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Stéphane Girard
MBA, CIMTM, Fin. Pl.

Investment Specialist, Products Knowledge

Golf and investments: a proven analogy

Managing a portfolio is much like a golf tournament. An amateur can beat a professional on a few holes. But over several rounds, the pro will always have a higher percentage of good shots. The pro will more often avoid difficult situations on the course, which will allow him to obtain better results at the end of the tournament.

The end of a cycle

The longest bull market in history ended this year with the market tumble that began around mid-February. This period was marked by an increase in financial literacy and a general improvement in many investors’ investment knowledge.

What is a portfolio manager for?

This has led some investors to take control of their portfolios and to manage them themselves. It may seem easy to make good decisions when all asset classes are making gains, but it gets complicated when volatility sets in.

A good portfolio manager not only manages the performance of a fund, they primarily manage risk. The goal is always to generate a maximum return according to a specific level of risk. This is where the expertise of an active manager comes to the fore.

When volatility surges ...

A study carried out by Morningstar over a ten-year period—from 2005 to 2015—showed that an average investor obtained a return of 4.08% for a balanced portfolio, while managers of balanced funds generated a return of 5.23% over the same period. This shortfall shows that the average investor tends to overweight equities in their portfolio after bull market runs and sell those same stocks after bear market periods, rather than maintaining their asset allocation.

The period covered by the Morningstar study includes the 2008 crisis, during which volatility levels remained very high. The level of stock market volatility is measured by the VIX Index.

  • Since 2000, the average daily level of this index has been around 29.
  • In 2008, it reached close to 80, almost three times its normal level.

The following graph shows the VIX Index since the beginning of 2020.

  • Note that the index was very stable at the start of the year, hovering around 15.
  • In late February, stock market volatility increased very rapidly, reaching levels similar to those seen during the 2008 financial crisis.
  • The last days of March 2020 saw a decrease in this volatility, but it still remains fairly high at around 61, i.e. double its average for the past twenty years.

To avoid a rapid depreciation of their portfolio, investors must understand the impact of this market activity and ensure that this risk has been factored into its structuring.

Extreme ups and downs

Now let’s look at a typical day on the stock market. Here we present the day of March 25, 2020  on the he S&P 500 Index in the United States.

  • The index began the day at 2,436 points.
  • In just over one hour, we saw a rise of 2.59%, immediately followed by a fall of 3.49%.
  • The index then started a climb of 6.61%, eventually ending the day with a drop of 3.71%.
  • The index closed the session up 1.60%.

All these big swings occurred in one trading session.

The advantages of being on the ground

Professional managers have access to leading economic data and develop their own scenarios on the future profitability of companies. The availability of these data allows them to develop a more comprehensive knowledge of these companies’ situation. In addition, the fact that they are on the ground, whether in England, continental Europe, India, China or Brazil, gives them a leg up in understanding the economic data in a given context and their real impact on stocks.

Obviously, the average investor doesn’t have the tools to conduct such a rigorous analysis and they can’t access all the data likely to impact market behaviour.

Being able to count on a manager who understands the situation is a major asset.
What about fixed income?

With regard to fixed income, one may ask who among independent investors actively manages their fixed-income securities. The answer is probably almost no one.

The importance of fixed-income securities in the stability of a portfolio was discussed in our last article (March 26, 2020). Active management of the fixed-income securities in a portfolio is just as important as actively managing an equity portfolio. However, individual investors only have access to a small part of the total inventory of bonds, mainly through the secondary market.

In addition, many investors consider only the coupon rate offered by a bond, while the return actually generated by the bond may be very different and the price action of the bond over time may not offer the desired protection.

The benefits of a professional manager are many. To name a few: transaction cost, access to securities of different quality and various maturities and, above all, the ability to adjust the portfolio according to the projected economic outlook are among the most important.

Pros to build your portfolio

In all these considerations, we mustn’t forget the very basics of investing: the actual construction of the portfolio. Investors who manage their portfolios themselves have a strong tendency to overweight Canadian and U.S. content. The reason is that very few brokerage firms offer them the possibility of trading in other countries and individual investors cannot easily analyze foreign securities, even if they may offer very attractive returns.

Diversification across different sectors of the economy is also an aspect that is often overlooked, as is the correlation between the different components of a portfolio. Taking all these elements into account, together with better timing of transactions with economic and financial developments, is a decisive advantage that professional fund managers have and that tips the scales in their favour.

At the Financial, we have an experienced team of managers, including in fixed income, as well as an outstanding selection of external managers, whose complementary expertise contributes each day to the performance of our range of funds. Together, we seek the best performance for our funds and for our approaches, and especially for your portfolio.

If you have any questions regarding your portfolio, feel free to contact your advisor.


Stéphane Girard, MBA, CIMTM, Fin.Pl.
Product Manager, Professional Practice

The information contained herein has been obtained from sources deemed reliable, but we do not guarantee the accuracy of this information, and it may be incomplete. The opinions expressed are based upon our analysis and interpretation of this information and are not to be construed as a recommendation. For any questions, don’t hesitate to contact your wealth management advisor or your tax specialist, accountant or legal advisor.


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