March 29, 2021-On today’s podcast, we welcome special guests Paul Vendrinsky, portfolio manager at SIA Wealth Management, and Chris Fryer, associate portfolio manager at SIA Wealth Management. SIA is a Canadian independent investment management firm that helps investors grow and safeguard their wealth over the long-term through financial technology.
On the podcast, Paul and Chris discuss:
- How they got their start in the investment business
- Details on the SIACharts platform and why investors use it
- SIA’s True Tactical process and risk management
- Why investors should consider incorporating relative strength analysis into their investment process
- And more
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Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate financial technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.
Julian Klymochko: Welcome Paul and Chris to The Absolute Return Podcast. Mike and I are excited to have you on the show today to talk about investing, relative strength, ETFs, and all that good stuff. So, prior to getting into the nitty gritty of your investment process and how you view the markets these days, let’s give our listeners a bit of background on your careers specifically, where did you start out? What you’re interested in and what got you to this point at SIA Wealth?
Chris: Yeah, Excellent. Paul, do you want to go first? Or I’ll jump in.
Paul: Pretty good start. Go ahead, Chris.
Chris: Sure. So, I guess I’m the newest addition to the SIA Wealth team and had transitioned from SIACharts, which I’m assuming we’ll chat a little bit on. Born and raised Calgary, and I started in the investment industry right out of university on the advising side. And that would have been in 2006. And really, I got to know SIACharts and subsequently Wealth through an introduction to the chart’s software platform in 2011, and utilized at the platform from the advisor side for five years. And then in 2016 had developed a relationship and rapport with Paul Kornfeld who’s the president of SIACharts. And eventually was dragged out of the advisor side onto the technology side. So that’s what took me into, I guess, my past five years with SIACharts and now SIA Wealth.
Paul: That’s funny Chris, I guess with both of us, maybe it’s kind of rare. We’re both Calgarians. I was raised here myself too. So, depending on the circles you’re sitting with, it is fairly rare, but yeah, I grew up in Calgary. My only escape really was to go to University of Lethbridge for four years to get away. But after coming back, I’ve been in the financial and the investment industry since then since early 2000, actually, and I did full circle. I started as an investment advisor out of University where I actually met the founder and of both SIACharts and SIA Wealth when I worked at Canaccord. And then I ended up disappearing from that for a number of years and made a full circle back when you started this. But in the meantime, I went from an advisor to forex training, worked in corporate finance and then back to the PM role.
So real full circle with, you know, a lot of different things I’ve learned. And then as I mentioned, I ran into Jeremy when he started this company. He had so much success on SIACharts that a lot of advisors were asking for help as far as creating products based on that technology. And since 2014, we’ve grown from the two of us to, I think about, I don’t know, where are we at 15/18 right now? So, it’s been an exciting process to be and as Chris mentioned, a local company of which a lot of people haven’t heard of us. Jeremy made the comment when I was out with him the other day that, you know, you can walk around Toronto. People will recognize them on the street, but since, you know, and it’s funny since we’re based here in Calgary and we’re trying to make some changes about it, with that going forward. That well, not a lot of people have heard of us. So, I think we have a really unique story and glad you guys invited us here to let us tell it, a little bit about it.
Michael Kesslering: Yeah, absolutely. I think that’s really interesting to mention that in terms of having a little bit more out exposure in the Eastern part of not only Canada, but North America. Now for those unfamiliar, Chris why don’t you, since you do have some experience on the data platform side with SIACharts, can you give a little bit of an explanation of the platform and how investors utilize it?
Chris: Yeah, definitely. Mike the platform itself was again, the, really the foundation from which Wealth was eventually built and from which a lot of our distribution channels eventually came to be. Jeremy started running, pointing figure relative strength, chart analysis back, I believe in the early 2000. And from there, he eventually transitioned that into to a full-time pursuit. And that is where SIACharts eventually materialized, I believe it was 2005. So big picture for him at the time, I believe, was to create a platform that gave advisors the ability to, you know, from an objective and rules-based perspective, rank equities based on his proprietary relative strength analysis. So, through that, I believe he started to build out a network and client base of other advisors and PMs that were interested in employing and utilizing that relative strength analysis for managing client portfolios.
So, at the time, and even today, actually this software platform itself is only offered to licensed advisors and licensed PMs. Now we have a diverse, I guess, subset or SIACharts, I should say, has a diverse subset of advisors and PMs that utilize the platform for a multitude of reasons. And in the beginning, when I first joined, I assumed that it was all technical analysts that would utilize, you know, our technical data-driven platform. But really, I came to understand that, you know, it was used just as frequently with the fundamentalists using our technical as an overlay perhaps to other research, they were utilized at the time to construct client portfolios. So today, I mean, where are we at? We’ve got, without going into an exact number, hundreds of advisors subscribe to and utilize the platform in constructing, you know, some running discretionary mandates. Some utilizing it for very specific and detailed tactical purposes within their broader investment universe.
Michael Kesslering: That’s really interesting when you mentioned that, yeah, in the investment community, there’s a ton of I guess a bit of a divide between folks that consider themselves more technical investors versus the fundamental investors. And very interesting to know that, what you’re seeing in a lot of use cases is as an overlay for fundamental strategies. I think that’s a really interesting note. Paul, can you give a little bit of background as well, just getting kind of, I guess, more granular of what the point and figure relative strength analysis is? And kind of some of the history of that tool?
Paul: Sure. Yeah. Basically, the analysis we’re doing, it is a quantitative approach and, you know, its really big data driven. So, the data or input that we’re using is priced cheap. So, to give you an idea of what we’re doing, what relative strength analysis is, is really the simplification of the supply and demand equation. So, if demand for something is going up, you see an increase in price and vice versa on the downside. So, what we’re looking at is the price change of essentially everything that trades in North America, public, we’re looking at that price change every single night. So that includes every stock, ETF, mutual fund, commodity, currency, really essentially anything that trades and then proxies to represent stuff like bonds or global. So, we’re looking at those price changes in the SIACharts technologies, taking those changes and comparing everything against each other, to ultimately rank from best to worst.
If you think about it, you know, we do this on a daily basis outside of financial terms, where you go to the grocery store, you look at two things, what’s better? But the simplest idea, I guess, example would be, if there was only two investments in the world, we had $1 to invest. Investment (A) is up 10%, investment (B) up 6%. We’re going for that egg. We’re going into 10% every time. Though some people confuse us with momentum analysis. We are looking for the relative winner. And when we do this in a portfolio, we’re doing this on a bigger scale, on a bigger universe or segmented universities, depending on the end product that we’re managing or creating for our clients. But it ends up being a rules-based system where we essentially are buying the outperformers and selling the underperformance on a relative basis. And it allows us to rotate unbiased and unemotionally, a lot of, sometimes various volatile and uncertain periods of time, such as 2020, but it allows us to keep our emotions at Bay and manage these portfolios without a lot of thinking. The system really does it for itself.
Michael Kesslering: I guess that’s where you mentioned the thinking is done at the beginning in defining the rules and the set of processes for your investment process, that’s where the thinking goes into. And there’s a ton of thought that I’m sure it goes into that. And I do appreciate as well. You providing the distinction between what you’re doing with relative strength analysis and momentum, because I think that’s fairly common to have a misunderstanding between the two. And then, so moving forward or moving over to the wealth management side with what you’re doing with SIA Wealth. Can you describe a little bit about how you add value to your client portfolios?
Paul: Sure, good question. You know, one thing, you know, the start of SIA Wealth, as Chris mentioned, was really based on the subscribers at SIACharts. It came to, you know, it came to a position where they started coming to us and asking, okay, we like the technology, it works, but can you handle this? Can you create the portfolios and do the actual training or, you know, management of all? So that’s how that started back in 2014. And since then, we’ve teamed up with a number of financial institutions across Canada, whether it’s estimates or some mutual funds, our biggest partners is BMO GAM, where we’ve created specific portfolios based on what they wanted using that technology and have actually masked about billion, 2 billion, three, over that period.
The value add really has to do with that top-down approach. So further to just looking at individual stocks versus another individual stock, the top-down looks at, do we even want to own equities at this period of time? And if so, which ones? Is it U.S. or Canadian, international? So, and then drops all the way down to the specific ETF or individual stock. So, the value add really comes from that overall or top-level risk management play, which helps us sidesteps a lot of, or periods of uncertainty and large volatility. And there’s been a number of examples since the launch of these various products where we’ve seen that and it’s resonated and very well, and been very receptive from advisors we were talking to and created these for them. We’ve never really created a product and went out and sold it. Everything we’ve ever done was a request that we said, okay, we can use our technology to create that and then roll it out or for their clients. So, it’s worked out very well for them.
Michael Kesslering: That’s really interesting is, being able from a product development standpoint, being able to have that real time feedback of what investors are demanding. And so, when you look at the SIA Wealth website, something that is mentioned a lot is, the true tactical process. Can you get into a little bit more detail on what that is and how it fits into your top-down risk management framework and how you’re thinking about portfolio construction within that?
Paul: Sure. Chris, do you want to talk about true tactical? We’ve just launched as this year really the concept. We’ve always had this plan and always ran things this way, but it was more of a way to explain it to people who didn’t really understand.
Chris: Yeah, right. Yeah, Paul definitely. The true tactical, I guess, campaign that we’ve launched recently really came out of some research and analysis we were doing, you know, within our peer group, within the tactical realm and really looking at how truly tactical, tactical managers actually were in the face of uncertainty in markets and periods of volatility. So really what we noticed is there are a lot of tactical managers out there that purports to be tactical by nature and process. Although the shifts they were making may not have actually provided you any true value from a tactical perspective and where we see our changes and shifts from a tactical nature. We really do live by what we say, for example, as Paul mentioned. The top-down macro analysis that we run, if we are seeing a shift away from perhaps risk assets, equity and more towards safer Haven fixed income cash, cash proxies, we really do, you know, full pedal to the metal and make a shift from one asset class right into another, depending on the mandate.
So that’s sort of the idea of our true tactical nature is really based on, you know, the idea that we really do make those almost monumental shifts in the face of volatility and changes in market sentiment.
Paul: And further to that, you know, like Chris said, a lot of guys call themselves that, it’s a belt buzzword, I guess, where people can shift from a 60-40 to 40-60, something like that. But, you know, for example, like Chris mentioned that, you know, we look at equities as a whole, do we even want to own them? And for example, 2020 was a great case study where January and February, for most of our equity portfolios, we saw some great returns on a relative and absolute basis. Things turn due at COVID, and with the way we analyze the money flows based on price changes, we actually stepped completely out of the equity markets in mid-March. So that was a, you know, almost a binary tactical shift where we moved out of all equities into short-term fixed income and sat on the sidelines until things cleaned up. Where certain tactical managers and peers of ours didn’t make that move. Or if some of them did, they didn’t get back in. By the end of April, we were back in the markets and enjoyed a very strong rest of the year, where you know, certain tactical managers weren’t able to make those decisions. And that’s sometimes where emotions come in, believe me, the phone calls we were getting in mid may. Some of them fairly frantic, wondering what were we thinking, getting back in, of course, we’re going to go reach out to the lows, that kind of thing. And, you know, I can’t argue with that. We don’t make predictions of what’s going to happen in the future, but that was based on our algorithm, what we’re seeing with money flows, the place to be. And we sat there till the end of the year. And by December 31st, we were looking pretty good, but, you know, again, it was that ability to make those moves. And it was, you know, we were very appreciative teaming up with BMO GAM. We did because they allowed us to do something very different than what most people out there were doing, but then a typical mutual fund or ETF.
Julian Klymochko: So, tying this all together, you have SIACharts, the data platform based off relative strength analysis, largely technical data driven, a quantitative approach based off price changes. And then SIA Wealth, utilizes that software platform, this data to create portfolios. So, looking at some of the products you offer: mutual funds, ETFs, private pools, largely based on this tactical approach that you discuss, if you were to describe some of these products more deeply, like, what are they offering to investors? Say your ETFs and mutual funds that investors would easily have access to? Are they a portfolio of ETFs stocks, bonds? Can you explain some of your products?
Paul: Sure, you know, it’s a real combination of all of that. I think for the most part, the portfolios we run are generally more of a, you know, traditional portfolios, mom, and pop kind of things. We have a broad-based equity fund comprised of both ETFs and stocks. We have a traditional 60/40 balanced fund as well as a separate fixed income fund. And then we have a couple of focused stock strategies, one of which is just Canadian stocks, a 15-stock strategy in North America. So, all of these are all managed by that same rules-based system. Really doesn’t differ whether it’s a fixed income or a broader sector-based ETF or individual stock, it’s the same idea. So, these have been, as I mentioned, more traditional kinds of investments that have been well-received. Especially being in Calgary to tell you the truth. Starting to put some feelers out for some more specific funds, maybe even an energy focused fund commodity, of course, and the energy specifically since really May last year starting to pick up.
So even though we’ve been dealing with funds that are more, very broad based and, you know, including a lot of people, we’ve had a lot of interest, or we’re starting to kind of gauge at whether there’d be an interest for more of an alpha generating, more sector specific, something like an energy play, which of course would be created and managed the exact same sort of way based on the relative strength rankings and the rules-based rotation. But hope that answer your question. That’s kind of what we’re doing both on the fund and ETF level, as well as the various estimates we deal with as well as we have a couple of in-house pools also, we all very similar.
Julian Klymochko: In addition, I’m curious as to how investors or how you would use these products, ETFs mutual funds that SIA offers, this tactical approach is data driven quantitative relative strength approach. How was that generally utilized within an asset allocation framework? It’s used by a number of advisors around the country are some hundred percent tactical, that’s all they do, or is it say like a 10% allocation in client portfolios?
Chris: Yeah, that’s a good question Julian. Working very closely with a number of advisor and PM teams. The predominance is focused on again, the idea of that true tactical sleeve actually. So, you know, maybe it’s not 10% of what we look at and help advisors position PMs or charts helps advisors MPMs position is, is that tactical sleeve. So, looking at perhaps, from a 15 to a 25% allocation in their equity allocation, and perhaps that’s across the BMO North American and the BMO Canadian ETFs. And what they’re looking for predominantly is our ability to step out of the way of volatility that could be detrimental to the overall return of client portfolios. So, our approach in moving to cash really almost provides for them, I mean, an insurance policy or a buffer on downside protection. And that’s, I think one of the ways that we see sort of the outside advisor world utilizing our products.
Paul: Like I was going to mention too are, the Canadian one, it’s the BMO SIA Focus Canadians the ZFC. We’ve been discussing that a lot lately because it has a very high active share. Meaning that it doesn’t really track the traditional Canadian index. And especially as of lately, it’s been able to do very well for an advisor who stays, let’s say, stick a 20, 25% sleeve of that Canadian tactical approach within a Canadian equity portfolio. So, it looks to generate some alpha while we’re in a strong market. But when we see, you know, when we see a little danger of uncertainty, all of a sudden that whole portfolio becomes 25%, short-term cash, 75% still invested in a lower active share where you’re seeing more index returns. So, the combination within that portfolio, as an example, has been pretty beneficial for a lot of the guys we’re working with.
Michael Kesslering: So, a question that we get many times, and I think any manager that dealing with the systematic strategy is, do you ever look to override your system? Because as you had mentioned with some of your competitors or other tactical managers where their model was perhaps even telling them something in March of 2020 to be out of equities, but they may have overridden that. Would you ever look at a situation where you would override your system?
Paul: We never have, and I don’t think we had ever overridden a signal as it happened, but due diligence and research and development is always something that’s taking place for various reasons and are rolled out as really tweaks to the overall process. But as far as overriding changes, no, we have specific rules for avoiding certain short stocks if they were ranked on top because of maybe sector overweighting, or maybe because of a merger buyout situation where the stock shot up. But other than that, we stick to the output, which is done on a nightly basis Stay away from the emotional side of things, because believe me, the phone calls we were getting in May had me wondering why did we get back in yet. After one of the fastest and quickest rallies we’ve ever seen after one of the quickest drops. So that saved us from a lot of grief at the end of the year.
Michael Kesslering: I can imagine. And so, just as well, a little a bit of a fun question that we typically like to ask is, and it’s not specific to any specific stock or anything like that. Can be a fund or an asset class in general, but if you adopt hold an investment for the next 10 years, what would it be?
Paul: Chris, do you want that? Or should I take? One thing we’d never do is make predictions. When we’re buying XYZ today as a replacement for something we sold, that’s because against any out of the other alternatives, whether it’s an individual stock, ETF or an asset class, that’s where we’re seeing the strength today. Generally, we’re looking at 6-to-18-month periods of how performance when we see something that’s kind of the average. When something ranks above its peers, it usually sits there for longer than you would think. Quick answer, probably equities, just equity, because it’s been going for 10 years, but it’s hard to say. If things turn because of various inputs next week, or next month, we might be on the sidelines again, it’s hard to say. We really don’t make predictions or forecasts with things. We look at charts and we’ll look at possible support and resistance levels, but really at the end of the day, that individual only matters on what an alternative investment might be, but it’s another stock, or it could be fixed income or commodity. So, it’s not something we do. That’d be a tough question, Chris, you in agreement?
Chris: Yeah, follow the rules Paul.
Julian Klymochko: Fair enough. But touching on those rules, one thing that I did want to get your outlook on is fixed income. Bonds these days, I’m looking at the 52 weeks, low list. Just littered with Bonds ETFs and Buffet famously came out about a month ago and his annual letter saying bond investors face a quote, “bleak future.” I look at TLT and some of the bond ETFs out, they’re looking like death and, you know, most investors are still running that traditional 60/40 portfolio. What are your thoughts on bonds these days, fixed income? And do you think they still serve a role or, you know, does it deserve a 0% allocation in your models?
Chris: Well, I think just from an objective perspective, if you were to look at the SIACharts platform and review, perhaps the asset class ranking bonds, you know, follow suit with what we are seeing in the marketplace right now with your bonds holding last spot in seventh rank. So, from our equity mandates perspective, though, obviously there’s no place for bonds and that could continue for the foreseeable, you know, intermediate long-term future. But I don’t think I have much of a subjective view, Paul?
Paul: I think you nailed it on an asset class ranking. It’s at the bottom of our list. When we look at bonds and how we manage our fixed income portfolio is that we’re looking for opportunities not only in Canada, but globally. So, it’s almost a currency play a lot of times because we have such low yields on both sides of the border. For instance, we’re looking for movements or relative gains on either side, which obviously over the last 10 months or so, it’s been on this side of the border because of the weakening U.S. dollar. But I think for the foreseeable future, any alpha that we see in that portfolio or that approach is going to be on the currency side. We have had talks recently about the idea of a balanced mandate. So, the 60/40 you’re alluding to Julian, and you know, the average investor would be 60 to 64 has been programmed that that’s the magic number, right? It used to be a hundred minus your age. Now it’s 120 minus your age as your equity exposure. I don’t know if that’s going to fundamentally change, a lot of people still want, and the reason why you have a bond within a fixed thing for a balanced portfolio is for safety. It’s not so much the income because that’s very low, the alpha or the growth is from the stock. So, I don’t know if it’s going to go away. We’ve gone through periods over the last 10 plus years where we talk about interest rates moving up and they still haven’t. So again, to the question prior, we don’t make a forecast. At one point, if bonds have their day, we’ll move into that and which specific ones, and we’ll see that too, whether it’s corporate or government on this side of the border or in the U.S.
Julian Klymochko: Certainly, it makes sense that bonds, fixed income have a bottom ranking these days. I think personally that they do face a pretty bleak future. So, I’m just happy, I’m not a fixed income manager these days, but prior to wrapping things up today, where can investors find out more about SIA Wealth?
Chris: Yeah, our website is a great place to start siawealth.com and you know, Paul, myself, Kyle, and other one of our portfolio managers are always available and open to discussing the mandates and the process openly with anyone who’s intrigued and interested.
Julian Klymochko: All right, great.
Paul: Yeah, best place to look. As a lot of information of some of our products, who we work with. And as Chris mentioned, we work with wholesalers and advisors across the country. So, we can put you in the right direction if you want to actually buy some of the stuff or speak with us about the products and how they work.
Julian Klymochko: There you have it, folks. Thanks, Paul. Thanks Chris. Happy to have you on The Absolute Return Podcast to really showcase what you guys are up to at SIA. So, thank you very much for coming on the show.
Paul: Thank you very much for having us, really appreciate it. Nice to speak with one of the local company in Calgary here.
Chris: Thanks guys.
Julian Klymochko: Okay, bye everybody.
Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.
