Since human beings have a tendency for excess, it often leads to irrational behaviour in financial markets. While many investors try to capitalize on market dislocations, value-oriented equity managers are particularly focused on taking advantage of the irrational pricing that occurs as a result.
When evaluating a money manager’s performance, investors often cast their eyes across the time horizons to the longest term number – since inception. A positive relative return can be such a great comfort; a validation of the investor’s original selection and a reflection on the quality of the manager. On the other hand, a negative number, whether in relative or absolute terms, might suggest the opposite: that the original selection process was flawed or that the manager lacks quality or skill. Or does it?
A couple of years ago, when oil prices dipped below US$40," says Shannon, "we started seeing a lot of value in commodities and in the stocks. We began as sector- neutral, so when oil prices and high-quality names dipped below intrinsic value, we started to add to the stocks.
When I first started in the industry, one of the more popular styles of investing was top-down stock picking; where you made an economic forecast, decided which sectors were going to benefit and then tried to buy the quality names within that sector. Effectively, this approach required investors to focus on the short term; they predicted what economic trends were underway and then adjusted their portfolio accordingly. Value managers generally didn’t, and still don't, believe that the economy could be accurately forecasted in general, and they definitely didn’t believe that it could tell you how to invest.
Property and casualty (P&C) insurers' stocks aren't on the radar of a lot of investors, but you and your clients might consider Fairfax Financial Holdings Ltd. and Intact Financial Corp., both based in Toronto. These companies have good prospects and the shares are reasonably priced.
For those who attend investment seminars wanting to hear the speaker’s best five stock tips, this week’s presentation by portfolio managers at Sionna Investment Managers will have been disappointing. But for those who wanted to learn how a value manager goes about its craft, about how decisions are made at what must be the country’s most diverse money management firm, the event was a winner.
Low interest rates and losses in the energy sector are putting downward pressure on the shares of large lifecos. These solid companies could offer investing opportunities.
Recent volatile markets and accompanying daily negative news headlines are a constant reminder of just how much noise exists. Not all negative news is noise though. When there’s a fundamental change in an industry or a specific company, we need to listen and update our views accordingly. The challenge is to distinguish potential distractions from relevant information.
The topic of Environmental, Social and Governance (ESG) investing is one that continues to gain in popularity. ESG investing can have different meanings to individual investors, and ESG principles can be incorporated into investment processes in a multitude of ways. At Sionna, we thought it would be worthwhile to share our interpretation of ESG principles and how we apply them to our research process.
At Sionna, we go by the philosophy that it is better to know what may be hiding around the corner – this way you don’t panic and, in the investing world, you can prepare yourself so you don’t react irrationally. We know that markets are unpredictable, however the more informed we are, the better we can rationally respond to unanticipated events.