THE stock market hasn't been the same since the credit crisis of 2008.
Global economic uncertainty has resulted in a high level of volatility that continues to this day, which makes managing investments more difficult than ever. Some strategies, such as buy and hold, previously worked but no longer provide the results that investors are looking for. The markets continue to be sensitive to even the slightest bit of news. Investment managers need to be on their game to ensure your portfolio grows to meet your life goals.
What has made managing investment portfolios so challenging is the unprecedented volatility. The TSX fell 51 per cent from its peak of 15,154 to about 7,500 during the credit crisis. While it has recovered somewhat since then, it has still experienced a number of rallies and corrections ranging from +30 per cent to -24 per cent, ultimately losing 12 per cent over the past five years. Had an investor owned a typical index fund using a buy and hold strategy over this period, they would still be down considerably, almost 20 per cent from the peak. In fact, a quick look shows that approximately 25 per cent of Canadian mutual funds have made no money over the past five years.
But had those rallies and corrections been actively managed, they could have provided a nice, healthy return over the past five years as illustrated by the consistent growth reported by some of Canada's top investment managers. While no manager is going to be right 100 per cent of the time, we feel it's important that investors have a financial advisor or portfolio manager whom they trust will take action when necessary. As frustrating as market volatility can be, it does allow you to better assess the effectiveness of the strategies of professional investment managers and to determine the good, the bad and the ugly.
When you are evaluating investment managers and their strategies, look for some characteristics that are common in successful managers. This includes using an active approach that helps ensure profits are taken and losses are cut. It's not about market timing, it's about protecting capital. Also look for managers who have a clearly defined and disciplined strategy, and have proven themselves in both good and bad markets. Consistency is key. Investment managers should also be nimble enough to act quickly, buying or selling at a moment's notice.
It's certainly difficult for the average investor to properly examine and narrow down the list of 1,800 investment managers or 14,900 individual funds. The upcoming Vancouver Investment Summit, now in its third year, allows investors a rare and unique opportunity to hear directly from some of Canada's most successful investment managers, where they will explain the strategies they've used to help investors navigate through the uncertain economic climate. Visit VancouverInvestmentSummit. ca for tickets.
Lori Pinkowski is a portfolio manager and senior vice president (Private Client Group) at Raymond James Ltd., member Canadian Investor Protection Fund. The views of the author do not necessarily reflect those of Raymond James. This article is for information only. She can be reached at 604-915-LORI or www.pinkowski.ca.