At Anchor Pacific, we employ a risk-based functional framework for capital allocation within the entire portfolio. Beginning in Q4 2019, we officially introduced our Model Portfolios which are designed to mirror the different respective components of each client portfolio and deconstruct the drivers of return for various functional risk category groups.
The three main Model Portfolios that comprise the long-term core multi-asset portfolio are:
AP-CIO Capital Growth Portfolio (the “Capital Growth Portfolio”)
AP-CIO Stable Portfolio (the “Stable Portfolio”)
AP-CIO Capital Preservation Portfolio (the “Capital Preservation Portfolio”)
Each of the Portfolio Groups is generically exposed to these risk factors to the following degree:
Weights to each Model Portfolio are specific to each particular client’s unique risk tolerance, time horizon, and liquidity needs, as well as the firm view of risk and return expectations for specific asset classes and strategies over the near, medium and long-term.
In this quarter’s Portfolio Spotlight we highlight the AP-CIO Absolute Return Portfolio, which is one of three sub-sets of the AP-CIO Stable Portfolio, which consists of a spectrum of growth, income, and risk-managed strategies and assets that exhibit expected returns close to that of global public equities but experience lower levels of volatility.
The AP-CIO Absolute Return Portfolio is exclusively actively managed and employs strategies with the flexibility, expertise and structure to invest in dynamic strategies utilizing asset classes other than equities, in some form of hedged or other manner designed to reduce or manage risk.
The portfolio performed strongly in the second quarter returning 12.10% despite having no directional exposure to the equity markets. Client allocations to the Absolute Return Portfolio are significant (15% of total) – we materially increased exposure during the second quarter and were rewarded as credit and arbitrage strategies rebounded sharply from the sell-off in the first quarter which was primarily a function of capital markets liquidity as opposed to the fundamental deterioration of the overall economy. We intend to remain structurally overweight these positions as the strategies comprising this sector remain both attractively priced and defensive in nature should equities, presently priced to perfection, experience another downturn which we view as a more than a reasonable possibility.
*Standard deviation of monthly returns and beta with respect to the S&P 500 Index (in USD) based on a three year back test from April 1, 2017 to June 30, 2020.
We are extremely pleased with this performance – the Absolute Return Portfolio is expected to anchor the Stable Portfolio, whose combination of risk-managed, low volatility, actively-traded, and arbitrage strategies create a very strong equity market defensive position that is intended to prove resilient over time and act as a portfolio ballast in stormy waters.
As of June 30, 2020, the Absolute Return Portfolio consisted of five unique holdings across seven differentiated sub-strategies. In the second quarter, we adjusted our exposures by adding to each of Fixed Income and Credit Relative Value, Global Macro, and Arbitrage strategies.
Download the complete Second Quarter 2020 Portfolio Spotlight:
The firm’s model portfolios were established on October 1, 2019. The model portfolios are hypothetical investment portfolios used to showcase how we believe asset allocation may be used within the context of a client portfolio. The models also provide a basis with which to measure the quality of our advice and the effectiveness of our disciplined investment strategy. However, implementation assumptions (which may include but are not limited to the timing and diligence with which the portfolio is rebalanced, the execution price for securities transactions, and any trading and account-related costs, fees, or commissions) have been made when calculating the model returns that may be difficult or impossible for any investor to exactly replicate the model portfolios. For this reason, there is no expectation that the model returns will replicate the actual performance of any client following the same guided portfolio strategy. Performance figures are net of fund level expenses and fees but do not include any allowance for Anchor Pacific’s Investment Management Fees. Past performance is not indicative of future performance.
Anchor Pacific Investment Management Corp. (“Anchor Pacific”) is a Vancouver, BC-based portfolio management firm, which leverages process, technology, and infrastructure to democratize the process of managing endowment and pension style investment portfolios to deliver innovative, high-touch, and transparent investment programs across the full spectrum of asset owners and investment consumers.