Why around-the-world ticket is a win for investors

Forstrong senior vice president explains global approach

Why around-the-world ticket is a win for investors

Forstrong Global Asset Management’s MO is that they do things differently.

Sitting down with senior vice president Francis D’Andrade is to take a tour of the world – and that’s just him explaining his pick for the soccer World Cup. It’s Belgium, by the way.

This continent-spanning approach spills over into his investment game too and helps him explain the firm’s macro, active outlook.

“They say diversification is the only free lunch in our industry,” he said. “Well, global diversification is dessert on top of that. It’s the only way you will lower your risks and not harm your returns, and in many cases enhance your returns.”

Forstrong presents itself as an active manager of passive products and D’Andrade explains that its portfolios are constructed exclusively with ETFs using the full spectrum of asset types and asset classes from around the world.

It’s the latter point that exercises D’Andrade the most and, while pointing out that home bias is a trend shared by every country, he insists that Canadian investors who stick too heavily to their own country are being hurt more than most.

He said the Canadian market is not deep or broad and dominated by only two sectors – financial and energy. “It has some significant deficiencies. It has some underdeveloped healthcare technology sectors and we even have underdeveloped consumer staples and consumer discretionary sectors. So to be a Canadian-only investor is to be adding risk to your life.”

D’Andrade, who describes top active managers as the smart beta who will always be able to distinguish themselves from the passive masses, believes the company’s macro approach is the ideal bedfellow for Canada.

He said that if this country is the first post-national country in the world, with healthy immigration and people from all over the globe, then your portfolio should respect that spirit. And with just 3% of global equity market cap and 2% of the global debt market, that leaves a lot of options elsewhere.

He said: “So 97% of opportunity on planet earth exists outside of these borders. Why would you turn your back on that? And the other thing is there are also deficiencies on the fixed income side. We’re dominated by financials and energies there and, of course, government bonds, but it’s not a deeper or broad market there either.

“I tell people … and this is where the argument ends. Look at your public pension plan - the CPP. It is the largest pool of assets in the country with the greatest amount of resources. In 2000, it was overwhelmingly Canadian; it was 85% Canadian and 95% bonds. And I play a game with them – I ask them how much Canadian equity is in your public pension plan right now? They always guess wrong because they own 60% in Canada even though we are 3%. Well the CPP is about 6% Canadian equities and, in fact, has fewer than 25% of Canadian asset exposure if you will.

“So if this is the proxy for the smart money, why are they 6% Canadian equity and you are 60%?”