In this episode, we delve into the intricacies of our various investment strategies, providing a detailed analysis of their performance and offering valuable insights for investors.

The Canadian Momentum strategy did well in 2024 (~18%) but it did slightly underperformed against the TSX Total Return index. However, the strategy is still outperforming in the longer 3 and 5 year horizons.

Our Enhanced Index strategies also did well and handily outperformed comparable target risk portfolios developed by Morningstar. This was true for both the Aggressive Growth (80/20) and Growth (65/35) iterations of the strategy.

And finally, while it’s track record is short at only 4 months, the Canadian High Dividend Strategy is also outperforming its benchmark in year-to-date returns and dividend yield.

We are happy to announce that we will likely be launching a US Momentum Strategy later this year, as our test account outperformed the S&P 500 in 2024.

If you have questions, topic ideas or want to discuss your own investments please reach out, we’d love to hear from you.

Email us at info@towerasset.ca.

Full Transcript

Mark 00:00:00 Well, a happy New Year to everyone. Thank you for joining us, giving us some of your time, and we wish you well in this new year. And we want to give you a bit of a bit of a look back over the past year. Derek’s going to lead us on this one. Tell us about how we did. It was a year that I would say was very respectable. And it was a good year in the markets as well. Over to you Derek.

Tarek 00:00:25 Sounds good. Thanks, Mark. So as Mark said, it’s a good year in the market. I’m going to go through the returns on our various strategies and try to give some context to the returns as well. So we’ll start with our Canadian momentum strategy. This strategy’s goal is to beat the Toronto Stock Exchange. So for 2024 we did 18.3% the TSX on a total return basis to 21.7 or 21.65. So underperformed. But one of those, you know, it’s one of those things where, you know, if you’re over 15% in a year and you underperformed slightly compared to the TSX, It’s the it’s not the worst thing in the world to be at 18 instead of 21.

Tarek 00:01:05 And if we look if we look at three year and five year on the same strategy, we are still outperforming the TSX. So that’s what I.

Mark 00:01:13 Was going to ask you to. The numbers I just looked at them here on Elaine’s accounts. So that’s specific. Her return was 14.5. And the number that shows on the TSX is 7.7. Right over time. It’s over five years. That’s five years.

Tarek 00:01:30 Yeah, exactly. So, happy with 18%. And I should mention all these returns are before fees. Moving on to our one more.

Mark 00:01:39 One more comment on that one. Tarek. some people will see a different number for the TSX. The number that they’ll be seeing is 17.99. We’ll talk about that as compared to our 18 point.

Tarek 00:01:50 That’s right. So oftentimes when the TSX is quoted in the financial press or, you know, anywhere really, they’re just talking about what we call the price return. So the stock price of all the constituents of the TSX went up 18% last year. The total return is what we use as the benchmark and that includes the dividends.

Tarek 00:02:10 And the TSX is a big dividend paying index. And so that’s why it’s such a substantial difference between the 18 to the 21 and point seven. Good. Thank you. moving on to our enhanced index strategies. Right. So we have we’re going to talk about returns on the aggressive growth or our 8020 as well as the growth or 65 to 35. So enhanced index aggressive growth did 14.4% for 24. it has a benchmark. What we like to look at and compare with is the Morningstar, which is a big fund sort of management, resource. They prepare target risk portfolios, something you can compare to and see if your portfolio is doing as well as it should be. So they’re moderately aggressive target risk portfolio which would be comparable to our aggressive growth did 10.7. So we’re nearly 3% Percent higher than that or sorry with bad math, nearly 4% higher than that. So we’re quite happy. And that’s because.

Mark 00:03:09 Of the diversification. There’s some fixed income, there’s different markets. And we still do 14.4 against a benchmark that would be around ten and a half.

Tarek 00:03:17 Okay. That’s great. Yep. And for the growth that’s the 6535. The Morningstar moderate target risk portfolio would be the comp for that. And it only did 8.3 versus our 12.4 on our enhanced index growth. So again really happy with those returns. As you can see we’re all double digit returns for 24 strong year in the market. Really really good. The other strategy I want to talk about is our new one the Canadian High Dividend strategy. So we’ve got a number of clients in this now. Started with Mark in August. so September is our full first our first full month. Excuse me. And it did 6.3% in those three months. September, October. Four months. September, October, November, December. And the current yield, or the yield at the end of the year, was 5.92% on on the strategy.

Mark 00:04:06 December was a rough month. What do you think happened there? And let’s talk about the market coming up this next year. What do you think happened in December?

Tarek 00:04:13 Well, you know, December, what we saw happen in the States in particular, they were leading the way with this.

Tarek 00:04:17 And they’ve been leading the way sort of for the last little while. we had the Trump bump when he was elected. Donald Trump was elected president in November. Markets rallied pretty significantly following that. I think it was November 5th election result for the month of November. And then I think, you know, it was just a little bit of sanity coming back to the the numbers a bit to say, okay, you know, we ran up a little bit too high in November. Let’s, let’s bring some reality back. Additionally, if you’re listening to this, there was a bit of a pullback as we’re recording. It was yesterday, Friday the 10th. But in the market. And that’s because the US market jobs report came out for December and it showed really, really strong. Now I think that can be a little counterintuitive to say a strong jobs report is making the market fall. But the reason is, is because if the market if there’s a strong jobs market, there’s low unemployment. The Federal Reserve is unlikely to cut rates because they don’t need to.

Tarek 00:05:16 And so the market is pricing in now higher rates for a little longer. So it’s all of that.

Mark 00:05:24 Okay. Changing subjects. And we’re now at six minutes. we have you have been testing a new strategy in the momentum in the US. Talk about that. And what are your thoughts on rolling?

Tarek 00:05:36 That’s right, that’s right. If you’re familiar with tower, we’ve been promoting our Canadian momentum strategy for years now. It’s done extremely well. It’s beat the in the benchmark. We want to roll out a similar strategy in the United States biggest market in the world by far. and we want to use the S&P 500 as the benchmark. So we’ve been trialling this in my own personal account with actual money, because that’s how we do things. Tower. For the last, I want to say 18 months or so, and happy to say for 2024, the strategy was up 25.9% versus the S&P 500 at 25.02. So a slight, you know, 0.7% or 0.9%. You’re not complaining.

Mark 00:06:17 About that return in your.

Tarek 00:06:18 Account. No, not complaining about that return. but, you know, we’ve been playing with some of the parameters on the strategy, and I really think we have it, nailed down to where we want it to be. Yeah, to where we want it to be. And that does take me to. Sorry. Go ahead. Go ahead.

Mark 00:06:35 No. tell us tell us a little bit about what you did to dial it in.

Tarek 00:06:40 Okay. Sounds good. This is actually, it was was actually kind of interesting. I, I quite enjoyed it. I developed a, I used some ChatGPT, actually, to help me develop a code that I put into Python that downloaded two years worth of returns. daily returns for every constituent member of the S&P 500. So it’s 500 names. That’s why it’s got its name 500 names. Daily returns about 250 daily returns in a given year, and the volume of each daily return for all 500 names for two years. and then I put this in a spreadsheet and linked all the tabs and did some calculations on correlations to see, okay, what, factors are actually leading to, you know, quarterly performance.

Tarek 00:07:27 Our strategy in the.

Mark 00:07:29 Next coming in the.

Tarek 00:07:29 Future upcoming quarter. Yeah. So we’re looking back to say what historically in the last two years has been, you know, can be correlated to higher returns in the upcoming quarter. and, you know, our hypothesis or our suspicion was, you know, we’ve we’ve been using price as an indicator, but we suspected that volume and volume combined with price in an effective way, can be a good indicator for performance. you know, I put this all in the spreadsheet and started to do the correlations and check it all out. The spreadsheet ended up being, you know, 250,000 lines long. Just because that’s all the numbers. I mean, you can do the math. 500 names times 250 days. Times another 250 days. you know, anyways, and so it’s, it was a big spreadsheet, but it did show historically. we have a special. Now we’re adding to the strategy a, volume adjustment. And so, you know, it’s it’s, that’s the work we do.

Mark 00:08:30 So, we’ve got to get off this call. We’re about ten minutes. Yes. We do. What? What, do you want to roll that out this year, or are you going to work it a little longer?

Tarek 00:08:39 I think we do want to roll that out this year. I mean, we’re going to, you know, fully implement the volume adjustment come the March or Q two rebalance as we go into Q2. and I think from there, we’ll see how Q1 does and think from there, we can take a look at rolling it out into several clients as, as you know, it’s appropriate for those clients. And we’ll reach out to those who okay.

Mark 00:09:04 So one one quick question you are now using the momentum strategy with that volume dial, helping you pick for your own account for this quarter. And we’ll do it for the next quarter. Maybe we roll it out July 1st this year.

Tarek 00:09:19 That sounds like a good time. Yeah, maybe we roll it out for client accounts. July 1st.

Tarek 00:09:22 Yep.

Mark 00:09:23 Okay. If you think that that might work or be of interest to you, let us know. We’ll take a look at your portfolio. Call Tarek. Call me and and we’ll see if if it it the right word is if it’s suitable in the eyes of the regulators. Tarek. Give us a give us a closing. Happy New Year, everybody.

Tarek 00:09:42 Happy New Year, everybody. you know, let us know if you have any questions about your accounts, about your return specifically. You know, you’re going to look at your account returns. They might be a little different than what you’re seeing. We’re happy to chat about that. Why that is or what what’s going on there. And we hope you had a good holiday season. We look forward to to the new year.