Balanced (Core)

The creation of long-run performance objectives is the result of many factors including:

1.       type of plan

2.       liability profile

3.       company/industry characteristics

Once these factors are analyzed and the investment expectations are established, an asset mix policy is formulated.

The role of the Asset Mix Group is to evaluate the expected returns on the three asset classes - stocks, bonds, and cash - and decide which of these three groups should be over or underweighted.

The Asset Mix Group is comprised of five senior partners of the firm; the Chief Executive Officer, the Fixed Income Group leader and three members of the Equity Groups.  They meet at least once a month to review the asset allocation.

The group identifies the most likely returns on each asset over the next year.  Decisions regarding relative commitments to various assets are made within ranges around long-term objectives.  Total equity commitment will usually vary only six percent from the long-term policy while bond content will range within ten percent of long-term policy.  For a typical balanced fund the following commitment ranges will apply:

Strategic asset mix management within these ranges adds value, while assuring adherence to the fund's long term asset mix policy.

Once the Asset Mix Group has determined the exposure to the three broad asset groups, it then decides on the percent of total equity to be invested in foreign markets.  In those mandates where we are asked to manage to a specific benchmark asset allocation for U.S. and EAFE equities separately, they also determine the allocation between the U.S. and EAFE markets.

Investment Process

Investment Management Philosophy/Style

The basic objective of investment management is to exceed client objectives without incurring unnecessary risk.  Our principles of investment are:

        1.     To add value in the management of each asset category

        2.     To add value and lessen volatility through asset mix management

        3.     To adhere to the long-term objectives of each client

We believe superior equity investments are, over time, the largest potential source of “added value” to a fund.  Our equity management style focuses on security selection to add most of the value.  Companies with earnings stability, strong management teams and sound balance sheets are emphasized in our growth equity portfolios.  Companies relatively undervalued with healthy balance sheets, and a catalyst for revaluation are favoured in our value equity portfolio.

Fixed income management emphasizes consistent total returns using a diversified strategy approach.  Through moderate term (duration) and sector adjustments, the bond portfolio is managed with an objective of outperforming selected benchmark indices while maintaining a low credit risk profile.

Asset mix management adds value and complements our proven skills in asset class management.  Equity content ranges within six percent of the client's established benchmark while bond content will vary within ten percent of benchmark allocation.  Cash is viewed as a separate asset class and is raised within balanced portfolios when the desired commitment to equities and/or bonds is low.  Specialist mandates are managed on a “fully invested” basis.

One of McLean Budden's hallmarks is that our investment management approach has been consistently applied through various market cycles and across accounts.

In general terms we describe our management style as follows:

                Asset Mix                              - Moderate shifts; emphasis on long-term policy

                Equities (Growth) - Bottom-up/emphasis on large companies

                Equities (Value)    - Bottom-up/emphasis on mid to large companies

Bonds                          - Diversified strategy seeking to add value through credit research, yield curve placement and active duration management

The Asset Mix Group meets at least monthly to evaluate the estimated twelve-month returns on the five major asset classes: cash, Canadian bonds, Canadian equities, U.S. equities and international equities (EAFE).

The group obtains these projected returns from the respective investment groups responsible for each asset class.  These return projections are made by analyzing trends and forecasts of money supply, economic activity, interest rates, market valuations, earnings growth rates and price/earnings multiples, as well as McLean Budden's added-value targets in each asset class.

The target asset mix for an average risk account is agreed upon and communicated to all portfolio managers in terms of variance from the benchmark.  This decision is then applied to each client's portfolio according to their particular benchmark.

Asset mix implementation is monitored bi-weekly by the Chief Executive Officer who also chairs the Asset Mix Group.

Asset mix management aims to add value to balanced fund benchmarks by complementing our proven skills in asset class management.  Our asset mix process is based upon five convictions:

1.      The most inefficient and therefore potentially rewarding area of the financial markets is equities.

2.      Equity investments should be of a long-term nature.

3.      Clients have a specific investment expectation and risk tolerance.

4.      Active asset mix shifts involve relatively significant transaction costs.

5.      Limits on the degree to which an asset class may be favoured reflects the primacy of a client's long-term policy.

Over the last ten years we have implemented a rigorous and controlled asset mix strategy to ensure asset mix shifts add incremental value.

The following are the standard asset mix operating ranges for an average risk balanced fund subject to foreign content regulations:

Tactical asset mix changes are designed to enhance performance and lower overall portfolio volatility.

Canadian Balanced

Investment strategy is determined by three groups:  Asset Mix, Canadian Equity (Growth, Value, Core) and Fixed Income.  In addition to daily updates, these groups meet at least once a week (every month for asset mix) to review strategy and adjust portfolio holdings. Changes are implemented uniformly across all accounts. Portfolio managers will tailor portfolios where dictated by specific client constraints. The client's benchmark policy is used as the neutral position. The Chief Executive Officer is responsible for ensuring portfolio compliance and he monitors this bi-weekly.

Full Balanced

Investment strategy is determined by four groups:  Asset Mix, Canadian Equity (Growth, Value, Core), Global Equity and Fixed Income.  In addition to daily updates, these groups meet at least once a week (every month for asset mix) to review strategy and adjust portfolio holdings. Changes are implemented uniformly across all accounts. Portfolio managers will tailor portfolios where dictated by specific client constraints. The client's benchmark policy is used as the neutral position.  All bond and equity portfolios show a high degree of similarity in terms of both content and performance, while pooled funds are used for foreign investments.  The Chief Executive Officer is responsible for ensuring portfolio compliance and he monitors this bi-weekly.

Asset mix changes are implemented immediately.  Asset mix is reviewed at least monthly although ad-hoc meetings can occur when a timely issue arises.  In the absence of a pending change in asset mix policy, accounts must re-balance to the target asset mix.  Typically, actual commitments are re-balanced once a portfolio deviates by more than 0.5% from the target.  Each account's asset mix is reviewed bi-weekly by the President who is the firm's Chief Compliance Officer.

The level of cash holdings is an important decision in balanced fund portfolios and a specific level is targeted at all times.  The general target is translated into a client specific commitment using the client's benchmark and operating ranges.  Specialist equity and fixed income portfolios are essentially managed on a fully invested basis.

***This Balanced Fund has a CORE Canadian Equity Component.  For the Canadian Equity Management Style, see the Canadian Equity Core write-up.

Fees

Segregated Fund Management

Balanced

HNW Fees

Private Client

Individual Segregated Portfolios
(including combinations of individual securities and pooled funds)
First $2 million		1.00%
Next $8 million		0.50%
Next $15 million		0.35%
Above $25 million		0.25%
Minimum fee $20,000
* Assets invested in mutual funds will not be subject to this schedule.
Pooled Fund Portfolios
First $2 million		1.00%
Next $8 million		0.45%
Next $15 million		0.35%
Above $25 million		0.25%
Minimum fee for one fund $5,000
Minimum fee for multiple funds $10,000
* Assets invested in mutual funds will not be subject to this schedule.  Fees include
custodial services.

© Global Manager Research