Portfolio manager Kevin Hegedus tells WP how and why he is shifting weight in portfolios
By Darren Matte
Saskatoon-based portfolio manager Kevin Hegedus is a 27-year veteran of the wealth management industry. During that time he has seen his share of trends come and go. However, his historical observations have helped him with his approach today, putting more importance on alternative investments.
Hegedus, a Certified Financial Planner (CFP) and Chartered Investment Manager (CIM), remembers how he originally got into the industry. He recalls that a college finance professor gave him a challenge that he ran with. “I had a prof that got me involved in something called the TD Stock Market Challenge through MacLean’s Magazine. You got $500,000 of fictitious money to invest. I did quite well and it sparked my interest in the investment world.”
That experience led to Hegedus joining Investors Group before starting his own business, Prairie Wealth Management (PWM) Private Wealth Counsel, in 1996. Since then he has seen a lot of change in the industry but has adapted well along the way. “When I started out at Investors Group, we sold a lot of deferred sales charge (DSC) funds. I believe the redemption on it was seven or eight per cent. I saw it go from that to more of a low-load, then a front-end fund and then evolve to the discretionary platform we are on today.”
In addition to what he has observed with the industry, Hegedus has also seen a lot of change in the market. “I started out with interest rates being very high and over the last three decades they continued to drop. In the past, you could always rely on bonds to pick up the slack when equities weren’t performing that well. In my opinion, we are entering a new economic cycle right now where we are seeing equities at all-time highs. At the same time, we are seeing interest rates go up. I believe it is uncharted territory.”
Even with it being uncharted territory, Hegedus has been preparing his clients for this and has come up with a strategy to ensure their portfolios are still generating returns no matter the state of the economy.
“In our approach, we are on average 40-45 per cent alternative investments,” said Hegedus. “We have done a lot of research on different alternative strategies. In the portfolio, we use a lot of structured notes for the client. Since 2015, we have built about $157 million in structured note products. We also use a private debt fund, a private equity fund and a couple of hedge funds that have the ability to short.”
His strategies are something Hegedus spends a great deal of time on. He, along with his team have set up an investment committee that meet weekly to review portfolios, make changes and discuss any trends or new ideas. “What I have tried to focus on over the last 27 years is creating a strong team around me. We have some really dynamic team players, my partner Kevin Haakensen is one of them. I think it is what sets us apart. It has really helped when building our discretionary models. You don’t have just one set of eyes looking at things, there are a number of us that help make decisions.”
The model and team have worked well for Hegedus. This past year his office was recognized by the Wealth Professional Awards as the best in the country with a staff of 10 or more. Hegedus himself, also was named Advisor of the Year. “The Best Office is a real testament to the team. I can’t speak highly enough about our staff. The Advisor of the Year was extremely humbling. My name goes on the plaque, but it is the team that really drives that.”
Hegedus and his team’s approach seems to be working but he insists that for them, keeping the client’s interest at the forefront is their key to success. “Never lose focus of doing the right thing and just make sure you always do what is in the best interest of your client. If you really instill that in your team, I think it is a winning formula.”
Tweaking portfolios for possible recession
Hegedus believes the economy is heading for a period of slower growth or a mild recession between 2019 and 2021. With interest rates being so low, he doesn’t see how countries can stimulate their economies. That’s why his team has increased exposure of alternative investments in portfolios to 40-45 per cent rather than the typical 30-40. “We are reducing our exposure to fixed income, especially long-term bonds. We are seeing a flattening of the yield curve, which means shorter-term interest rates are starting to rise and longer-term rates are not.”
Hegedus’ Alternative Investments
- Structured notes
Hegedus’ firm has built $157 million in structured note products in the last three years.
- Private Debt Fund
In a recession, companies get squeezed, lines of credit get cut, leading to more of an appetite for that type of investment.
- Private Equity Fund
Investing in private companies that shouldn’t lose same value as public companies if stock market drops.
- Hedge Funds
Have the ability to short stocks, protecting the portfolio with a chance to make money in down market.