is making sure their investment philosophy and values match with yours. At Liberty International we’re focused on helping our clients secure their financial future. We trust in time-tested methods and solid investment strategies that are customized to the needs and goals of our clients.
We offer discretionary investment management services through segregated accounts to high net worth clients. We are based in Canada and serve in the provinces of Ontario, Quebec, Manitoba, Saskatchewan, Alberta and British Columbia.
We are not active traders. We invest in businesses for the long-haul (10 years or more). Our annual portfolio turnover is less than 10%.
We screen 7,000 global companies to find firms that generate consistent, free cash-flow annually. Companies that exhibit this trait have money left over after all the bills are paid to:
- Increase dividends
- Buy back shares
- Pay down debt
- Make prudent acquisitions
- Upgrade plant and equipment to stay modern
- Hire key employees to help the firm grow
We also consider other investment metrics including:
- Return on capital
- Operating margins
- Net-net working capital
- Debt-to-cash flow ratio
- Payout ratios
- and more
When we find an appealing investment candidate, we run multiple discounted cash flow scenarios and comparable valuation metrics to ascertain a reasonable company valuation. Companies that meet our screening and valuation criteria are added to our “Approved Purchase List”. At any given time less than 2% of the 7,000 global companies or about 120 securities qualify for the Approved Purchase List”.
We then sit down with each client to get an understanding of their particular time horizon, risk tolerance and financial goals. Based on these factors we design a 30-stock portfolio for each client. Within that portfolio, we use 5 methods to manage portfolio risk including:
Average security Weighting
In a 30-stock portfolio, the average weighting is 3.3%. If one of the stocks doubles in value (6.6%) relative to the other stocks, we will automatically sell ½ of the position. This re-balancing helps reduce individual stock overweighting and forces us to buy more shares of those stocks that make up less than a 3.3% weight (Buy low, sell high).
We multiply the stock’s beta by the stock weighting to get a weighted average beta of each stock in the portfolio. When added together, the portfolio weighted-average should be less than 1.0, meaning the portfolio will be less volatile than the overall market.
Diversification by Country
We make sure we have 50% invested internationally with the other 50% from the US and Canada. This reduces country volatility. For example, Canada represents only 3% of global trade and the underlying Canadian index (TSX) has a strong correlation to riskier, more volatile sectors such as resources.
Diversification by Industry
We make sure we have more than 50% of the stocks invested in the four main inelastic sectors: Consumer, Financial, Utilities and Healthcare. These companies make money whether or not the economy is strong or weak. They also happen to have lower betas and volatility than other, riskier sectors.
Diversification by Company Size
We make sure we have 50% of the portfolio in blue-chip stocks. These companies are more stable and mature firms where the profits grow with the economy and where most of the profits go to pay a rising dividend to help stay ahead of inflation rates. The other 50% is invested in mid-cap and small-cap stocks, as most of their profits go back into the firm for long-term growth. This combination provides the client with a combination of growth and income which is necessary when setting long-term investment goals.
Our bond portfolios are made up of 20-40 bonds based on security and availability. Most bonds are held to maturity.
We use a static portfolio of a 10-year bond ladder as the core, with other bonds purchased around the ladder depending on the bond investment climate that is based on current interest rates, future interest rates, credit spreads, credit ratings, currencies, prices / yields.
Most bonds will carry an investment grade rating of BBB or higher. High-yield bonds may be purchased where warranted, but will never account for more than 5% to 10% of the bond portion of the portfolio.
We buy foreign bonds in their own native currency. If by maturity, the currency has risen against the Canadian dollar, we may sell and convert the proceeds back to Canadian dollars.
If there’s a currency loss at maturity, we usually keep the proceeds in the native currency and buy more of that country’s debt, thereby not incurring a currency loss. With foreign bonds, we usually keep to 5% or less of the bond portfolio in a particular foreign currency (not Canadian or US).
Some preferred shares will be held in taxable accounts for the favourable Canadian dividend tax treatment. The preferred shares may be global in scope and may include a mix of perpetual preferreds and some rate-reset preferreds.
Other Fixed Income
We will also invest in real return or inflation-protected bonds to protect against long-term inflation scenarios.
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