We currently focus our efforts on three unique investment programs: (i) the SciVest Growth of Dividend Income Strategy (with both Global and Canadian focused versions); (ii) the SciVest Risk-Managed Price Momentum Strategy; and (iii) the SciVest Customized Asset Allocation Program.
SciVest Growth of Dividend Income Strategy
The SciVest Growth of Dividend Income Strategy has the objectives of delivering investors: (a) a consistent and above average current distribution yield (i.e., income yield), (b) meaningful growth in the absolute level of distributions (i.e., income growth) through time, and (c) moderate long-term capital appreciation.
We believe that inflation is the greatest enemy to all retired and semi-retired investors. Inflation erodes both the purchasing power of the retirement investment pool and, more importantly, the purchasing power of the retirement income that the investment pool produces. The effects of inflation erosion on the purchasing power of fixed income investments and the fixed income they generate is material over any period longer than several years. For example, at a 3% per annum inflation rate, income and capital are eroded by 26.3% after 10 years, 45.6% after 20 years, 59.9% after 30 years, and 70.4% after 40 years.
We believe that the only way to counteract this degradation of purchasing power through time is to focus on growing income, as opposed to fixed income, where such income growth is at a rate at least as high as the inflation rate.
From an investment perspective, it is actually easier to manage a portfolio towards growth of income than towards capital gains. Nevertheless, if we can achieve income growth, then capital gains will inevitably follow. With moderate income growth and moderate capital gains, investors can maintain the purchasing power of both their income stream and investment capital pool indefinitely into the future.
SciVest’s solution to these issues is the SciVest Growth of Dividend Income Strategy (the “SGDI Strategy”). The SGDI Strategy focuses on dividend paying, common equity shares – one of only a few “growing” income, as opposed to “fixed” income, opportunities available to investors. Within the Global common equity universe, there currently exists many “growth of dividend” stocks allowing us within the SGDI Strategy to build a large, liquid, diversified portfolio of 30 to 80 stocks offering: (i) an overall current dividend yield of 3.0% to 4.5% per annum, (ii) dividend income growth of over 5% per annum; and (iii) the opportunity for moderate long-term capital appreciation. The SGDI Strategy focuses on providing dividend income growth and sustainability, at a reasonably high level of current income yield, under the premise that if these objectives are met then over the long-term capital appreciation will inevitably follow. That is, long-term capital appreciation is a consequence of growing earnings and dividends.
The SciVest Growth of Dividend Income Strategy is currently offered in two variants: Global and Canadian. The Global version selects stocks from the entire world and thereby maximizes diversification and opportunity set. The Canadian version of the strategy focuses primarily on Canadian domiciled companies to avoid foreign currency issues and to maximize the benefits of the Canadian dividend tax credit system.
SciVest CANADIAN RISK-MANAGED PRICE MOMENTUM Strategy
The SciVest Risk-Managed Price Momentum Strategy has the objective of delivering investors long-term capital appreciation by investing primarily in equity securities of Canadian companies. The SciVest Canadian Risk-Managed Price Momentum Strategy is a diversified Canadian Focused Equity strategy that implements a disciplined, quantitatively-based, “risk-managed” price momentum strategy researched and developed by SciVest.
Price Momentum, or relative strength, has been widely studied within the academic community, and has been found to work over the long-term in virtually every asset class, in virtually every country, and in virtually every segment of the equity markets. There have been hundreds of peer reviewed academic articles documenting and examining price momentum since its discovery in 1993 by Jagadeesh and Titman in the United States. Price Momentum simply implies that a stock that has been winning (losing) on a relative basis over the past year will continue to win (loss) on a relative basis in the medium-term future. Price momentum is among the most powerful factors ever discovered for forecasting future stock price returns, and is also one of the most difficult to explain using modern portfolio theory. As a result, behavioral finance theories are often used to explain its efficacy.
SciVest has created its proprietary SciVest Price Momentum Factor which captures both the magnitude and the quality of the relative strength that each stock possesses. The overall SciVest Price Momentum Factor is comprised of six underlying individual price momentum factors. Each of these six underlying momentum factors use only stock price and/or stocks returns for their underlying formation. The SciVest Price Momentum Factor is therefore completely price-based, with no fundamental factors (e.g., earnings, revenue, analyst estimates, etc.) directly driving stock selections.
As a pure price momentum stock selection tool, the SciVest Price Momentum Factor is consistent with the philosophy that “price is truth” and “price reflects everything known and unknown about a stock”. Price by definition represents the consensus opinion amongst all market participants at each point in time – including a company’s management, prior fundamentals, future expected fundamentals, analyst opinions, corporate activities, corporate prospects, macroeconomic influences, consumer tastes, technology changes, etc. Price reflects all these things and much more.
It is also important to note that the SciVest Price Momentum Factor and its six (6) underlying momentum factors are “relative strength” factors – not “absolute” trend or technical trading factors. That is, the SciVest Price Momentum Factor and its underlying constituent factors compare the strength of a stock relative to other stocks within the universe of stocks at a point in time. The factors do not look at stocks in isolation or simply relative to their own history. For example, if all stocks are going down in a bear market, and thus all have poor absolute technicals, there will still be relative winners and relative losers – that is, some stocks will be winning relative to other stocks and the market as a whole.
The SciVest momentum strategy is “risk-managed” to help control and limit the underlying risk of the strategy in comparison to the academically documented price momentum strategy. In particular, the SciVest Canadian Risk-Managed Price Momentum Strategy implements three additional features which are expected to significantly reduce risk, while still maintaining excess returns: (i) the SciVest Price Momentum Factor includes not only the magnitude of price momentum, but also the quality of the price momentum; (ii) the strategy parameters ensures significant diversification across individual holdings, sectors, industry groups, industries and sub-industries; and (iii) the strategy implements a unique volatility-based overlay which lowers the strategy’s exposure to equity when the strategy’s returns are experiencing excessive volatility.
SCIVEST CUSTOMIZED ASSET ALLOCATION PROGRAM
The SciVest Customized Asset Allocation Program has the objective of delivering investors long-term capital appreciation and moderate income through investment in a number of asset (and sub-asset) classes that are captured by a series of index-based Exchange Traded Funds (ETFs) and other funds. Within the three macro asset classes of fixed income, equity and alternatives, SciVest models numerous sub-asset classes (e.g., Canadian bonds versus US bonds, or Japanese equities versus European equities). In sum, SciVest currently considers 46 sub-asset classes for potential inclusion in an investor’s portfolio. In addition, each investor’s portfolio may differ, depending each individual investor’s risk tolerance and/or other objectives and constraints – that is, each portfolio is “customized”.
The SciVest Customized Asset Allocation Program implements a disciplined, quantitatively-based, mean-variance optimization process using ten-year, forward-looking, estimates of each asset class’ expected returns, and each asset class’ volatility risk and return corrections to the other asset classes. The SciVest Customized Asset Allocation Program was created to provide investors with pension and endowment fund style investing – that is, the SciVest Customized Asset Allocation Program has a very long-term view implementing a disciplined, ultra-diversified, index-based investment approach at ultra-low cost.