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Investment Philosophy

Liberty offers discretionary investment management services through segregated accounts to high net worth clients. Client holdings will be made up of global equities and fixed income. Holdings will be purchased directly off the local country exchanges to reduce costs through greater liquidity and a lower bid-offer spread. The lower the cost for the client, the better their returns.

Equity Investing

We are not active traders as we invest in businesses for the long-run (greater than 10 years). Annual portfolio turnover is only 10%.

We screen 4,000 global companies looking for 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, or hire key employees to help the firm grow in the future.

We also consider 10 other investment metrics such as return on capital, operating margins, Z-scores, net-net working capital, debt-to-cash flow ratio, payout ratios, etc. When the appealing candidates are found, we then run multiple discounted cash flow scenarios to ascertain a reasonable company valuation.

From the 4,000 names, we currently have 6 model portfolios which we use to mix-and-match based on the amount of customization the client seeks. The 6 models are currently: All-Canadian portfolio, All-US portfolio, International portfolio with Canadian stock names, International portfolio without Canadian names, All European portfolio and a Legacy portfolio of small-cap stocks for kids and grandkids whose time horizon is much longer.

We then design a 30-stock portfolio. Within that portfolio, there are 5 ways that we manage portfolio risk: Average security weighting, weighted-average beta, diversification by country, by industry and by size of company.

By 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).

By Weighted-Average Beta
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.

By Industry
We want to 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.

By Country
We want to have 50% invested internationally with the other 50% from the US and Canada. This is to reduce country volatility such as Canada, which is only 3% of global trade, and because the underlying Canadian index (TSX) has a strong correlation to riskier, more volatile sectors such as resources.

By Size of Company
We want to 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.
Fixed Income Investing


The bond portfolio is made up of 20-40 bonds based on security availability. Most bonds are held to maturity.

It is essentially 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 based on current interest rates, future interest rates, credit spreads, credit ratings, currencies, prices / yields.

Most of the bonds will carry investment grade ratings of BBB or higher however 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).

Preferred Shares

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.