It\u2019s not everyday that a global investment conference is held and the views of Francis Fukuyama, Samuel Huntington and Graham Allison are mentioned in the first five minutes.<\/p>\n
But that was the case earlier this week at an event titled “Geopolitics is back with a vengeance” that was put on by Cougar Global Investments in Toronto.<\/p>\n
The aforementioned authors \u2014 who respectively wrote The End of History, The Clash of Civilizations<\/em> and Destined for War: Can America and China Escape Thucydides\u2019s Trap?<\/em> \u2014 were referenced by James Breech, who started Cougar Global with his wife, Vicky, in 1993.<\/p>\n While Cougar, which oversees $1.4 billion of assets, has been owned by the money management arm of U.S.-based Raymond James since 2015, it\u2019s not a typical money manager.<\/p>\n Among the distinctive features: It only invests in ETFs, because of the diversity and low fees such securities provide; its primary investment goal is the preservation of investor capital; and it doesn\u2019t fall under the label of value, growth or momentum investing.<\/p>\n The firm, which invests globally, with about five per cent of its investments in Canada, is highly macro- and data-driven, employing a mix of quantitative, statistical, qualitative and fundamental analysis to select which ETFs to buy and sell.<\/p>\n \u201cWe don\u2019t manage money in the way that 98 per cent of asset managers manage money,\u201d said Abe Sheikh, the firm\u2019s relatively new co-chief investment officer and a JP Morgan alumnus. Rather, he says, they use \u201cpost-modern portfolio theory.\u201d<\/p>\n What does that mean? In constructing their portfolios, their goal is to maximize expected return with minimum downside risk \u2014 a variation on the more normal objective of maximizing expected return for a given level of risk.<\/p>\n One of its key inputs \u2014 the data comes from a slew of service providers \u2014 is what the firm calls \u201crisk of loss.\u201d In the presentation, it focused on the S&P 500 (where the risk of loss is 3.5 per cent) and U.S. Treasuries (where it\u2019s 23.4 per cent.)<\/p>\n \u201cWe are in one of those periods where stocks are not risky and where bonds are very risky,\u201d added Sheikh, a situation that calls into question the normal response of adding fixed income to a portfolio to be safe. \u201dThat\u2019s not the case right now.\u201d<\/p>\n Another non-normal measure is \u201cchaos,\u201d a measure that includes security issues, terrorism, political uncertainty, populism\/protection, natural disasters\/pandemics and financial risks. After peaking at 18 per cent in mid-2011, it has fallen steadily to around eight per cent, with Sino-American tensions being the foremost contributor.<\/p>\n \u201cAn eight per cent chaos reading means one month of chaos over the next year,\u201d said Sheikh.<\/p>\n Chaos that manifests in financial market turmoil is one of the five factors that Cougar uses for its global macro economic scenario analysis. The others are: the probability of growth (58 per cent reading), the probability of inflation (one per cent), the probability of stagnation (33 per cent) and the probability of recession (zero per cent.)<\/p>\n Cougar then uses computer models to simulate what markets will do given those probabilities. For that it relies on how markets reacted in the past. \u201cAnd it does it 5,000 times,\u201d said Breech.<\/p>\n Cougar has four funds: conservative, conservative growth, moderate growth and growth. The main difference between the four mandates is the allocation to equities, ranging from 47 per cent for the conservative to 98 per cent for growth. While all mandates invest in the S&P 500, the funds with the larger equity weights invest in European, Japanese and emerging market ETFs.<\/p>\n How has the process worked out? According to GIPS (Global Investment Performance Standards) compliant measures, all four of its mandates have posted positive returns on a calendar year basis since 2006, with the exception of 2011.<\/p>\n Financial Post<\/em><\/p>\n bcritchley@postmedia.com<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Highly macro- and data-driven, it employs a mix of quantitative, statistical, qualitative and fundamental analysis to select which ETFs to buy and sell<\/p>\n","protected":false},"author":578,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/6481"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/578"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=6481"}],"version-history":[{"count":1,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/6481\/revisions"}],"predecessor-version":[{"id":6483,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/6481\/revisions\/6483"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=6481"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=6481"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=6481"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}