Nicola Wealth’s investment approach aims to mitigate market volatility


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In an age of increased market volatility and overall worldwide instability, investors are looking for a portfolio that steers them clear of financial turbulence.

According to David Sung, president of Nicola Wealth, these are high-net-worth clients who have been exceptionally good at their businesses and have already made their wealth, but want to allocate that to investment managers to look after their family’s future in the best way possible.

“They want to ensure that they don’t lose that capital,” Sung says. “Many of them are entrepreneurs, accomplished individuals in all professions, and they’ve already taken the risk in their lives. They’ve studied hard or worked very hard in their profession to have earned that wealth.”

Nicola Wealth has clients across the country, with offices throughout Ontario and B.C., and currently has more than $12.1-billion in assets under management, including hard-asset real estate, private equity, private debt, commercial mortgages, infrastructure assets and other alternative strategies. Launched in 1994, the company now has a staff of more than 400 people.

The real estate team alone has 70 people who source out opportunities, conduct due diligence on the underwriting and then manage assets after they’re acquired. Nicola Wealth’s Greater Toronto Area real estate portfolio of more than 45 properties is weighted heavily toward industrial buildings and multi-family residential spaces. The mini-storage portfolio in the Greater Vancouver Area is an asset class that Nicola Wealth is looking to expand in the Toronto area and in the United States.

Many investors assume their portfolios are diversified and hedged for market ups and downs, but the reality is there may be better options available to them. Nicola Wealth has a proven track record of stability, having steered its clients through two major market downturns, with higher returns than the typical balanced portfolio.

The traditional “60/40″ rule for solid returns, which allocates 60 per cent broadly to stocks and 40 per cent broadly to bonds, is increasingly out of date. Nicola Wealth goes beyond stocks and bonds, combining cash flow investing and broad asset allocation not typically accessible to individual investors.

“It’s human nature when people pick up a newspaper or turn on the television and they see war and stock market volatility or fill up with gas or shop at the grocery store [and see high prices], to have worry and concern,” Sung says. “I think it’s good to have some skepticism and always be on guard. We’ve been down this path before, whether it was the tech meltdown or the sub-prime crisis, and in 2020 with the onset of COVID.”

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Not many investment managers around the world, for instance, predicted the subprime crisis in 2008, Sung says.

“Our viewpoint is that, if we are diversified enough and if we cover more than just one or two asset classes, what we like to call an ‘all-weather’ approach … that will allow some parts of a client portfolio to be able to be the anchor when other things aren’t working as well. It is very difficult for any investment manager to have that crystal ball to accurately predict what’s going to happen.”

Capital preservation is the bedrock of Nicola Wealth’s approach as high-net-worth investors who are setting that capital aside can’t afford to lose it, Sung says.

“It’s important to remember that, unlike other investors who may work for the government, or are employed in other areas of the economy, high-income-earning professionals or entrepreneurial families don’t typically have pensions,” he says. “And they very much need that institutional pension approach to how they invest, in an effort to protect their money.”

The professionals at Nicola Wealth take concrete steps to try to mitigate volatility. Public markets can be prone to panic and have a high a degree of fear, but then can swing to a high degree of optimism or fear of missing out. During the panic of the second half of the 2008 subprime crisis, the average real estate investment trust (REIT) on the Canadian stock market fell by more than 50 per cent in value.

But, “throughout the second half of 2008, when you looked at the actual buying and selling, the trading of real estate properties, the price only dropped by minus one per cent,” Sung says. “So transactions were happening with no significant change in value. When we own assets that don’t trade publicly, they get valued based on actual valuations, based on actual transactions. So you’re not seeing the same volatility daily as you would in the public markets.”

When there isn’t the panic, more rational decisions can be made, he says.

“This goes across asset classes in the private markets,” Sung adds. “[It’s the] same thing when we give our clients exposure to the private equity markets. …The investor behaviour around how they approach their private equity investments tends to be better when they are not faced with daily volatility.”

Preserving capital in down years means potential growth can accumulate instead of making up for past years’ losses. Because many high-net-worth clients don’t require daily liquidity in their portfolio, when it’s assessed as suitable, a good portion of their portfolio can be allocated to private markets, which can be at better value.

“When you buy well at a better value you stand a chance to earn a higher return on that investment over the mid to long term,” Sung says.

This material contains the current opinions of the author and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Nicola Wealth is registered as a Portfolio Manager, Exempt Market Dealer and Investment Fund Manager with the required provincial securities commissions.

Please speak to your Nicola Wealth advisor for advice based on your unique circumstances. Past performance is not indicative of future results. All investments contain risk and may gain or lose value. This is not a sales solicitation. These investments are intended for tax residents of Canada who are accredited investors. Residency restrictions apply. Please read the relevant documentation for additional details and important disclosure information, including terms of redemption and limited liquidity.


Advertising feature produced by Globe Content Studio with Nicola Wealth. The Globe’s editorial department was not involved.