Triasima: Behind the Scenes

We at Wealth Management Canada conduct detailed due diligence on managers across the country to find the best wealth managers to recommend. When evaluating managers, we look at the 4P’s of manager research: People, Philosophy, Process, and Performance.

One of the managers that we’ve performed extensive due diligence on is Triasima. We thought it would be useful to dive into the details of why we’ve selected Triasima as one of our managers.

Below are questions that we’ve asked Triasima, to which they have replied in detail, that highlight why Triasima is one of the managers we’ve chosen.

1. What are the different products offered by Triasima?

Triasima offers a wide range of investment strategies, customized to meet each investor’s unique needs. Among the most popular are: 

• Growth: A flexible mandate seeking a high total return, primarily through capital gains generated by Canadian and foreign equity securities of all sizes.
• Balanced: This mandate includes a combination of variable and fixed income securities for investors seeking long-term capital growth, medium volatility, and regular income. 
• Balanced income: A mandate comprising high-dividend stocks, preferred shares, and bonds designed for prudent investors seeking high current income and small capital growth over the medium and long term. 
• Fixed income: A mandate of actively managed fixed income intended for conservative investors seeking regular income and capital protection.
• Specialized: Focused mandates for investors interested in specific asset classes. 

The objective of all these mandates is to exceed, over time, the performance of their benchmark indices while emphasizing capital preservation.

2. Is one Pillar more important than the others?

Each pillar will yield a score ranging from -2 (worst) to +2 (best), for a total score ranging from -6 to +6. In other words, each pillar represents 1/3 of the total score, and each pillar is equally important.

3. Are the three pillars used in a pre-defined sequence? 

Trade ideas can come from any of the three-pillars: Fundamental, Quantitative or Trend. Each pillar is independent and pillars apply in no pre-defined order. 

4. The Trend pillar is quite unique to Triasima. Please elaborate on its benefits.

We strongly believe in the saying, ‘“Trend is your friend.” When a company stock is moving up, it means the company is being rewarded for something good happening with its underlying business. So, for any stock that we have a positive fundamental and/or quantitative view on, we like this view to be confirmed by market sentiment (in other words, stock price moving up). On the other hand, Triasima will never buy a stock that is trending down; on the contrary, for us, this a big red flag. 

Our Trend pillar focuses on stock prices and rests on 9 different trend indicators over three different time horizons (short, medium and long term). We apply a set of rules to measure the direction and magnitude of a trend. In other words, stocks that are moving up will have a stronger trend score (+1 or +2) than stocks that are moving down.

5. Do you measure momentum in the same way for all stocks? Does momentum work the same way for both growth and value stocks?

The Trend analysis focuses on price behavior only. When applying this pillar, we look at a stock’s price pattern with no consideration for who the company is or what sector it is in. The only thing we want to gauge, in a purely objective way, is the direction and magnitude of a trend. As a result, the same indicators are used for all stocks.

6. How does the Three-Pillar Approach mitigate behavioural biases?

Two pillars out of three are highly automated: Trend and Quantitative. As a result, they help mitigate behavioral biases such as overconfidence by keeping us very disciplined in terms of what can be added to the portfolio and what must be sold.

7. From a Three-Pillar Approach, can you give an example of an ideal stock/company?

The ideal company would have the top score (+2) for each of the three pillars, for a total score of +6. A +6 would mean the company is very strong fundamentally (strong management, great products/services, competitive advantage, etc.), quantitatively (strong financial ratios such as low P/E, low debt, high earnings growth, among the top 5% of the investable universe) and from a trend perspective (i.e., stock exhibiting strong positive momentum and potentially reaching new highs, which means the market is confirming our positive view on the company). 

8. How do you integrate ESG into the fundamental pillar?

Environmental, social and governance factors are an important component of our Fundamental pillar. When meeting and assessing companies, we always make sure we consider these critical items. To do so, we rely on ESG-specific questionnaires developed in-house. To supplement our own view, we subscribe to the MSCI ESG database, which rates companies from an ESG perspective.

9. When it comes to risk management, what does Triasima do to mitigate risk/preserve capital?

Our aim is to outperform the benchmark with lower risk.

To mitigate risk, we:

• Always maintain good diversification from a security, sector and country (if applicable) perspective;
• Monitor over 40 quantitative parameters at the portfolio level, such as beta, debt level, price-earning ratio, earnings growth, etc.; 
• Stress test the portfolio on a monthly basis to monitor for unintended bets. These 14 stress tests are based on potential scenarios such as oil down 40% or inflation up 2%.

Finally, during periods of economic slowdowns/bear markets, our Trend and Fundamental pillars will quickly deteriorate, triggering many sell signals. Without good buying options, the cash level of your portfolio will rise and may be high in periods of market turmoil. Such an approach will often help preserve capital in down markets.

10. It is interesting to notice that at some point in the past, your portfolio included very diverse names, such as Shopify and Manulife. How do you choose, compare and weight names across such diverse sectors?

Triasima uses a two-step process: 1) Measuring the attractiveness of each security by applying the three-pillar approach and 2) Building well-diversified portfolios that will outperform benchmarks while being less risky.

From a step 1 perspective (measuring the attractiveness of each security), Shopify (+5) and Manulife (+3) are two names that scored well on our system. As a result, like many other names in the universe, they were candidates to be added to the portfolio.  

Then in step 2 (Portfolio Construction), portfolio managers combine a wide range of names that, together, will give the portfolio a superior combination of growth and value than the benchmark. Growth characteristics will help generate a return in strong markets, while value ones will help preserve capital in weak markets.

Shopify is a high growth name with quite a lot of upside potential. It adds some ”octane” to the portfolio but comes with higher risk. Manulife is a cyclical name, less volatile than Shopify. The portfolio also holds quite a few defensive names, such as Utilities, REITs or Telecoms.

In aggregate, the resulting portfolio is expected to generate stronger returns in the long run (thanks to names like Shopify and to some extent, Manulife), while also preserving capital in down markets (thanks to more defensive names like Telus).

These questions and answers were written prior to the global outbreak of COVID-19. In response to the current coronavirus pandemic, Triasima has released multiple commentaries detailing its observations and thoughts. To view Triasima’s latest updates and articles, please click here.

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