Driven by data

Simon Jochlin of StennerZohny Group outlines how he uses data analytics for better portfolio construction

Driven by data
Simon Jochlin is still getting used to his new surroundings after his firm was acquired by Morgan Stanley back in March. You could find worse places to relocate than Palo Alto, California, and Jochlin is finding out there are plenty of other perks to being part of a huge financial services conglomerate too.

“We are the first international group strictly servicing Canada within Morgan Stanley International Wealth Management,” he says. “Because the majority of our clients are transitioning with us, we continue to communicate with the administrative staff at Richardson GMP, and through Graystone Consulting of Morgan Stanley, we are able to advise on cross border assets to create a consolidated picture for the client.”

One of Wealth Professional’s 2017 Young Guns, Jochlin helped spearhead the concept of portfolio analytics at Richardson GMP, and he’s become a key part of the Stenner- Zohny team since joining in 2012. Following the move to Morgan Stanley, his title has changed from associate portfolio manager to international country market specialist, but data analytics remain a key part of his job.

“When I started as an advisor with StennerZohny, we were looking to create a more consolidated experience for clients in terms of risk metrics,” he says. “A lot of that was making different financial ratios so you could have big-picture thinking for the client. Through that, you could tell them if it was an appropriate time to hedge their portfolios.”

High-net-worth individuals expect Simon Jochlin of StennerZohny Group outlines how he uses data analytics for better portfolio construction premium service, which is where extras like detailed analytics can make the difference. The markets in Canada have had a wild ride over the past three years, but that hasn’t been reflected in the books at StennerZohny, Jochlin says.

“Our strategy hasn’t changed much from the beginning of 2015,” he says. “We have systematically used private equity [for] uncorrelated yield to generate cash flow for clients that is uncorrelated to the markets. In January 2016 our portfolios were up 8%, while the markets were down about 14%. We use private equity to hedge out a lot of the volatility and generate positive returns when the markets are down.”

Such an approach entails using more alternatives than would be the norm in a typical portfolio, and one sector under that banner that’s giving investors cause for concern is Canadian real estate. Whether the Toronto market is indeed a bubble or not is debated constantly, but in Jochlin’s opinion, there are certainly signs that a correction could be looming.

“We invest in the Libertas Real Asset Opportunities Fund, and essentially that is a hedge against Canadian real estate, financials and alternative lenders,” he says. “So by design, it had a short position against Home Capital, and when Home Capital had its hiccup, the fund was up to the tune of 42% for the month of April.”

Home Capital’s problems are well known, but Jochlin believes it’s far from the only alternative lender that could end up in trouble down the line. Canada is a nation swimming in debt, which leaves it highly vulnerable should the economy ever take a sustained turn for the worse.

“The Canadian economy is 75% exposed directly or indirectly to real estate, loans and credit,” he says. “You look at that and you realize that there is way too much concentration risk in Canada. The alt lending space really depends on those deposits. As soon as deposits go away, then the foundations go away too.”

Talk of a housing bubble and overleveraged lenders brings obvious comparisons to the US subprime crisis of 2008. Canada weathered that storm better than most and developed a reputation for good governance and regulation of its financial services as a result. Whether that reputation is deserved or not will become more apparent in the coming years, Jochlin says.

“A scenario like the US subprime crisis would take time to play out,” he says. “Along the way there will be companies getting in trouble, then a loan will come in to help them. Banks will try to save themselves before they take write-downs. A lot of this is strapped to the Canadian consumer and economic growth. But when the economy slows down and people can’t pay back their loans, that’s when delinquencies and non-performing loans start to hit the books. It think it will be comparable to what happened in the US.”