Certain events may precipitate the need to rebalance your assets. Your asset rebalancing strategy specifies those events that may initiate a portfolio rebalance.
Your assets will be maintained in the appropriate proportions by rebalancing to the long-term policy target asset mix within the ranges specified in this IPS. This periodic adjustment, usually done on a quarterly basis, will take into account the impact of market returns on the underlying securities and allows us to maintain the critical balance of the portfolio(s). Rebalancing allows you to take advantage of short-term market volatility and maintain the long-term risk/return balance you desire. Your portfolio may be rebalanced if the associated transaction costs and/or tax consequences are considered reasonable
Please note that during periods of extreme market volatility, rebalancing may not be an effective strategy. A more effective approach may be to wait for markets to stabilize and then re-evaluate your asset mix at that time.
Sensitivity to taxation is an important consideration when evaluating the triggering of taxable gains and/or losses, should any exist.
Any investment income earned in a non-registered account will be subject to taxation at your marginal tax rate, based on the following tax treatment:
- Interest income is subject to full taxation.
- Dividend income from non-Canadian sources is subject to full taxation.
- Dividend income from Canadian sources is eligible to receive a dividend tax credit.
- Realized capital gains are subject to a 50% inclusion rate for taxation.
Sodhi does not provide tax advice. You must consult with your tax advisor/accountant with respect to matters involving taxation issues. Your portfolio management fees may be tax deductible. Please consult with your tax advisor to determine if this is the case for your particular circumstances.
Risk Tolerances and Performance Expectations :
The Investor recognizes that the objectives of the Portfolio cannot be achieved without incurring a certain amount of principal volatility. The Portfolio is comprised of a 30% allocation to low risk securities, 60% allocation to medium risk and 10% high risk securities.
No guarantees can be given about future performance and this Statement shall not be construed as offering such guarantee.
There are two types of investments the fund typically makes — investments in great businesses selling below their intrinsic value.
There are no options or derivatives etc. that the portfolio delves into at all. Typically the portfolio assets are divided between under 15 securities with the typical allocation for a given security being 10% of assets in the portfolio. Before doing the rigorous analysis on a given company, Sodhi is looking for specific answers to the following three questions:
- Do I understand this business well? Is it well within my circle of competence?
If the answer is no, the security is simply skipped over.
Is this a great business?
If you look at the universe at public or private companies, applying Buffett’s definition of a great business would mean a business that has some of the following characteristics:
- Recurring Revenue Streams (e.g. IBM)
- Ability to raise prices ahead of inflation (e.g. Johnson & Johnson)
- Some sort of Monopoly or Oligopoly type market positioning (e.g. American Express)
- Strong franchise/brand that gives it insulation from most competitors (e.g. Coca Cola)
Most businesses do not have ANY of the above characteristics and some may just have one of the above. A business that has more than one of the above characteristics is, by definition, rare.
If he finds a great business then Sodhi asks the third, and more difficult, question:
Is it on sale at a price well below its intrinsic value (IV)?
The combination of a great business and it being on sale is, by definition, an anomaly. Manager looks for these anomalies. When they occur, after rigorous analysis, Manager backs-up the truck
In terms of defining our investment style we consider ourselves a Growth at Reasonable Price (GARP) investors.
In high-growth markets, GARP companies have shown a history of fast growth, and we expect they’ll continue to do so. GARP companies are also priced well below their intrinsic value (IV), but probably not as cheap as the straight value plays.
The best returns will come from great, high growth companies that are available well below Intrinsic Value. In fact, most of Warren Buffett’s wealth has come from GARP investments, including Coca Cola, American Express, IBM, and Johnson & Johnson to name a few.
GARP businesses remain in in our portfolio until:
- They go well beyond Intrinsic value. I hate to sell a good GARP business unless it’s well beyond intrinsic value.
- A better GARP business comes along, and it presents a better investment opportunity.
The second part of our investment style is based on Principle Protection. Almost 100% of our equity portfolios are in matured businesses, with some companies that have been in operations for nearly 75 years. Our mature investments are in companies that maintain clean balance sheets, and have established an economic moat within their industry – meaning they are very difficult for competitors to compete against.We are very long term focused and would like to earn a minimum of 6% annual growth within 5, 10 and 15 years of business.