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ELO Market Outlook Webinar - Presentation Slides

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ELO Market Outlook Webinar - Presentation Slides

  1. 1. 2020 Strategic Outlook Richard (Rick) J. Goossen, BA (Hons), LLB, LLM, PhD Business Development Ron Haik, MBA, CFP®, CIM®, FCSI®, CIWM, TEP Senior Financial Advisor & Regional Manager, Ontario at Nicola Wealth
  2. 2. Tax-efficient portfolios Markets Private assets Debt
  3. 3. extend the application of (a method or conclusion, especially one based on statistics) to an unknown situation by assuming that existing trends will continue or similar methods will be applicable.
  4. 4. 1929-1936 recover 1929-1942 recover Canada 13.7% - 290,000 new jobs NO • Unemployment Insurance • Social Security/ CPP • Deposit Insurance
  5. 5. 1% lower Than Jan.1st Global markets -12% YTD
  6. 6. How would you invest and allocate your capital if it was committed for five years ?
  7. 7. 25 years 1 depression and 4 recessions Dividend Yield 13.4% June 1932
  8. 8. 7.5 years and 2 recessions for full recovery beyond the prior peak -45% drop 15 months later 25% recovery before recession is over S& P 500 Price ( nominal )
  9. 9. 24 years and 5 recessions for full recovery beyond the prior peak S& P 500 Price ( adjusted for inflation)
  10. 10. S& P 500 Price ( nominal ) Riding a Wave –No net change in 12.5 years -57% before recession over -49% 1 year after recession is over
  11. 11. $1.43M more per $1M Than 60/40 balanced Over 20 years Core YTD=-1% Vs. -3.75 % for 60/40
  12. 12. Not Public or Private, but Public and Private The Tyranny of the ‘Or’ Vs. The Genius of the ‘And’
  13. 13. December 2000 to June 2019 Return Value of $1M Invested S&P500TR: 6.7% $3,540,000 R3000TR: 7.0% $3,740,000 PRIVATE EQUITY: 9.1% $5,460,000
  14. 14. -56% decline in 20 years
  15. 15. $700 Billion in share buybacks in 2019. Where is this money going?
  16. 16. +$4.5 Trillion Share Buybacks 2009-2019 = $5 Trillion
  17. 17. Private = 7.5% of public markets June 2020
  18. 18. 40% more since 2009
  19. 19. 0 5 10 15 20 25 30 35 40 45 50 2000.01 2000.06 2000.11 2001.04 2001.09 2002.02 2002.07 2002.12 2003.05 2003.1 2004.03 2004.08 2005.01 2005.06 2005.11 2006.04 2006.09 2007.02 2007.07 2007.12 2008.05 2008.1 2009.03 2009.08 2010.01 2010.06 2010.11 2011.04 2011.09 2012.02 2012.07 2012.12 2013.05 2013.1 2014.03 2014.08 2015.01 2015.06 2015.11 2016.04 2016.09 2017.02 2017.07 2017.12 2018.05 2018.1 2019.03 2019.08 2020.01 Cape Shiller Index 2000-2020 130% more since 2009 PE Ratio = 14 PE Ratio = 32 June 2020 PE ratio about 40
  20. 20. 41%
  21. 21. +50%
  22. 22.  Diversify  Manage Costs  Evergreen  Waterfalls Managing Private Asset Risk
  23. 23. • 2% on committed capital for five years • If 80% of committed funds invested average fee is >5% /year • Performance fees of 20% • 1.5% on invested capital for five years • Offer co-invest opportunities • Blended fee can be under 1%/yr. • Performance fees 15% • About 75% lower overall first five years Fees: Committed vs. Invested Capital
  24. 24.  Managers  Vintages  Geography  Industries  Asset Classes (equity, debt, infrastructure, real estate) NW Private Equity  $275M AUM – 21 Funds  12 managers  14 direct / co-invest assets  Global companies  4%/yr. higher 5 year returns vs. avg. other NW equity funds Diversification
  25. 25.  Significant minimum investment  5-year funding period 10-14 year fund  Liquidity when assets sold  Investor responsible for “Dry Powder”  Small minimums  No other capital commitment  1-3 year minimum hold  Liquidity periodically (monthly / quarterly, annually)  Add new capital when available Closed End vs. Evergreen Funds
  26. 26. $3400 $770 Equity ($Billions) Debt ($Billions )  Less Risk  Lower returns  Shorter Duration  Current Income  RRSP/ TFSA and Foundation eligible US Private Asset Markets 2018 (Preqin)
  27. 27. 49.8% 31.4% 24.9% 44.6% 53.5% 36.5% 26.8% 48.8% 43.7% 25.8% 21.9% 33.7% 22.4% 41.5% 22.4% 44.9% Salary/Bonus Eligible Dividends Capital Gains Ineligible dividends 2019 2020 2013 Increase 2013-2020 This changes things
  28. 28. Depends what you count 5 years to recover tax revenue
  29. 29. Customized approach based on your situation
  30. 30. 43% Private Core Portfolio Asset Allocation (December 2019) Public Equities 32% Public Fixed Income 21% Private Debt/Mort., 13% Private Equity 4% Real Estate 21% Alternatives 9% 57% Public
  31. 31. Less Taxable Annually Private Equity 10.5% Mortgages 23.0% Private Debt 10.5% CDN Real Estate 12.5% US Real Estate 23.0% Value Add Real Estate 7.5% Global Real Estate 8.0% Infra. 5.0% 100% Taxable RRSP / IPP / TFSA Foundations Core Private Asset Allocation (December 2019)
  32. 32. Private Equity 15.3% Cdn. Real Estate 19.5% US Real Estate 34.5% Value Add Real Estate 11.6% Infra. 6.7% Global Real Estate 12.4% $1,000,000 $1,658,000 $658,000 $156,450 $10,070 Starting Capital Ending Capital (before fees) Gain (before fees) Taxable Income (gross ) Tax Paid (after fees / RDTOH) Private Assets How Is This Possible? • RDTOH reduces corporate tax by 60% • Low turnover of assets • Depreciation creates return of capital • Planning fees deductible 5 Year Results (2014-2019) • Gross return before fees = 10.7%/yr • Net return after fees = 9.7% • Net return after taxes = 9.6%
  33. 33. Private Equity 10.5% Mortgage 23.0% Private Debt 10.5% CDN Real Estate 12.5% US Real Estate 23.0% Value Add Real Estate 7.5% Global Real Estate 8.0% Infra. 5.0% $1,000,000 $1,579,000 $579,000 $116,000 $- Starting Capital Ending Capital (before fees) Gain (before fees) Taxable Income (gross) Tax Paid (after fees / RDTOH) Private Assets How Is This Possible? • Interest income paid into registered plans • Other private assets have low tax turnover • Portfolio is balanced within private assets • Weighted cash flow 4%+ annually 5 Year Results (2014-2019) • Gross return before fees = 9.6%/yr. • Net return after fees = 8.6% • Net return after taxes = 8.6%
  34. 34. Lessons From This • Planning first: portfolio design and financial planning • Diversify • Cash flow matters • Private does not = higher risk but it does = less liquidity • How much of your returns are taxable? • What can you do about that?
  35. 35. Therefore, it could be somewhat misleading and biased to translate "机" (jī) in the context of the word "危机" (wēijī) to "opportunity" instead of "a changing point" or "a confidential event" Are we at a changing point?
  36. 36. Real estate update on key metrics 95% 98%
  37. 37. Future Factors for real estate • Geographic diversification • Growing population • Residential safest , Industrial next • Some retail will work ,regional, neighbourhood malls with development value add • Build to own ( especially residential ) • Spread between cap rates and mortgage rates 0.0% 5.0% 10.0% 15.0% 20.0% Canadian Income US Income Value Add 8.2% 11.8% 13.9% 9.2% 11.9% 15.5% 9.8% 11.2% 0.0% 1 year 5year 10 year
  38. 38. 6% yield vs. 3% =9% bond yield
  39. 39. Buy/hold return since inception =2% • Issuers of preferreds sound financially • Low price equals higher yields • Taxed favourably • Discipline of rebalancing – buy low /sell high
  40. 40. Sell HY Bonds up 3.7% Buy Pref shares -19.8%
  41. 41. Consistent Growth
  42. 42. Converging
  43. 43. -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% -6.1% 4.5% -1.0% 5.7% Global US equity Core Balanced Sustainable Innovation YTD returns equity funds 2020 Theme Renewable energy and innovation will grow faster than the overall economy
  44. 44. 200% 190% 250% Post Covid=100%?
  45. 45. Debt service<20% of Mid 90’s
  46. 46. Not much change Since WW11
  47. 47. Debt is rarely reduced This may rise By 20%
  48. 48. 40% 20% 30% 7%
  49. 49. Taxes higher so plan Challenged but Opportunities Higher Allocation We have been here before

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