Planning & Advice

Avoid Market Chills With All-Weather Portfolios

April 4, 2018


Avoid Market Chills With All-Weather Portfolios

Planning & Advice

Who likes risk? Nobody. Maybe you’ve already been through a market correction or two — and getting closer to retirement, volatility can make you antsy. You want a diversified, all-weather investment portfolio. You want protection for your investment when you’re getting the blues from bad stock market news.  So, how can you get that peace of mind?

Private Investment Portfolios (PIPs) might be just what you need to lock-in those gains for your nest egg. However, like all investments, there are risks. For instance, short-selling and leveraging can magnify losses.   

Long-term investments that grow and preserve value! 

We help you invest like a millionaire – starting with as little as $1,000. How is this possible?

We made a strategic partnership with Nicola Wealth Management (NWM) to offer these premium1 investments. With our robo-adviser technology and using pools of capital from multiple investors, we’re able to offer these premium1 investments for everyday Canadians. 

PIPs give you access to investments managed by NWM like mortgages, real estate LPs, income strategies and other opportunities that you just can’t easily get elsewhere. These PIPs use the same kind of strategy used for high-net-worth individuals and pension funds, aiming to avoid volatility that can leave investors with little to show for their diligent saving.

These strategies still involve risks – for example, there are liquidity, short-selling and borrowing risks. However, the idea here is to reduce the overall volatility.  With PIPs, you get industry leading investment managers who actively manage your investments with a view to optimizing performance. 

Historic performance

The chart shows Nicola Wealth Management’s performance which reflects the total returns of a composite of fee-paying portfolios with an NWM Core investment mandate, as calculated by NWM for the period from inception of the NWM Core investment mandate in 2000 until December 31, 2017. Composite performance is calculated net of fees and presented before tax but after deduction of custody fees based on the asset-weighted beginning of month asset mix and including the reinvestment of all earnings as of the payment date. Composite returns represent past performance are not to be used as an indication of future results. Balanced Mutual Funds refers to the Morningstar Canadian Neutral Balanced Fund Index. Source for related performance data: Nicola Wealth Management and Morningstar. 

Cash flow. Providing an income in retirement 

With Private Investment Portfolios, clients can get a regular paycheque2. Again, this is possible because of the additional asset classes the PIPs invest in. By going beyond equities and bonds to focus on income-generating investments, your investment provides more reliable gains. 

Most Canadians don’t get access to the kind of income-generating investments managed by NWM. It takes time and money for portfolio managers to actively manage these strategies, so they are typically only available to millionaire investors 3– until CI Direct Investing implemented the technology and processes to make this happen. 

Historically, reinvesting that cash flow helped generate a better return 

Let’s take an example you could calculate easily from historical market data. Imagine that in 1950, you had invested $10,000 in the S&P 5004. Your portfolio would have been worth $1.4 million by the end of 2018. In this hypothetical situation, dividends are not reinvested. 

If you reinvested the dividends from that investment (ie. all of the cash flow) – your investment would be worth $14.4 million! That’s over 10 times the size, if you had just let the S&P 500 investment grow on its own. Now, that’s past performance – and as we know, past performance is no guarantee of future returns. 

Cash flow also brings stability. Imagine you had a rental property, with tenants providing steady, reliable income every month.  Your rental property has two sources of value: the sale price of the property, which may go up and down with the real estate market, plus the rental income you receive every month. Now you don’t need to focus as much on the ups and downs of the listed value of the property, because you have that stability of the income. Well, a PIP investment operates like that. 

The rate of return of a PIP also has two components: cash flow and capital appreciation. Let’s say you were aiming for a reasonable rate of return like 6 percent a year. If 4 percent comes from cash flow, you would only need a small percentage of your return to come from the less predictable capital gains. Reliable cash flow makes it easier for you to meet your investment goals – without focusing too much on the ups and downs of the market. 

Performance, without a lot of risk 

All-weather portfolios are able to offer better diversification that preserves value while providing a good return.

For instance, the Balanced Private Investment Portfolio returns almost 6 percent, with 40 percent less volatility than the RBC Select Mutual Fund, the most popular mutual fund in Canada5

Look back further. The financial crisis of 2008. When the market dropped 33 percent, the strategy managed by NWM dropped just 7 percent. Another way of looking at it: this diversified approach beat the market by 26 percent!6 

This strategy managed by NWM simply preserved value far better than most other investments. And when markets did finally rally back, they were positioned to take advantage. 

Our PIPs are all focused on lowering risk7, while offering improved cash flow for clients through distributions: a win-win for any investor. 

Premium1 investments now open to all Canadians 

CI Direct Investing is the only low-cost robo-adviser in Canada to deliver access to private investment portfolios, starting with as little as a $1,000 investment. 

Learn more about how you can protect your money over the long term with Private Investment Portfolios. Or sign up now to start investing. 


1. Private Investment Portfolios are “premium” when compared to CI Direct Investing’s standard ETF portfolios because they offer greater asset class diversification which, although it costs a bit more, is intended to reduce volatility and improve risk-adjusted returns over time.
2. Private Investment Portfolios hold investment funds that pay regular distributions to their holders. For client that hold PIPs in their RRIFs, these distributions are paid out in cash each month, like a pay cheque. For clients that hold PIPs in their RRSPs, distributions will be reinvested.
3. Generally, NWM only deals with high net worth clients that have a minimum of $1,000,000 to invest with them.
4. Illustration of investing in the S&P 500 total return where dividends are reinvested and the S&P 500 price return where dividends are not. Both illustrations do not account for taxes or fees. Past performance is not an indicator of future performance. The value of your investment may go down as well as up. Source: Morningstar.
Investment, as of December 31, 2018 3Y Return (annualized) Standard Deviation 
Balanced Private Investment Portfolio 6.1% 3.4 
RBC Select Balanced Portfolio 4.2% 5.7 
Past performance is not an indicator of future performance. The value of your investment may go down as well as up. These returns are presented net of product fees and exclude taxes. 3Y Return is annualized. Source: Morningstar and CI Direct Investing.  

Balanced Private Investment Portfolio objective: To seek a combination of current income and long-term capital growth by investing in a diversified portfolio consisting primarily of funds managed by Nicola Wealth Management. 
RBC Select Balanced Portfolio objective: To provide long-term capital growth, with a secondary focus on modest income, by investing primarily in funds managed by RBC GAM, investing in equity mutual funds for higher growth potential and fixed-income mutual funds for diversification and the potential to generate income. The portfolio maintains a balance of investments across several asset classes.
6. As shown in chart “Nicola Wealth Management historic performance”, in 2008 Nicola Wealth Core Performance declined 7.3% and S&P/TSX Composite Index declined 33.0%. Past performance is not an indicator of future performance. The value of your investment may go down as well as up. Source Morningstar and NWM.
7. Risk is defined by standard deviation. Standard deviation measures the dispersion of returns around its average return over a certain period of time. Balanced Private Investment Portfolio had lower standard deviation than the TSX Composite and Morningstar Canadian Neutral Balanced Fund Index. Past performance is not an indicator of future performance. The value of your investment may go down as well as up. Source: Morningstar and CI Direct Investing. 

As of December 31, 2018 Standard Deviation 3Y 
Balanced Private Investment Portfolio 3.4 
Morningstar Canadian Neutral Balanced Fund Index 4.9 
S&P/TSX Composite Index 9.2 

From September 2013 to January 2019 Nicola Wealth was a related party of CI Direct Investing.
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One Comment
  1. Miguel Adam

    Awesome post, I will consider using the PIP strategy this year and see all options possible for cash-flow investment

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