By Scott Ronalds

From our Quarterly Report:

To generate returns in excess of the risk-free rate (GICs and government bonds), Steadyhand portfolios take four types of risk: interest rate, credit, liquidity and equity risk. If you think about portfolio construction as the process of spending a ‘risk budget’, our fund managers are investing where they believe the most reward can be achieved with the fewest units of risk. For instance, by holding cash and shorter-term bonds (and fewer government bonds), we’re taking less interest rate risk. Offsetting that, we’re taking more credit (or default) risk by owning a large number of corporate bonds, including a healthy dose of high yield issues.

As for asset mix (which is reflected in the Founders Fund and our advice to clients), we own slightly more stocks (equity risk) than normal, but are balancing that off by focusing on higher quality, less cyclical companies. The managers are finding lots of strong companies trading at valuations that fully reflect the uncertain economic outlook. For the most part, these companies will be able to use a weaker environment to enhance their long-term market positions. As your Chief Investment Officer, I think we’re getting near (or are already in) a period of opportunity for stocks. From these levels, I am confident that we will be able to generate attractive equity returns over the next 3-5 years, recognizing that there will be bumps and discomfort along the way.

Read Tom's full brief and the rest of our report here.