STRATEGY
Newhaven’s investment strategy is centred on identifying companies with sustainable dividends, with the ability to grow those dividends over time. Dividend growth strategies in developed markets have consistently outperformed comparable relative or indexed market strategies, with the added benefit of lower volatility. Each holding is evaluated with a keen focus on the sustainability of the business, including long-term competitive positioning and growth prospects. Over time, the focus on long-term dividend growth allows the portfolio to provide a growing stream of annual income which can be used as needed or reinvested and compounded for additional growth. An additional benefit of the strategy is low turnover, which in turn lowers transaction costs and taxes, regardless of the market or economic environment.
CONVICTION
Concentrated portfolios of 20-30 equity holdings are constructed for each client. Newhaven is not inclined to own the market, and as a result our strategy produces a differentiated return profile. Newhaven stands apart, not merely for the sake of being different, but because the popular thing too often involves more risk than our clients need to take. Newhaven is only concerned with owning the most optimal portfolio that will help clients achieve their goals over their individual time horizon.
Note: The "Cad Dividend Index" shown above is an equally weighted index of the TSX Financials, Utilities, Telecommunications and Consumer Staples sectors and includes dividends. Dividend growers in Canada have significantly outperformed both the TSX and S&P 500 on a total return basis over the last four decades, especially when volatility, as measured by standard deviation, is considered. Canadian oligopolies in the Financial, Utility, Telecommunications and Energy Infrastructure sectors shown below have consistently provided above average total returns with lower risk and the added benefits of lower taxes and currency risk for Canadian investors. As such, these sectors are well represented in all Newhaven portfolios.
Note: Equity portfolio positioning as at Dec 31, 2024 from target portfolio holdings and weights (equities only). Yellow bars denote infrastructure investments of various kinds which make up more than half of the assets in the equity portfolio with emphasis on power generation and distribution.
Note : Despite having all our core portfolio holdings listed in Canada more than half of their geographic exposure is from outside the country. Geographic exposure percentages calculated from target portfolio holdings and weights as at Dec, 31, 2024 (equities only)
Note: Our portfolio dividend income yield is just under 5%, offering significant protection and an attractive return profile when compared with bonds and broad market indexes. Portfolio dividend yield calculated from target portfolio holdings and weights as at Dec 31, 2024 (equities only)
CONTROL
Newhaven seeks to control volatility in client portfolios, while providing an attractive total return over time. Our portfolios aim to provide capital preservation, steady growth, and the ability to fund an ongoing personal spending need. Dividend-paying equities have consistently provided a lower volatility when compared with the broad stock market, with a higher income level than could otherwise be achieved in the bond market. Volatility control is the psychological and mathematical key to matching an investment portfolio to a client’s multi-decade time horizon, especially when they are consistently in need of capital.
Note: clients who are at, or near, retirement often cannot afford significant capital impairment when drawing from their portfolios, nor can they afford to give up much return, due to increasing life expectancies. Increasing the volatility in a portfolio by 5-10% can have a disastrous impact on the portfolio’s ability to fund ongoing expenses in retirement. Dividend-paying equities have consistently recorded annual volatility in the 10% range, while indexed and momentum strategies are higher on average. As a portfolio’s volatility increases and the annual income level decreases, the chance of the portfolio running out of money increases dramatically. Relative to a quality dividend portfolio, an indexed strategy roughly doubles a client’s chances of running out of money in retirement and a momentum-based strategy roughly quadruples the chances of running out of money, even with conservative return and annual drawdown assumptions.
CANADA
Newhaven portfolios are composed primarily with Canadian equities. The Canadian market is home to a significant number of dividend-growers, with above-average yields that have been shown to both reduce volatility and outperform benchmarks over time. Additionally, Canadian dividend-payers provide a higher level of current income, lower taxes, and less currency risk when compared to passive indexed strategies. US dividend-payers and select ETFs can be used to complement the Canadian core, especially the Technology, Health-Care, and Consumer sectors, where the Canadian market is under-represented. Over time, the Canadian market has shown to be more consistent and less volatile than the US market, with similar returns. Dividend-payers have outperformed in both markets.
Note: Since 2000, the Canadian market has performed in line with the US market (in $CAD), even including significant US market outperformance recently. The US market had a lost decade from 2000-2012 with NEGATIVE returns in $CAD. On a relative basis, equities have outperformed bonds and especially cash by a wider margin since 2000. As such we favour a portfolio of stable dividend paying equities to preserve capital after inflation and provide stable income for retirement.
Note: when examining only the bust periods (periods with extended negative returns), the US market exhibits significantly more instances of long-term negative returns than the Canadian market. In fact, on a rolling 5-year basis over the last 5 decades, the US market has been NEGATIVE when measured in $CAD more than 17% of the time, while the Canadian market has only registered a NEGATIVE return in less than 3% of the 5-year periods. Extended periods of acute NEGATIVE returns significantly impair a portfolio’s ability to fund an ongoing spending need, even if the overall return ends up being comparable for a client’s full time horizon.