recommendations. The third group of people, the ones that want to include us in their portfolio manager selection process, are much less likely to become clients; these people have not usually done in-depth research on investing and financial markets, and are expecting us to give them the amazing sales pitch that will make their decision easy. This is a problem.

Our investment philosophy does not sound exciting. Effectively capturing the long term returns of an efficient capital market, tilting towards dimensions of higher expected returns, and rebalancing? Logical, not exciting. When someone understands the evidence behind this approach, it is obviously the only sensible way to invest. When someone is looking for an engaging story about the need to hedge against rising interest rates by shorting bonds and buying commodities, our evidence-based approach falls short of their expectations. We do our best to save people from the investment industry, but we aren’t here to sell. We are following the evidence and doing what is right.

By: Ben Felix | 0 comments