High quality portfolios and a long time horizon contribute to our success in achieving strong, long-term, absolute returns.
Nexus’s growth-at-a-reasonable-price (“GARP”) investment process uses company-by-company, bottom-up research to identify attractive stocks. Our proven, disciplined approach gives us the conviction to build a high quality, low turnover, low volatility portfolio of 35 to 45 North American stocks that we can hold for the long-term. Two particular attributes – high quality and long time horizon – are key factors that contribute to our success. Our objective is to achieve what clients really need – strong, long-term, absolute returns, rather than short-term, relative returns. Nexus’s investment style has been consistent throughout its history.
An important difference between Nexus and other managers is that we take a North American, rather than a country specific, approach to security selection. As a consequence, our Canadian holdings look very different from the S&P /TSX Composite Index and our US holdings will look very different from the S&P 500 Index. Individual holdings are selected using a bottom-up approach supported by company specific analysis. Portfolios are concentrated, but properly diversified across industry sectors. We believe that an international equity component of the portfolio reduces risk and can add to returns. To this end, and where appropriate in client portfolios, we utilize international and emerging markets funds sub-advised by a high quality global investment manager. As a result of this process, portfolio volatility and turnover have historically been low.
Fixed Income – How We Maximize Returns Without Undue Risk
Our approach to fixed income is to maximize return without taking undue risk. We do this through investment grade securities, strategic positioning in sectors of the market (corporates, provincials and Canadas), and in maturities that align with our outlook for the bond markets. Our objective is to make the right “call” on longer term market trends, and not worry as much about short-term fluctuations.
We are active managers of duration and are prepared to diverge significantly from the duration benchmark against which we are measured. We invest in corporate bonds to enhance yields. Because our strategy does not rely on active trading for success, we are able to own some highly-rated corporate names that are less liquid, but offer higher yields than even less well rated companies.
At the core of Nexus’s risk management process is the belief that, for clients, risk means not achieving their financial goals. Producing sufficient return to cover disbursements and limiting downside risk in order to protect capital are key to a successful risk control strategy. We use careful asset allocation, diversification, high-quality holdings, and look for lower-than-market valuation multiples in our security selection process. Equally important is our sell discipline, which is controlled by monitoring a security against its original investment thesis. A sale is typically triggered by a change in the investment thesis, deteriorating fundamentals, valuation, or when a more attractive candidate is identified.
From a procedural perspective, our internal investment committee ensures the security selection and portfolio construction processes are adhered to, and our compliance and operations professionals ensure controls are in place to monitor client portfolios against their investment policies. Nexus employs the services of a third-party custodian to safeguard client assets, as an additional risk control measure.