By Tom Bradley

As a follow-up to my last Globe column, which focuses on return expectations, I want to update our guidance to clients on asset mix. I’ll use the Founders Fund as a live example. The fund has a long-term asset mix of 60% stocks and 40% fixed income. (All the percentages referred to below are of the total fund)

In short, the major themes in the fund are unchanged from previous quarters.

  • The portfolio has a low weighting in bonds (29%) relative to the long-term target of 35%.
  • It has a full allocation to equities (increased last week by 1% to 61-62%).
  • The stocks are tilted towards foreign (34%) over Canadian (27%).
  • There is an unusually large cash reserve of 10%.

As a reminder, the Founders Fund is a fund of funds, so its holdings are the other 5 Steadyhand funds. While I’m overseeing the allocations and adjusting the mix, the fund managers are doing the heavy lifting. Based on their strategies, there are some other features to note.

  • The bond component is heavily skewed toward corporate bonds, including a 3-4% allocation to Canadian and U.S. high yield bonds. Government bonds account for only 7% (with an emphasis on provincial bonds).
  • The stocks in the fund total about 120 and are a diversified mix of small, medium and large companies from around the world. The income-oriented stocks in the Income Fund are included in that total.
  • None of the equity fund managers pursue a dividend strategy specifically, but are overwhelming focused on companies that are growing their dividends.
  • New purchases in the Equity and Global Equity funds have been more cyclical in nature (Borg Warner, Johnson Controls, Rio Tinto, ABB), but the Founders Fund overall is still minimally exposed to mining (including gold) and other heavy cyclical industries.

As I noted at the beginning, none of these themes are particularly new for the Founders Fund, or our clients’ portfolios in general. I view the downdraft in the markets as an opportunity to add to stocks. We increased the weighting slightly (1%) last week and will likely do more if the market keeps coming down. As noted in the column, the divergence in return expectations between bonds and stocks favours this strategy.