Why TriDelta has been mostly out of Oil Stocks – but that could change


oilThe biggest investment story of the fourth quarter has been the rapid decline in the price of oil.

On September 26th the price of West Texas Intermediate (WTI) crude oil was $95.55.

As I write this in mid-December it is $57.42. In less than 3 months, oil has dropped 40%!!

Over the same period, a decent sized Canadian energy name like Canadian Oil Sands stock is down 57%.

Fortunately, at TriDelta we have been significantly underweight energy during the past few months – not to say that we avoided energy completely.

Currently the only energy names we own are large, diversified names like ExxonMobil and ConocoPhillips. Exxon is down about 10% over the same period, and Conoco is down about 20%.

For our more conservative clients, we are always underweight energy as compared to the Toronto Stock index. This is simply because there is too much volatility in the sector for a conservative client to have a 25% weighting in energy (this is generally the TSX weighting in energy stocks). We find that there are too many other sectors that better fit the consistent dividend growth goal for this type of client.

For our more growth oriented clients, we simply found that there were better growth opportunities elsewhere at this stage of the market, and we don’t feel a need to be particularly exposed to every industry. We did have a couple of smaller energy investments in the past few months that didn’t do well, but we were out of them before the most significant drop.

Having said this, there will definitely be times when we are heavier into energy than we are today. This could happen shortly as we do feel that the oil price decline is clearly overdone at this point, and when the bounce happens, there will be some very quick gains. Once again, we will likely see more exposure to energy for growth clients than conservative clients.

The last few months is a good example of how TriDelta Financial tries to manage money for its clients. We are not index huggers – trying to match the TSX. We’re disciplined about the types of companies that align well with the investment objectives of our clients. In volatile times, we will be more focused on capital protection – especially for our more conservative clients. If we are able to avoid an investment collapse or two every few years, this will obviously do a great deal to help keep your peace of mind, and also provide strong investment returns over the long term.

Ted Rechtshaffen
Written By:
Ted Rechtshaffen, MBA, CFP
President and CEO
(416) 733-3292 x 221

When to Invest in the Market?


One of the most frequent questions posed by clients concerns whether now is a good time to invest in the equity markets.   As the last two months reminded us, even during a bull market, pull backs are quite common.  In fact, on average, the stock market experiences a 10% or greater decline almost once per year and smaller declines of 5% or more 2-3 times per year.  No one wants to put new money into their portfolio only to see it go down in the short-term, but generally the bigger risk is having money sit on the sidelines uninvested.  While equity markets can experience large declines (2008-2009 is the most recent example), historically, they have earned over 9% per annum, while cash has only earned roughly 3.5% [1].

14498871_sTherefore, when we are asked the question whether now is a good time to be invested in equities, we typically respond YES it is (although the percentage allocation will vary by each client and their circumstances).   A recent report from Charles Schwab’s Center for Financial Research titled “Does Market Timing Work” confirms this view. [2]  The author, Mark Riepe, examined the returns for five different types of investors (listed below) who each received $2,000 at the beginning of every year over a 20 year period ending in 2012.  The individuals were:

Peter Perfect, who had great market timing ability and managed to invest the $2,000 each year at the S&P500’s lowest monthly closing value.

Ashley Action, who invested her full $2,000 each year at the earliest possible moment.

Matthew Monthly, who divided the $2,000 into equal monthly allotments.

Rosie Rotten, who had the opposite luck of Peter Perfect; she invested her funds each year at the monthly market peak value.

Larry Linger, who could not determine when to invest in the market, so he chose to keep his funds in cash (using Treasury bills as a proxy) every year.

Fast forward to the end of the 20 year period and the results may be somewhat surprising.  While equity markets were substantially higher at the end of 2012 from 1992, this period did include two bear markets (2000-2002 and 2008-2009) and many corrections of 10% or more.  Even Rosie Rotten who had horrible market timing, investing at each year’s monthly peak, still managed to earn a strong return.

Peter Perfect had the highest closing value, turning his $40,000 of investments ($2,000/yr. over 20 years) to $87,004.  Ashley Action earned the next most at $81,650.  Matthew Monthly fared well with $79,510.  Even Rosie Rotten still ended up with $72,487, a gain of over 80% on her capital.  The only real loser was Larry Linger who saw his $40,000 only grow to $51,291.

The more important point of the article is that these results were consistent across nearly all time periods analyzed.   The author analyzed 68 rolling 20 year periods beginning in 1926 (prior to the Great Depression) and in over 85% (58 out of 68) of those periods, the results were the exact same (Peter performed best, followed by Ashley, Matthew, Rosie and Larry was last). 

Of the 10 periods that did not follow this normal pattern,  Ashley Action never finished in the bottom. Instead she still finished second 4 times, 3rd 5 times and 4th once.  In fact, Ashley Action who invested her funds immediately, had the second best return of the pack 91% of the time and was third or better in 98.5% of all rolling 20 year periods.  Larry Linger, by contrast only finished in first or second twice, in the periods 1955–1974 and  1962-1981.  He earned the lowest return in 91% of all time frames.

Equities have historically provided the highest returns among traditional asset classes, but with significantly more volatility.  While, investment advisors and counsellors can never guarantee results, nor can they always determine the best time to invest in the market, but at TriDelta Investment Counsel, we suggest that all long-term investors have an allocation to equities in their portfolios.  As the report suggests, we prefer the odds of Ashley Action and Matthew Monthly achieving their financial and retirement goals much better than those of Larry Linger.

[1]  Returns on S&P500 from 1928-2013 had a geometric average return of 9.55%.  3-month T-bill average return was 3.55%

[2] For a copy of the report by Schwab Center for Financial Research, please go to:


Lorne Zeiler
Written By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
416-733-3292 x225

Market Turmoil – Why your portfolio is not as bad as the market


Over the past 6 weeks, but especially in the past week, the stock markets have experienced a meaningful pullback.

From its peak to close yesterday, the TSX was down 11.5%.

The US S&P500 was down 7.9% from its peak.

Dow Jones Germany was down 14.8% from its peak.

Our clients have typically fared much better during this period for the following reasons:

  1. The Canadian Bond Universe is up 0.7% since September 1. This is one of the main reasons to own bonds – in most cases they act as a counterbalance to stocks during weakness in the stock market. In addition, it isn’t just owning bonds, but also making the right choices in terms of corporate bonds vs. government bonds, and owning long term bonds vs. short term that can further benefit a portfolio. Fortunately, at TriDelta we have been predicting lower long term bond yields, and have benefitted from owning longer term bonds.
  2. TriDelta looks at volatility risks and builds stock portfolios that are meaningfully less volatile for our more conservative clients, but even for our growth clients, there is an element of capital preservation in our stock selection. As a result, while our stock portfolios have declined in value, we have meaningfully outperformed the TSX index over this rough period. Conservative clients would have outperformed the TSX by 8% on the stock part of their portfolio since the beginning of September (decline of only 3.5%). Growth clients would have outperformed the TSX by 3% on the stock part of their portfolio.
  3. All this means that your asset allocation and risk profile have an important impact on performance when things are going well, and when things are not going so well. For example, a conservative TriDelta client with only 40% in stocks would be down roughly 1% since September 1st. A growth TriDelta client who is 80% in stocks will be down roughly 7% since the peak of the market. In addition, our High Income Balanced Fund is down just 1.5% since September 1. While we never want to be down, this should give you a better sense of how your portfolio has fared within the pullback.

13797194_mA final note on asset mix. We believe that if your asset mix was right for you 6 months ago, it is probably still correct for you today. The only reason for a meaningful change is if your cash flow needs have changed significantly or if your overall financial position has had a meaningful change. If those haven’t happened, we wouldn’t recommend changing now. Keep in mind that in February 2009 it was almost impossible to get people to invest in the market – with most late RRSP contributions going to cash. For the full year 2009, the TSX had a return of 35.1%. The point is that it is very difficult to pick a market bottom, but we do believe it isn’t far off from here. When the bottom hits after a sudden pullback, there is quite often a very strong rally. Investors with a long term perspective do not want to miss that rally.

We will continue to monitor various factors closely, and may make some changes to portfolios as we do throughout the year, but for now, we believe it is not the time for major changes.

One factor we are monitoring is Ebola. We do not know what Ebola will become on a global basis. We do know that over the past 90 years, the fear factor on ‘new’ diseases and viruses has been much greater than the actual global impact. How many of us even remember the Swine Flu? In June of 2009, the World Health Organization and the US Centers for Disease Control announced that it was a Pandemic – and fears were rampant. While not equating the two, we believe that it is very likely that today’s fear will prove to be overdone on a global basis.

As always, we are happy to talk to and meet with all clients at any time. If you have questions or concerns, please do not hesitate to contact your Wealth Advisor.

Thank you.

TriDelta Investment Management Committee

Cameron Winser

VP, Equities

Edward Jong

VP, Fixed Income

Ted Rechtshaffen

President and CEO

Anton Tucker

Executive VP

Lorne Zeiler

VP, Wealth Advisor

Why We Own Stocks


With the equity market sell-off at the beginning of August, investors have been reminded once again that there is risk to investing in the stock market, but before hitting the panic button, it is worthwhile to review why we suggest allocating at least part of your portfolio to equities and why stocks are still likely to offer the best total return over the medium to long-term.

While some people have called the stock market a casino or worse, investors need to be reminded that each share of stock represents a fractional ownership of a business. When you buy shares of Apple, Pfizer, BCE or TD Bank, you are becoming a fractional owner in those enterprises. The value of that business is based on the future earnings and cash flow that those companies generate. Buying shares of good companies at a reasonable price has been and likely will continue to be one of the best methods of building long-term wealth.

The main reason that people have bought equities is to generate higher returns in their portfolio. This is called the Equity Risk Premium (ERP). The ERP represents the additional return that investors have earned owning equities over other asset classes. Historically, equities have provided a 4% higher return than bonds1 per year. If the investment is in a taxable account, that premium is even higher as equities generate capital gains and dividends, both of which are taxed at much lower rates than bonds (interest income). Please note though that the 4% premium is an average, meaning in some years the benefit will be much greater than 4% and in other years equities may earn a lower return than bonds or a negative return.

Inflation Hedge: While bonds offer security – a fixed coupon payment from issue to maturity date as long is there isn’t a default, investors bear inflation risk. This is the risk that if inflation increases, the fixed coupon payments from the bonds will have a lesser value, because these cash flows will not be able to buy the same amount of goods and services, i.e. have less purchasing power.

1727060_sSince equities are public companies, typically when inflation rises, these companies find ways to continue generating higher profits by raising prices and /or cutting costs. E.g. if inflation rises, Walmart, McDonald’s, Royal Bank and TransCanada Pipelines typically find ways to continue increasing profits (and potentially dividend payments to shareholders) through changes in pricing or cost cutting measures, thereby protecting the investor’s purchasing power.

Participate in Economic Growth: While economies do experience contractions from time to time, typically Gross Domestic Product (GDP) increases over time. As the economy expands, so should earnings of quality public companies (equities). Historically, these companies will generate more in sales and be able to increase prices during periods of economic expansion, and be able to reduce costs during periods of economic weakness, which should lead to higher earnings per share (EPS). Higher EPS typically leads to higher stock prices and often to higher dividend payments over time. In short time periods, particularly recessions, equity prices may decline even if earnings rise, but on a long-term basis, equities have been one of the best ways for investors to benefit from economic growth.

Low Interest Rates: While interest rates are expected to rise in the first half of 2015, we expect the increases to be small initially and the pace of the increases to be slow. Low interest rates benefit equities in a few ways: 1) relative attractiveness – institutions and individuals need to put their investment dollars somewhere. When interest rates are low, the relative attractiveness of stocks, particularly those that pay a dividend, is greater, i.e. when your choices are investing in a GIC paying less than 2%, and a government bond paying less than 2.5%, investing in stock that pays a 3% dividend and offers the potential for capital gains is quite appealing. 2) enhanced earnings – with low interest rates, companies need to devote less of their revenues to debt payments, which enhances profit margins and overall earnings. Higher earnings typically leads to higher stock prices. 3) Share buyback – many companies are using their savings on debt costs to buy back their shares on the market. If the number of shares outstanding decreases and earnings remains relatively the same, earnings per share (EPS) improves as well. From Q2 2013 to Q2 2014, U.S. companies bought back approximately 3.3% of their shares outstanding2; these share repurchases increased earnings per share.

While we do not expect equity returns similar to 2013 or 2014 in the year ahead, we still expect equities to outperform other asset classes in 2015. Because of their many benefits, equities should remain a key part of each investor’s portfolio over the long-run.

The overall percentage of equities to own in an investment portfolio, and the type of equities to hold (large capitalization vs. small capitalization, developed market vs. emerging market) are best determined by meeting with a trusted investment counsellor and /or financial planner. A trusted planner reviews their clients’ income and cash flow needs as well as taxes to determine the clients’ needed rate of return. An investment counsellor analyzes investments to determine the best return prospects relative to each investor’s willingness and ability to take risk in his investment / retirement portfolios.


[1] Quantifying Equity Risk Premium, Allan Millar, January 30, 2013. Based on S&P500 Index return vs. U.S. Government and Corporate Bond Indices. Data set from Ibbotson 1926-2010.

[2] FactSet Quarterly Buyback S&P500, June 18, 2014.


Lorne Zeiler
Written By:
Lorne Zeiler, MBA, CFA
VP, Portfolio Manager and Wealth Advisor
Lorne can be reached by email at or by phone at
416-733-3292 x225
Cameron Winser
Written By:
Cameron Winser, CFA
VP, Equities
Cameron can be reached by email at or by phone at
416-733-3292 x228



This is article one in a five part series on the topic of RISK. The articles will be as follows:

  1. Determining the Appropriate Risk Level for a Portfolio
  2. Why have bonds (a ‘safer’ asset) gone down in price recently?
  3. Why equities are ‘riskier’, but offer higher potential long-term returns
  4. Understanding volatility (risk vs. reward)
  5. Countering Investor Behavioural Biases (How to protect yourself and your portfolio from making emotional mistakes)


Part one – Determining the Appropriate Risk Level for a Portfolio

10922382_s2One of the greatest disconnects between investment professionals and their clients is understanding and interpreting risk.  For most investors, risk is essentially the potential that an investment could lose money (typically over a short time period).  In particular, an investment is considered more risky if there is a greater probability of a loss (negative return) and if that loss could be substantial.   But, focusing solely on this singular view could lead an investor to miss out on opportunities for higher return and the danger of not having sufficient funds for retirement.

For example, an investor owning a portfolio of only GICs believes she is taking on zero risk as the GICs, if held to maturity, should give her back her principal investment plus a small amount of interest.  But, if the investor needs to earn a return of 5% per annum to fund her retirement, a portfolio of GICs paying 2% actually has a great deal of risk – the hazard of not meeting her investment goal.  In this scenario, the investor is at a 100% risk of not meeting her retirement goals, requiring her to work longer or reduce expenses substantially during retirement.

Determining Risk Level in Your Investment Portfolio

Instead of focusing solely on short-term losses or gains, you should consider the following three questions to determine your appropriate investment portfolio for retirement planning:

  1. What is the minimum return / level of income needed in retirement?
  2. What is the desired return / level of income wanted during retirement?
  3. How much loss (as a percentage or total dollar amount) can I withstand (typically over a short time frame)?

The first question addresses the minimum amount of return that needs to be earned to ensure that you can enjoy a basic lifestyle in retirement.  This is the amount that must be safeguarded against.  But the key issue here is time horizon.  If you are in or near retirement, AND you cannot risk losing a significant amount in a short time period, the portfolio would generally be income oriented and conservative.  By contrast, if you are in your early 40s, you can invest more in assets that have a higher return potential, but still have more chance of a potential loss in the short-term, such as equities (stocks).  The younger investor can accept a decline because she has a longer period to recoup those losses when market returns are stronger.  This occurs over nearly all medium-term and longer term periods (5 yrs +), where riskier assets like equities have provided higher total returns.

The second question addresses the kind of lifestyle you would like to have in retirement and then placing a dollar value on it in terms of after-tax income to ensure there is enough money for travel, entertaining and gifts.  A higher return is often necessary to attain the desired lifestyle.  Risk is managed by rebalancing, so taking profits (selling) when equities have gone up and over time increasing the allocation to more income oriented and conservative investments.   Often the cash (or GIC) position is increased for near retirees to ensure the minimum level of income is attained, but then taking a bit more aggressive approach with the remaining investments to attain the desired lifestyle.

The third question requires complete honesty, because investors are most tempted to stray from their investment plan when markets decline.  These are often the times when it is most important to stay on the plan, particularly as equities (stocks) tend to go up after markets have gone down.  If you cannot accept any loss greater than 5% without wanting to sell everything and becoming extremely nervous and agitated, then you should have a zero percent allocation to equities and a low allocation to longer maturity and/or higher yielding bonds .  It is better, if you are highly risk averse to forego potential  gains in order to save yourself from the pain of losses.  If you are working with a financial planner / investment advisor, he /she should set your equity or riskier asset weighting based on a typical bear market (20-25% decline) to an extreme bear market (50% decline).  E.g. if an investor is willing to accept a potential 15-20% decline in their investments than an equity (stock) allocation of approximately 50% would be appropriate (a 35% decline, which is the midpoint between the two decline scenarios of 20% and 50% multiplied by .5).

A TriDelta Financial planner can work with you to determine the proper investment allocation to meet your goals and to set a plan in place to meet those goals by working with you to answer the three questions listed above, but being forthright and honest about current net worth, income, attitude towards loss, retirement expectations and any unique circumstances (health concerns, an inheritance, selling or buying of a property, etc.) will make this process and your financial plan more successful.

Lorne can be reached at and by phone at 416-733-3292 x225.