While Gryphon is convinced that, over long periods of time, equities outperform other asset classes, there is no portfolio for all seasons. Therefore, we maintain the flexibility to shift our asset mix when economic and financial conditions warrant.
Gryphon’s balanced fund management process identifies – in advance – the potential rewards and risks of the complete portfolio structure. We use this risk-awareness to balance the sector and asset diversification within the portfolio.
Starting from a global view, we gain an insight into the world’s major economies, narrowing down to North America, and finally, Canada. Economic analysis drives our forecasts of the future environment, while current market valuations relative to those forecasts define the risk/reward trade-offs of various asset allocation strategies.
A key element of our investment process is setting the asset mix, which is the responsibility of the portfolio managers forming the Balanced Fund team. This team is responsible for setting the weights for Canadian, U.S. and EAFE equities, as well as bonds and cash. The asset mix is under constant review and all investment decisions (e.g. stock selection, term structure of the bond portfolio, etc.) stem from ongoing analysis, encompassing a risk-aware approach to total portfolio returns.
Emphasizing a top-down approach, we start with economic analysis, supply and demand forecasts in the credit markets, and fiscal and monetary policy. While the primary emphasis is on the U.S. and Canada, the interconnection of global fixed income markets requires a complete understanding of interest rates trends in major economies.
We generate multiple interest rates and yield curve scenarios for the next six to twelve months and determine an optimal duration range based on our view of the most likely interest rate forecast over the period. Alternate scenarios are used to define and quantify the risk associated with this duration range and modify it if required.
Gryphon characterizes its investment style as “Growth at a Reasonable Price”. Our portfolios are built using a stock selection approach driven by fundamental analysis. Our goal is to identify growth potential by focusing on specific financial and industry variables that vary in significance depending on the current stage of the economic cycle. This portfolio underscores economic and financial market themes where we expect to see outperformance in the next 12-18 months.
We structure our portfolios based on three key factors:
- Identifying attractive economic sectors that will outperform the broad economy.
- Identifying stocks with timely characteristics within those sectors.
- Developing a clearly defined stock market outlook and interest rate forecast.
Based on economic themes that are likely to dominate the Canadian market over the next 12 months, we develop specific over/under-weightings of TSX sectors.
Our choices for individual securities are also influenced by our investment themes. However, they are driven mostly by bottom-up fundamental analysis of earnings, cash flow, balance sheets, industry dynamics and other relevant factors.
Aside from the thorough analysis of company specific data as well as industry reports, we also meet with corporate management and perform site visits when appropriate. Another important element of our in-house research is assessing information with respect to competitors, suppliers and customers of the companies in our portfolios. Gryphon’s company and industry research also helps serve to confirm and verify the portfolio themes.
Provided by sub-advisor Gryphon International Investment Corp.
Gryphon International’s investment style is also “Growth at a Reasonable Price”. The investment process is focused on stock selection and primarily employs a company specific (bottom up) process; approximately 80% of the research performed is company specific. The remaining 20% is derived from a macro-overlay (top down) process that takes into account broader sector, regional, economic, and political considerations. Portfolio managers seek the most attractive global growth companies that are not only ‘best in class, but are also attractive investments based on absolute valuation criteria. Gryphon International provides a focused all-cap growth portfolio with a long-term investment horizon.
The selection process includes valuation analysis, technical, qualitative and quantitative factors as well as risk controls. The entire investment team engages in fundamental analysis and generates research ideas. Decision-making is team-based. Research is routinely generated internally using external data, meetings with company management, site visits, industry reports, as well as information regarding competitors, suppliers and customers of portfolio and target companies.
|STOCK AND SECTOR WEIGHTS|
|Minimum/maximum number of stocks||35 to 50|
|Minimum/maximum number of sectors||6 to 11|
|Minimum/maximum stock weighting||1% to the lesser of 10% or TSX + 4%|
|Sector weight 0%-10% of TSX||Minimum 0% of sector weight to maximum sector weight + 10%|
|Sector weight 10% and over of TSX||Minimum 1/3 of sector weight to maximum sector weight + 15%|
|Maximum sector weight:||25%||25%||25%|
|Industry Sectors:||6 of 11 sectors||6 of 11 sectors||6 of 11 sectors|
|Regional allocation:||30-70% U.S.
|Emerging market exposure:||0-5%||–||0-10%|
|Individual stock weights|
|Global book value (0.5-2.0%); Market value (maximum 4%)|
|International book value (1.0-3.0%); Market value (maximum 6%)|
|U.S. book value (2.0-5.0%); Market value (maximum 10%)|
|Government of Canada:||50-100%|
|Duration Range:||± 50% SMU duration|
|Average Maturity:||4-20 years|
Talk to one of our investment professionals to learn more about our investment strategy.