Keeping You Informed: Harbour Update

Peter Hofstra, Chief Investment Officer and Senior Portfolio Manager, Harbour Advisors
Brian Huen, Chief Operating Officer and Portfolio Manager, Harbour Advisors


  • Though we are seeing unprecedented times economically, this is not a time to panic. Staying invested is key to seeing positive outcomes. Now is the time to be investing in equity markets, which could mean different things depending on the client. This may include simply staying the course, or rebalancing capital as equities dip lower.
  • We have already seen the markets bounce back within the last few days, so practicing aggressive investing will prove to be a beneficial approach.
  • In market observations, the first wave following the initial panic, displayed disciplined and discriminate selling. This, along with the collapse in oil pricing, led to more of the lower quality and less liquid options being sold, while the higher quality purchase opportunities held up much better. Last week, during the second wave, we saw a more indiscriminate approach, where concentration was on companies that had good liquidity, which yielded large market index moves.
  • There are only 13 names positive on the S&P 500 Index, eight on the S&P/TSX, and three in the TSX 60 Index year-to-date, showing there were no opportunities to avoid the selling that was taking place uniformly. As stressful as this down action has been, this disorderly action does create a number of unique opportunities for those investors who have the discipline to take advantage of it.
  • We are most definitely in a recession, and whatever the recovery may look like, we are seeing the unemployment rate spiking. The question we are seeing most often is, how does one preserve capital and protect your portfolio during this time? In essence, you really cannot avoid these negative impacts if you are invested in equity. What we can do to provide valuable guidance and comfort to clients is to empathize and assure them this is the time to increase their risk by investing even more in equity.
  • While it is said that value often performs best at the bottom, we don’t know if we are at the bottom yet.

Our approach

  • Our level of discipline and desire to purchase quality businesses is reflected in our current allocations. We own quality companies we would never be forced to sell. To find these businesses we first screen for the higher end businesses and then classify them into seven buckets related to business risk. We then overlay this step with a risk-adjusted return and plug those values into a computer model that recommends portfolios, subject to specific constraints such as factor risk and maximum weights by sector, which show us what the return expectations would be.
  • During the market dip nearing the end of 2018 our model indicated we needed to be aggressive buyers along with our macro view, and this led to strong performance in 2019. Last Wednesday (March 18th) was our peak for buying and aggressively repositioning the portfolio for increased growth. While considering the market may continue to worsen, we saw this opportunity as one we may not see for another 10 years, and we went approximately 90% into the market.
  • Upon the oil price war amongst Russia and Saudi Arabia, any remaining energy holdings were sold, based on the choice to seek out quality investments defined by high return on capital which are hard to find in both energy and materials companies. With the proceeds from those sales, we sought out opportunities that are thriving in this market, that previously had impractical valuations.
  • Amazon, Abbott Laboratories, and Disney are examples of quality companies where the valuations previously did not make sense, but recently, we have been able to actively pursue as a result of the current market. Right in the eye of the storm, US Foods, a service that provides food deliveries to restaurants, already had a fair stock evaluation prior to the drop ($40). Now with its current pricing ($10), the opportunity for huge returns has increased our willingness to put more money into it.
  • We are utilizing our computer model to objectify our decision-making which allows us to maintain a disciplined investment approach in a time when emotions can run high. It is the right time to stay invested in the companies with large recovery potential. We do not necessarily expect a high quality/growth/value portfolio to hold up, as everything is being impacted here as we come out the other side. We see the other side coming sooner rather than later.

Source: Harbour Advisors as at March 26, 2020.

Liquidity: The degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price. Cash is considered to be the most liquid asset, while things like fine art or rare books would be relatively illiquid.


Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Investments Inc. has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.

This commentary is published by CI Investments Inc. The contents of this piece are intended for informational purposes only and not to be used or construed as an endorsement or recommendation of any entity or security discussed. The information should not be construed as investment, tax, legal or accounting advice, and should not be relied upon in that regard. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. These investments may not be suitable to the circumstances of an investor. Some conditions apply.

The opinions expressed in the communication are solely those of the author and are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies.

Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what CI Investments Inc. and the portfolio manager believe to be reasonable assumptions, neither CI Investments Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

The comparison presented is intended to illustrate the mutual fund’s historical performance as compared with the historical performance of widely quoted market indexes or a weighted blend of widely quoted market indexes or another investment fund. There are various important differences that may exist between the mutual fund and the stated indexes or investment fund that may affect the performance of each. The objectives and strategies of the mutual fund result in holdings that do not necessarily reflect the constituents of and their weights within the comparable indexes or investment fund. Indexes are unmanaged and their returns do not include any sales charges or fees. It is not possible to invest directly in market indexes.

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Published March 31, 2020.