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Quarterly Newsletter
Q1 - 2014
Geneviève Blouin, CFA, CMT
Caroline Bédard, CFA
Keith Porter, ASIP
300 St-Sacrement
Suite 420
Montreal, Quebec
H2Y 1X4
www.altervest.ca
(514) 448-4029
Altervest & local emerging managers
Our firm moved its head office last January to have more room for our growing team.
We are now located in the picturesque old Montreal at 300 St-Sacrement, suite 420
(in the old Board of Trade building). We share that office with 3 other asset managers
which makes for a very dynamic work place. Montreal’s financial sector is also
vibrating with a special energy.
After the legal creation of the Emerging Managers’ Board (EMB) at the end of January,
the official cocktail launch of this non-profit organization, of which I am the president,
took place at the end of April. It was a staggering success! (see picture below). I am
glad that we finally got our talented emerging managers in the same room as asset
allocators.
The mission of the EMB is to promote and help grow local emerging managers. More specifically, it targets to raise 1.5B$
of assets under management for them by 2016. Canada is really far behind when it comes to invest with local emerging
managers. We have no emerging managers programs, no
Canadian consultants specialized on local emerging managers
and most importantly a majority of investment policy
statements automatically write-off emerging managers. Our
entrepreneurial southern neighbor has built an incredible
infrastructure to cater to and help grow emerging managers.
The New York City Retirement System (NYCERS) is a great
example. It is composed of 5 pension funds representing $150
bn. It recently announced that it was adding $1bn to its
emerging manager program bringing the total investments in
the sector to $14bn. It is a staggering number! It represents
nearly 10% of all assets committed to emerging managers.
Here in Canada, the EMB is trying to promote a meager 1% of assets under management committed to local emerging
managers. Responsible investment is also about making it a duty as an asset manager to commit extra resources and
time to invest with smaller growing local talent. It has a direct and significantly positive impact on our economic
development and local job creation.
To develop a vibrating financial eco-system we must support local emerging managers today in order to create more
local success stories, which in turn generate
more economic development. We need to
start acting as a community to compete
globally! Take a look at our local talented
emerging managers: www.cge-emb.com.
Geneviève Blouin, CFA, CMT,
President Altervest
2
North American REITs Comment
2013 Review
120,00
115,00
110,00
105,00
100,00
Altervest Absolute
déc.-13
nov.-13
oct.-13
sept.-13
Altervest Market Neutral
août-13
juil.-13
juin-13
mai-13
avr.-13
mars-13
févr.-13
95,00
janv.-13
In 2013 REITs were trading in tandem with banks or
other financial assets. As investors feared a rise in
interest rates North American REITs plummeted by
more than 17% over the span of one month. REITs
are often misunderstood by investors.
The myth that they are highly correlated to interest
rates made Altervest significantly outperform in
2013. We delivered a return of 9.7% net of fees
while the North American index stood at 1,67% at
year end! Dividend Capital Securities produced an
interesting piece demystifying the correlation
between Real Estate and rising interest rate. It the
study, the author Glenn Muller, demonstrates that
REITs only have a 0,38 correlation with interest
rates. In fact, Real Estate has a higher correlation
with economic growth than rising interest rates.
EPRA Nareit Index
2014 Expectations
We pay close attention to the PricewaterhouseCoopers Real Estate survey to identify
major trends in direct Real Estate which often acts as a leading indicator for listed Real
Estate trends. According to the survey, U.S. investors still have appetite for Real Estate
equity and debt in both core and non-core markets. The report identified a major change
in trend that we find most interesting; investors are looking at markets that they
previously pouted (non-core markets).
Our value approach brought us to invest in these markets before the trend change. In the
near term our high dividends stocks have been underperforming the index. In the longer
term we expect that trend to reverse and prove us right. 2014 will be another year of
great opportunities for our absolute return strategies.
Even with low interest rates in perspective we believe that core markets have been
overbought and are expensive. 40% of the U.S. REITs ETF (IYR) is invested in large
expensive core market REITs. We are glad to be shorting them and collecting the high
dividend on our long non-core REITs while we wait for them to correct.
All and all, we expect to tell our investors the same thing that we told them at the end of
2013…we outperformed the index with half the volatility. On top of it our products only
have a 0.23 correlation rate with the North American Real Estate index. Although our
expertise remains Real Estate, our primary goal is to preserve capital and deliver positive
returns. When looking at North American Real Estate Indexes or ETFs, one question comes
out clearly : why double the risk for low returns.
« Right now we are
purchasing more units
of our REITs fund in
the portfolios we
manage as we expect
a good performance
by year end. »
Caroline Bédard, CFA
Senior REITs Portfolio Manager
3
Emerging Markets Comment
Following the Fed tapering announcement emerging markets were shunned by investors. Recently institutional investors
started looking more closely at Emerging Markets.
We are of the opinion that early Fed tapering is a positive for Emerging Markets as the stronger US economy will import
more from the rest of the world, and that Emerging Markets will take a greater share of that trade than in previous
recoveries, given the relatively greater size of Emerging Markets industrial production today. The table below, from
Merrill Lynch, shows how cheap Emerging Markets have become relative to Developed Markets.
We mentioned in our previous newsletter that Emerging
Markets were trading at a very cheap levels compared to
historical multiples. What makes it even more appealing
this time is the technical confirmation concurring with our
fundamental analysis that prices are heading north.
On the price chart you can see triangle break out (catalyst
identifying the end of a three year consolidation period for
Emerging Markets).
We believe that as markets get
“comfortable”
with
Fed
tapering,
the
discount
between DMs and Ems will
narrow, thus this period of
malaise is a great time for
Altervest to be building a new
emerging markets strategy.
Keith Porter, ASIP,
Emerging Markets
4
North American Real Estate Products Performance
Altervest Absolute REIT*
Jan.
Feb.
2014 1.2%
3.3%
2013 4.2%
4.8%
2012
0.2%
March
-1.4%
2.0%
0.4%
April
-1.1%
-2.2%
-0.8%
May
1.1%
0.6%
-1.4%
June
July
August
Sep.
Oct.
Nov.
Dec
-1.1%
1.3%
2.4%
-2.9%
-2.1%
3.1%
-0.7%
3.5%
2.3%
-0.4%
-0.4%
1.9%
-0.1%
0.9%
Cumulative maximal loss represents -3.7 %
Annualized return since inception
Year
3.1%
9.7%
5.8%
8.0%
*Historical returns are in $CAD and net of all fees.
Market Neutral Monthly Returns *
Jan.
Feb.
March
2014 -0.5%
0.5%
-1.7%
2013 3.3%
4.4%
1.9%
2012 3.0%
-0.5%
0.3%
2011 -1.2%
0.4%
-0.6%
2010 1.4%
0.1%
1.3%
2009 -1.7% -0.6% -2.0%
2008
April
-1.1%
-2.1%
-0.8%
-0.7%
2.1%
3.8%
May
1.5%
0.9%
-1.2%
-0.8%
-1.1%
1.5%
June
July
August
Sep.
Oct.
Nov.
Dec
-1.3%
0.9%
-1.3%
-1.1%
0.7%
1.7%
-2.0%
-1.5%
-0.2%
-1.1%
-0.6%
3.2%
-2.5%
0.2%
5.9%
-1.9%
3.4%
-1.0%
-0.2%
0.6%
1.5%
0.1%
1.7%
1.3%
-0.4%
1.2%
-0.6%
1.4%
-0.1%
0.3%
2.0%
-2.1%
-0.2%
0.3%
1.3%
0.9%
2.3%
1.8%
Cumulative maximal loss represents -8.4 %
Annualized return since inception
Year
-1.4%
7.0%
8.3%
-6.2%
5.1%
11.2%
0.9%
4.2%
*Historical returns are in $CAD and net of all fees.
Since inception to August 2012, the track record has been generated by Caroline Bédard at Planum Investment Management
Emerging Markets Equities Performance
Monthly Returns - Altervest Emerging Markets
Jan.
2014 -0,4%
Feb.
March
April
May
0,5%
1,0%
-1,0%
2,3%
June
July
August
Sep.
Oct.
Nov.
Dec
Year
2,4%
Annualized return since inception
*Historical returns are in $CAD and net of all fees.
5
Disclaimer
The information contained in this email communication is confidential and is intended only for the recipients named
above and any others who have been specifically authorized to receive it. Any unauthorized dissemination, copying or use
of the contents of this email is strictly prohibited and may be unlawful. If you received this email in error, please delete it
and any attachments from your system and notify the sender immediately.
This communication is for informational purposes only and does not constitute a solicitation or offer to buy or sell
securities. Any such offer will be made only to qualified investors by means of a confidential private offering
memorandum, and only in jurisdictions where permitted by law. Past performance is not necessarily indicative of future
results.
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