So with winter in full gear, how is Van Arbor positioned for the next couple of months? With the TSX index consolidating some of its gains over the last couple of months, we have become more selective to the point where the portfolio almost has no resemblance to a typical index portfolio.
Why? Given our expectations over the next two to three months; risk management, selectivity, and looking for new opportunities, are our main priorities moving into the New Year. Sometimes it pays to follow the crowd (read: index portfolio), but that time is not likely now.
The current portfolios have some very unique characteristics, which we believe will help it weather any situation in the short term. Based on the portfolio characteristics and individual and market expectations, this is how we see the short term (2-3 months):
Scenario 1:
In this scenario, the market gets hotter with risk assets lifting off. We would under-perform in this situation, but would still see steady gains.
Scenario 2:
This is the most likely scenario, with the market digesting this year’s gains, along with awaiting more clarity on the economy. This would be our best scenario, with focus turning away from cyclical’s and towards solid quality companies with hefty dividends, thus lifting most of our holdings.
Scenario 3:
The fact that this case has crept up lately is an indication of some of the headwinds we face and potential risks. This should be recognized rather than feared, and is one of the reasons we don’t believe this is a time to hold and index like portfolio. Our portfolio is fairly shielded from this scenario.
Most likely cumulative short term scenario:
Beyond 2009?
So beyond short term, what is in store next year? 2008 was the year of the bear. 2009 the year of the bull. 2010 will likely be a battle between bulls and bears with a confluence of positive and negative forces colliding. This could lead to a pick up in volatility, but with volatility comes opportunity for those able to capture and capitalize on uncertainty. This makes a passive index like portfolio fairly unattractive next year. On the other hand, versus an index portfolio, active funds like Van Arbor could be well positioned to capitalize on volatility and selectivity. Unfortunately, most people’s portfolio’s have too much of the former and not enough of the latter, which best deals with these types of markets.
