Strategic Asset Allocation – Why It Matters…. | Christine

Well, these past few months were a ride weren’t they? I wanted to focus my writings this newsletter on taking it back to basics. We are called on by the affluent to manage investment portfolios with an elevated approach – similar to the way that institutions do – with a focus on preserving capital with growth that exceeds inflation and do so in a way that builds wealth for the next generations. The media, however, has all of their focus tied to day trading portfolios. What’s hot this week? Tech? Gold? Bitcoin? The media is similar to a mosquito in your bedroom at night… as Canadians I think we can all get behind that analogy.

Last year, the focus was Mag7, and absolutely we hold those companies in the portfolio, but not exclusively, that is just poor portfolio management. Although those specific companies crushed the S&P 500 last year, and we discussed with clients how frothy they were (which never lasts), they also got completely washed out as soon as some volatility came in. #asexpected

Enter, appropriate risk mitigation of portfolios with strategic asset allocation. There is a reason why our model portfolios significantly reduce the downside during periods of market correction – and that is because we are obsequiously devoted to quality money management. 92% of your returns are based on the appropriate mix of assets (including real estate and private equity) and only 8% of your returns are individual security selection. Put another way, 92% of your returns are getting the mix of US and Canadian and Mid Cap Global and Infrastructure and Small cap companies correct. And only 8% of your returns are due to picking let’s say Coca Cola v. Pepsi.

What is Brinson, Hood, and Beebower (BHB)?

Those of us Institutional Portfolio Management types, this is the foundation of constructing investment portfolios. Feel free to google and go down the rabbit hole, but in a nutshell, this was a highly influential study in 1986 and 1991 that was able to attribute returns into 3 buckets:

• Approximately 91.5% of the variation in portfolio returns over time is explained by getting the strategic asset allocation correct.
• Only 4.6% is attributed to security selection.
• 2.1% is attributed to other factors
• Only 1.8% is attributed to market timing (bonus 4^th observation).

Source: Brinson, Singer & Beebower, Financial Analyst Journal, 1991

 

What saved our “Canadian” Bacon this year during the volatile times surrounding tariff talk? During initial unexpected shocks, there is very little difference that is made by asset allocation. Except for, if you were not diligent about re-balancing (think, owning a company that is going up in value and you just keep letting it go, instead of mindfully taking some profit off the table and re-allocating it to your fixed income component) whereby you suffered unnecessary losses. But, after the initial shock is through, companies that create ongoing value by increasing cash flow annually, and thereby growing their dividend perform better during volatile times. Your Mag 7 strict growth, have the worst performance as there is no compensation to hold on to them.

Source: Tamplin, T. (2024, January 25). Modern portfolio theory (MPT): Definition & how it works. Finance Strategists.

 

Strategic Asset Allocation is being “strategic”. Below you will find an article written by Ryan on Small and medium sized income paying companies, “small cap” for short. He will be speaking on when you see maximum divergence in valuation of larger and smaller companies which presents unique values. So, we utilize these periods of volatility to pro-actively manage our allocation. For instance, our small and mid cap companies provide the optimal risk adjusted return when they comprise of 30% of the Canadian equities against 70% in larger cap names. However, periods of volatility traditionally cause further declines in small and mid cap companies as retail investors flock to large banks. Thus, we will use that as an opportunity to take advantage of purchasing some excellently run companies that drive increasing EBITDA (earnings before interest and taxes) as discounted prices. Think, Neighbourly Pharma, Pet Valu, North West and AG Growth.

Source: BMO Capital Markets Investment Strategy Group, Factset, Compustat, IBES

 

Gold vs. Equities | Christine

Gold's dramatic historical under-performance with taking decades to remain at previous highs is very well documented. Also, gold companies never follow the actual bullion to the same extent as it is an extraordinarily high cost to mine. However, as is the case with anything (most recently the Mag 7 which have since imploded and been appropriately re-priced), once there is movement, there is attention. So, let me briefly comment.

Gold has ZERO long term meaningful use except as a hedge for inflation (and pretty jewelry). And let me clarify my tone, “alleged” hedge against inflation.

So, pulling some data going back to 1980 with Gold v. US equities as an inflation hedge.

 

Source: Factset, US Inflation Calculator · Copyright^© 2008-2025 Coinnews Media Group LLC

Important to Note that the CPI is reported as of April 30th and the price of Gold and S&P 500 are as of June 5th, 2025. This ignores all dividend paid by S&P 500 – and gold pays zero.

Summary: Gold is a terrible inflation hedge and the most consistently effective inflation killer is? You got it, equities.

 

Don’t Forget about the Little Guys | Ryan

When discussing diversification, the media tends to focus on sector and geographical diversification with all the news surrounding the large cap names (i.e. Nvidia, Amazon, Meta, Shopify, RBC). Mainstream conversations around the topic of diversification focus on whether to hold more Canadian equities vs. U.S. equities or should one look to overweight technology stocks vs. financials and shy away from looking into the opportunities of small and mid-cap companies.

Our approach to portfolio construction not only focuses on the above but dives deeper into investment opportunities that lay outside of the large cap indexes (i.e. S&P 500, Nasdaq and the TSX).

With the current Mag-7 (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla) comprising 34% of the whole S&P 500 by weight the discussion around diversification become more paramount as the movement of these 7 names have accounted for a staggering 60% of the S&P 500’s return since the beginning of 2023.¹

Small to mid cap (SMID) companies tend to have a market cap of around $250M-$10B. Historically, these companies carry high debt and warrant a valuation discount. Today we are seeing quality SMID-cap names that carry lower than average levels of debt and showing strong of profitability, cash-flow and increasing profit margins trade at a near record valuation discount vs. their large-cap peers.

The chart above gives us a true picture of the current opportunity in the SMID cap space as when analyzing the highest quartile of small and mid cap stocks based on cash flow and price to equity valuation compared to the same cohort of large cap stock, SMID stocks are currently trading at a multi decade discount presenting great diversification opportunities.

All Great Companies Must Start Somewhere

SMID-cap companies tend to carry high growth rates as they are leaders in their space as new market segments get built out, they tend to be at the for front of this growth. This combination of innovation and new market segment make SMID-cap companies the ideal targets for M&A activity. Over the past 30 years, 96% of public M&A targets in the United States have been SMID-cap firms. Last year, the average premium that large-cap companies paid to acquire SMID-cap companies reached 50%, a post–global financial crisis high.² On the Canadian front M&A activity since 2019 within the SMID-cap space as resulted in 11 deal completed with $3B or greater valuation with a 18% take out premium along with 67 deals completed under $3B valuation with at 37% take out premium, further showcasing the valuation opportunity within the SMID cap space on both sides of the border.³

In summary, diversification comes in many forms. With the utilization of SMID-cap companies we can help to provide strong performance by looking for opportunities for investment in areas of the economy that may get overlooked due to heavy concentration by investors in only a handful of mega cap companies.

Sources: Are Overlooked Small- and Mid-cap Stocks About to Surge? | J.P. Morgan.¹ “U.S. Small/Mid-Cap Strategy: The U.S. SMID Outlook—2024,” J.P. Morgan Global Market Strategy, January 2024, Bloomberg², Barrantagh Research³

 

EARN- The Importance of Asset Allocation | Jordan

This month, my video for the EARN series focused on the importance of Asset Allocation and its ability to help with long-term planning. I thought I would use this as an opportunity to give more information on the video for people who want to dive a little deeper.

Asset Allocation is widely recognized as a primary driver of portfolio performance over time: more so than picking individual stocks or timing the market. Here’s why it’s so crucial:

• Reduces Volatility: By investing in assets that have different reactions to the market, you can lower the ups and downs in your portfolio’s value and avoid the potential for large losses.
• Aligns with Goals: The right asset mix ensures that you investments are tailored to your financial goals and risk tolerance. Whether you’re in the market for a new house, saving for retirement, or even looking to start drawing from your portfolio. Your Asset Allocation is an essential part of planning for these life events.
• Encourages Consistency: In periods of volatility (like what we are in now) a well-defined asset allocation strategy helps investors stay on course. This reduces the likelihood of emotional, impulsive decisions that can hurt your long-term returns.

Asset Allocation is the cornerstone of successful investing, helping you manage your risk, achieve smoother returns, and stay focused on your long-term financial goals.

Sources: Asset Allocation | Investor.gov

Included below is my latest video explaining Asset Allocation. Feel free to share the link to someone you think would benefit from learning about this topic. Also, if reading articles like this one don’t pique your interest you can check out our full library of videos.

 

Estate Info Organizer

Our clients typically have their own system for filing important documents, financial records and digital account access credentials. However, if someone else had to step in and access all of this immediately, would they be able to locate it?

We have created a customized *electronic* estate information organizer that is fillable. It can be updated when needed to be shared electronically or in hard copy with your executor or your key financial decision makers in the event you are incapacitated or for estate purposes.

Email us at: FortinWealth@bmo.com or click the Estate Information Organizer to get your copy.

 

 

LEVELING UP!

Ryan

Ryan has been working hard on leveling up his advisory expertise. Chosen as 1 of 15 Associate Advisors to take part in a specialized firm run program helping to provide high level support to promising young advisors in order to help grow and provide high level service to their clients.

Ryan has also taken this a step further by spearheading a group of young advisors across Canada who meet and discuss high level topics and share ideas for providing high quality expertise to their clients.

He is currently competing in the 2025 Financial Planning Awards and has been selected to move on to the 2nd round of the competition. The Canada wide competition gives planner the chance to display their planning skills and recognizes those setting the standard for excellence in the profession. Stay tuned for further updates as Ryan continues in the next round of competition.

Jordan

Congratulations to Jordan who recently completed the LLQP insurance exam and is now licensed to provide insurance recommendations. This is a valuable addition to the Fortin Wealth Team’s exceptional service that we provide. We are proud to see him continue to excel as he works toward receiving his CIM and CFP designations in the near future. His dedication and drive to his professional career is a great asset to both our team and our clients.

Dylan

He was able to complete the Wealth Management Essentials (WME) course this winter, getting him one step closer to becoming a Chartered Investment Manager. He’s excited to apply the knowledge that he’s gained to his day-to-day work and continue building his foundation with the Fortin Wealth Team.

 

Robin Esrock’s Bucket List

Summer 2025

Travel personality and bestselling author Robin Esrock has reported from over 120 countries on 7 continents. We’ve invited him to share his latest travel inspiration.

 

CANADIAN DREAM FOR THE SEASON:

The East Coast Trail

See the very best of Newfoundland on your feet. The East Coast Trail is on the opposite coast of the West Coast Trail, and an entirely different experience from its rugged counterpart. Similar to their multi-bike adventures, Great Canadian Trails have curated different itineraries to self-guide you through the most scenic and stunning sections of the trail, skirting the dramatic coast of Newfoundland’s Avalon Peninsula. Shuttling you to each day’s trail head (and your bags to the next excellent B&B) think of it as a series of bucket list day hikes. Carrying water in you day pack and equipped with an excellent GPS-powered app to ensure you won’t get lost, stroll across coastal forest, grassy barrens, sandy beaches and towering cliffs. Keep an eye out of whales breaching off the coast, puffins, rock arches, wildflowers, and welcoming characters in the fishing communities you’ll pass along the way. The itinerary also includes time well spent in St John’s, including the city’s Jelly Bean Row houses and the scenic ten-kilometre Quidi Vidi loop. The East Coast Trail has quickly developed a reputation as one of the best hikes in the world, and rest assured, nobody has to rough it.

 

GLOBAL DREAM FOR THE SEASON:

The Cook Islands

The Cook Islands is a tiny nation of just 14,000 people that covers a staggering 1.8 million square kilometres of Pacific Ocean. While tourism is the primary industry, the lack of major chain stores or hotels is as refreshing as the ika mata (raw tuna marinated in lime and coconut cream), primarily because land ownership is strictly reserved for native islanders. Rarotonga is the main island with the international airport, easy to explore by scooter, with a striking mountain right in the middle. Picture boutique hotels on the beach with infinity pools and relaxing hammocks. azure colour of the warm sea surrounding the island of Aitutaki is dreamy, and there’s great fun to be had with locals in in the bush bars on the tiny island of Atiu. With an economy that runs on the New Zealand dollar, ‘the Cooks’ offer great value for Canadian travellers. people are lovely, the beaches have white squeaky sands, the food is delicious and the seas are warm. The best time to visit is during the dry season from May to October. If you’re looking for a spectacular and romantic island destination off the beaten track, look no further.

 

TRAVEL NEWS & TIPS

Nobody wants to use tourism as an economic weapon, but here we are. Canadians are cancelling US trips in droves. Nobody involved in US tourism wants this either, but until things settle down, Hawaii, Florida and Arizona can wait. As a result, the Canadian tourism industry is expecting a bumper summer, as we go Elbows Up to support local destinations and attractions. In other news, Air Canada has finally launched free, streaming quality wifi for Aeroplan members on their North American flights, catching up to United, American and Delta. Westjet also offers free wifi to Rewards members on certain flights. On the one hand, this is great news! On the other, we lose one of the last places to escape off the grid and watch a movie instead.

 

LET’S GO

Each summer, I look for a fun, family-friendly road trip. Last year I took the family to Waterton National Park in a RV rental, and it’s now my favourite national park in the country. You can read my Canadian Geographic column to see why. This year I’m taking the kids north into the BC Cariboo. Our destination is Barkerville, the largest living museum on the West Coast, where you can experience the Cariboo Gold Rush through the preserved told, stagecoach rides, live theatre, guided tours, demonstrations, and costumed interpreters. Along the way, I hope to stop at the newly refurbished Lac Le Jeune Resort, perhaps do some riding at the Siwash Lake Wilderness Resort, and follow our noses towards some lifelong memories. I always say you don’t have to travel to the far ends of the Earth to tick off your bucket list, sometimes you can just look in your own backyard.

 

DON’T QUOTE ME:

“We travel not to escape life, but for life not to escape us.” – Anonymous

If you have any travel-related questions or inquiries, feel free to email me at robin@robinesrock.com

 

Happenings

Christine

Christine has been channeling her inner champion!

She recently attended our firm's annual President's Council Conference. A conference which honours the firm's top advisory practices whereby Christine was a member of the prestigious Director's Award. We hosted Canadian icon Donovan Bailey, the first man to *legally* break the 10 second barrier. There were plenty of amazing takeaways from his discussion. Christine is looking forward to sprinkling them in digestible bits and life lessons to her son Kase. Christine said that a special moment was a side bar chat that Donovan had with her husband Kent on coaching youth sports as Kent coach’s football. To have that level of insight from the man himself was a spectacular experience.

Christine said “I often say to my friends, family, and colleagues that I am always looking for another mountain to climb. Whether it be a literal/physical goal, or to try a new sport or disrupt a new process in the Wealth Advisory space. It keeps me fresh and young and continues to build a career pedigree.”

It also aligned with a parting comment that Donovan said: "Surround yourself with people you can learn from. If you are not a student 100% of the time, then you are done. When you are through trying to improve, you are done."

Well, Christine is certainly not done.

 

New addition to Christine’s family...? A furry kind... Little known is that prior to having a family, Christine’s home was always filled with unwanted animals that she fostered for the SPCA. She helped interview potential adoptees and gave a better life than at the shelter to these animals. She specialized in sick and injured animals. Christine has a lovely Cavalier King Charles Spaniel x Poodle (Cavapoo) who is almost 6 years old and it was time to get him a younger sibling to keep him vibrant and youthful.

Christine and her Family rescued “Peachy Pearbottom” changing his name to Walter from the SPCA. Walter came from a puppy mill in Northern BC. He is 10 months old and hasn’t had any human socialization. He is very much a pack dog so finds comfort with his big brother. He is fattening up and starting to get used to his new home and family. Given all he has been through, he is wary of humans. Thankfully, he has his big brother, Gordie, who is confident and showing him the way.

 

Kase and his U12 White Rock Titans team played in the provincial tournament in Kamloops in June. It was a scorching 37 degrees and the boys endured. They decided to stay up at Sun Peaks and the boys got to enjoy their first lake dip of the summer at Heffley Lake following day two of games. Friendships are really depended by these awesome experiences just being boys at the lake exploring.

 

Ryan

The first half of the year has been a business one with the planning and celebration of two birthdays in the Lidder household. Aanya turned 3 while her baby sister celebrated her first birthday with a safari style theme.

If Ryan wasn’t getting enough exercise running around after the little ones, he recently decided to re-join his recreation hockey team!

 

Jordan

Just a couple of months ago, Jordan had the incredible opportunity to travel to Australia and New Zealand on a two-week adventure. He soaked up the sunny February weather in Sydney before heading to New Zealand, where he explored Auckland, Wellington, Christchurch, and Tauranga.

The highlight of the trip? Visiting the Hobbiton Movie Set where he got to see the exact locations where they filmed the Lord of The Rings movies.

 

Dylan

This past May, Dylan accomplished a major personal milestone by completing his first half marathon as part of the BMO Vancouver Marathon. After months of early mornings and consistent training, it was incredible to see that hard work pay off. He was able to cross the finish line in 1 hour and 58 minutes, just under his 2-hour goal!

Looking ahead, He’s excited to spend some time recharging this summer with travel plans to Vietnam and Japan. He will be exploring the scenic Ha Giang Loop in northern Vietnam, the beautiful city of Ho Chi Minh, and then heading to Japan to explore the cities of Tokyo, Kyoto and Kanazawa.

 

Team

Christine and Ryan had the opportunity to host a networking event at the Vancouver Whitecaps Vs. Minnesota United FC game in the BMO Suite. The event brought together several of our business colleagues and gave our team the chance to make some meaningful new connections. It was a great mix of sports, conversation, and networking. Our team is looking forward to more events like this one on the horizon.