Emphasizing Process over Short-Term Performance
Prudent financial planning has never been more important than it is now. In our recent Integrated Planning video series, WealthCo’s Vice President of Insurance Advisory, Jeff Dyck, a proud member of the Integrated Advisory Network, delves into the integrated approach to financial planning. Below is a synopsis of his insights.
Reflecting on the Past Year
Twelve months ago, our May market commentary highlighted the macroeconomic challenges we faced early in 2022:
Geopolitical conflict
Supply chain challenges
Rapidly rising inflation
A year later, while the Russia/Ukraine conflict remains a humanitarian issue, its impact on financial markets has diminished. Similarly, supply chain issues persist, but most industries and consumers have adapted. Inflation peaked late in 2022 and is gradually decreasing. Today’s significant issue is the impact of high short-term interest rates—a direct response to the challenges of 2022. The United States Federal Reserve increased the Fed Funds rate by 5% over the past 13 months, marking the largest and swiftest increase in US history.
Market Response and Outlook
This relative calm has been welcomed by public equity markets, with broad equity markets up 9% since the end of 2022 and 18% since they bottomed out in mid-October. The negative volatility we observed 12 months ago has given way to positive volatility, with broad equity markets up over 8% since April 2022.
Is Recent Equity Market Optimism Justified?
Assessing whether recent market movements are appropriate is complex and often lacks consensus. From our perspective, public markets tend to overreact on both the upside and the downside. It often takes several months, quarters, or even years to determine if market movements were reasonable or if markets were overvalued or undervalued at any given time.
At WealthCo, we believe a disciplined approach, in both good times and bad, is the foundation for long-term investor success. We emphasized the importance of discipline 12 months ago amid widespread pessimism, and we stress it again today. As we approach the summer of 2023, there are reasons for both optimism and caution. Corporate earnings remain strong, and labour reports are robust. However, the rapid rise in short-term interest rates is problematic for certain leveraged sectors. Careful underwriting and prudent valuations are essential as we watch the Federal Reserve navigate its efforts to curb inflation while avoiding a recession and further issues within the US banking sector.
Our Commitment to Peace of Mind
WealthCo’s Founder and Chief Executive Officer, David Udy, emphasizes the importance of investor confidence in our management:
“If there is one theme that I hear from our investors more often than any other, it is their desire to be able to sleep at night with the confidence that their investments are being professionally managed. Peace of mind is extremely important to them.”
— David Udy, WealthCo’s Founder and Chief Executive Officer
WealthCo’s Fundamental Principles
Dave Makarchuk, WealthCo’s Chief Investment Officer, highlights the cornerstones of WealthCo Asset Management’s commitment to process and peace of mind:
1. Downside Protection Over Upside Capture
“We have built our portfolios relatively conservatively,” Makarchuk shares. “We’re okay being a little behind the market when returns are soaring as long as we’re well ahead when markets are falling. Over the long term, we believe this approach best meets our clients’ investment objectives.”
Makarchuk notes that this approach resulted in strong relative returns last year but softer relative returns this year. “Hot markets like we’ve seen recently aren’t generally our sweet spot, and I believe our investors understand that. We’re in it for the long haul, aiming for a smoother ride along the way. Hopefully, this helps investors sleep a little easier at night.”
2. Serious Fiduciary Responsibility
A fiduciary manages assets on behalf of another, and this role is crucial during volatile financial times. “We are committed to treating each of our investors equally,” Makarchuk says. “A new, small investor receives equal priority to a large, legacy investor.”
3. No Speculative Investments
WealthCo avoids speculative investments such as cryptocurrency, which carry high risks. “We will never put our clients’ money in speculative investments without a sound thesis and plan for the return of capital,” Makarchuk states. “If individuals have play money they can afford to lose and want to explore the crypto market, that’s up to them. But we’ll never do it—the economic rationale just doesn’t make sense.”
4. Independent Client Asset Holding
100% of client investment assets are held in external trusts independent of WealthCo. This ensures clients’ funds are not vulnerable to any financial risks at WealthCo.
“RBC Investor Services Trust acts as both the custodian and trustee for all investments that WealthCo makes on behalf of our clients,” Makarchuk explains. “National Bank Investment Network holds the client units of the RBC accounts. Together, they provide confidence that WealthCo funds are properly valued and accounted for.”
At WealthCo, our disciplined approach and commitment to fiduciary responsibility aim to provide you with peace of mind. We are here to guide you through market fluctuations and help you make sound financial decisions. Contact us today to learn more about how we can assist you in achieving your financial goals.
Source:
[1] As measured by the Morgan Stanley All Country World Index in Canadian dollars.