Price is what you pay, value is what you get

At the end of 2015, the market was trading close to full valuation making it difficult for us to find new investment opportunities at attractive prices. The steep sell-off in early 2016, however, has provided us with opportunities to capitalize on the downturn.

At the end of December 2015, the cash weighting in Trimark Global Endeavour Fund was 19% – the highest it had been in three years. But just two weeks into January’s down market our cash position went down to 14% as we’ve bought three new companies since the start of this year and added to some of our existing positions – overall, deploying roughly $100 million. Our cash weighting could have fallen even further, but some of the businesses that we were buying were quite small, making it more difficult to establish full positions right away. By the end of February, the cash weighting in the Fund was 10% (Source: Invesco Canada, as at Feb. 29, 2016).

The right price

We believe that insisting on attractive absolute valuations has been a driver of the strong long-term returns you’ve seen in the Fund. Price is what you pay and value is what you get. Buying at higher valuations usually serves to lock in lower absolute returns. This is why I feel strongly that when valuations are high, holding cash is the more attractive alternative.

The big picture

Many central banks around the world have set interest rates near 0%, so we’re really in uncharted territory in terms of monetary policy. Signs of a global economic slowdown, including slowing growth in China and plunging oil prices, have roiled equity markets and increased volatility. While we certainly take economic factors into consideration, accurately predicting economic developments is virtually impossible, so we remain focused on our bottom-up approach to identifying companies that we believe will grow over a full economic cycle. Compared with the low rates offered in the fixed-income world, I believe that buying into good businesses offers a better long-term risk/reward profile.

The Fund

I’ve written about our approach to global investing on this blog before, and you can read about the ways I believe our Fund differs from its peer group in more detail here. Essentially, Trimark Global Endeavour Fund is characterized by the following:

• Concentrated portfolio
• Smaller, faster-growing companies
• Low turnover
• Lower valuation versus its benchmark

Two-thirds of the companies we own have net cash on the balance sheets. It’s hard to go bankrupt if you have no debt.

Opportunities today

We are looking more closely at emerging markets right now, as well as the energy space. If you look at the fiscal situation in some of the countries we refer to as emerging – how they are being run and even their balance sheets/deficits – they’ve actually emerged. The countries that are more problematic, in my opinion, are the older, developed economies, such as the U.S. and certain countries in Western Europe, given high government debt levels. As far as the energy space goes, we are continuing to look into it, getting closer on a few ideas, but we’re not quite there yet.

Right now, we see investors starting to become desperate and many are throwing in the towel. That behaviour only makes markets more interesting for us.