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John: I’m here with David Fingold of Dynamic Mutual Funds. So, you do manage a few funds and obviously I’d like to concentrate a couple of questions right now on the global asset allocation fund. I would venture to say that of the parameters of risk as per the compliance people, would you say that that’s a lower risk investment as compared to some of the others? And does that mean that you have to change the way you manage it?
David: Well the answer is that we launched it as low to moderate. I know that the way that risk is calculated they look at the it’s backward looking over the last 10 years standard deviation returns. That is going to change over time simply based upon the standard deviation returns of fixed income, precious metals and equities which are the things that we own. But my goal is to keep it at a much lower risk level than an equity fund.
The way that we do this first of all is to have a fixed income component and a cash component. And what usually happens is that when there’s a correction in equity markets that the fixed income market rises in value, very frequently the US dollar rises in value. So we have a tendency to have some duration in the portfolio when it makes sense and also to have some exposure to the US dollar. So we are actually slightly overweighted in the US on the US dollar versus the global fixed income benchmarks on the fixed income component.
From a duration point of view we are actually just slightly underweighted versus the benchmark. The main reason being that there is not a clear pattern at this time where the market goes down and rates go down, that is bonds go up at the same time. In fact since we neutralized our duration rates have not really moved. The big difference in what we’re doing versus what most other people are is that there’s no corporate bonds. And to be clear about this, I’m not in any way negative about corporate bonds. It’s just that they are at a valuation where the best case scenario is to earn the coupon and the worst case scenario would be default. And I’m not saying we would have good security selection. I’m not concerned about defaults but it’s theoretically possible.
We haven’t seen an attractively priced corporate bond market since 2011 because in 2020 the Fed intervened and bought corporate credit and did not allow them to become cheaper and create an opportunity. I like to view corporate bonds as kind of a lower beta version of equities and I’d rather take a unit of risk and invest it in equity and the reason why is simple. You all know that with a bond, your best case scenario if you hold it to maturity is you get your coupon strips and your principal strip. So I call it a finite return investment.
An equity on the other hand, if it’s a well financed company that is profitable and growing, is an infinite return investment over a long enough time horizon. We’re investing in companies today that existed before we were born. And we’re all adults here. None of us are going to live forever there. We could be investing in companies that are going to exist and be growing after we’re gone. So I would rather use a unit of risk where the long-term potential is infinite. Now that being said, if corporations reach attractive valuations, if I can buy them at, you know, 80-90 cents on the dollar, during a recession and they can return to par, that’s a very attractive short to medium-term investment that I would take advantage of. And my record clearly showed I did during the global financial crisis and earlier with David Goodman when I joined the company. So, I will have an open mind.
The other thing we do that’s different in the asset allocation fund is we’re able to, where I again all the funds, can own precious metals but I don’t think that there’s an expectation unless there’s a really good reason and I’ve done it in the past but there isn’t an expectation to consider precious metals in an equity fund. Maybe a precious metals equity would make more sense. A gold miner or royalty company. Right now we have a position in gold bullion. We have taken some profit since the near-term high. We’ve been slowly reloading near the lower lower end of the range and I do like that it catches a bid when there’s a flight to safety. So it’s an interesting diversifier.
In the past we’ve all had the ability to hold gold, platinum and silver. In the past we’ve held platinum and gold and you know right now only gold. And one thing I would say about what we do that again is different is this is actually gold. The fund owns 400 ounce bars of gold which meet the good delivery standards of the London Metal Bullion Dealers Association. So we literally don’t have counterparty risk. This isn’t paper gold. We can actually go audit it in the vault and I’m sure we can get you a photo of me on one of these audits. I think I’ve lost a bit of weight since then. But I think I also lost care since the last time I was photographed helping to audit the inventory.
John: Now, you’ve been in the industry for quite a few years now. Have you ever won awards for what you do?
David: You know, I’d have to pan the camera to show you and I’m not very good at it. But there’s a shelf up there and literally from one end to another there are some awards. There are, I don’t know from a regulatory point of view if I’m allowed, again when we get an award I think we actually apply to the regulator and ask for permission to talk about it. I think there are rules surrounding that.
But all I can tell you is that if you were visiting the office you’d see a lineup there of trophies. But I think the other part of it is: what have I done for you lately? I’m very grateful to the organizations that awarded them but they were all backward looking. So it’s about what have I done for you lately? Is our strategy currently correct? If we can keep on executing perhaps I’ll find room for more of them.
John: So what and I’ll make this the last question today. What separates you from your peers?
David: I used to work for a living. I think you know and again I don’t mean to diminish, I have some friends who’ve only worked in this industry who are incredibly gifted at doing it and have wonderful results but also working at Dynamic I work with an unusually large number of people who had day jobs before they did this. I work with people who have been in public accounting and who’ve been in banking. We had a PM who ran a large real estate company. We had a PM who was the CFO of a sporting goods company. I used to run a manufacturing business. And if I’ve forgotten anybody, I really apologize.
But I will tell you that there’s the fact that I worked for a living I think is important. And I’m not saying that it’s impossible. Like I said, I have friends that have only done this and are really good at it. I think that if I have an edge or a differentiation, it’s that when I meet with a management team, I can say, “Look, I know I don’t know your business.” Like I met with a global 100 company yesterday and I said to them, you know what I just told you, I expanded. I said, “Look, um, I’ve been here since 2002 and lead manager of my funds since 2004, but before that, I had 450 employees, $170 million in sales. I have a deal with the Ministry of the Environment, the Ministry of Labor. I had to go and try to get clients to take delivery of inventory they ordered and didn’t want to take delivery of, and pay invoices that they didn’t want to pay.”
And I said, “I never worked a day in New York Company. I can do all the research I want on your company. I never walked a mile in your shoes. So I find it very helpful because when I say to them, I get it that I never walked a mile in your shoes. Teach me your business. Right? So I feel that I have an opportunity because I know what I do not know. And I’m probably just quoting my late grandfather where he always said the older I get, the less I find out I really know. And that is understanding that we don’t know and need to learn is incredibly difficult. I also have a very open mind. Rowit Seagel, who I know retired in 2013 as our chief investment strategist, was clear to me that being flexible and open-minded are the absolute keys to success in this business.
I’ve also really benefited from being around these great investment minds like Ned, you know, like Rowit. I’m not going to name names of current colleagues because I’ll make their ears burn, but a lot of them are really good and I’ve learned a lot from them and because I’ve been able to see everything they do, I can learn from it. And by the way, that includes watching them make mistakes and correct them.
So, this is the other thing : is having, I know we’re concluding on this. It is: I’m 57 years old. I mean, I feel young, but I’m 57 years old. That benefited from being here for over 23 years and having an environment where I was able to learn, make mistakes, learn from the mistakes, get coached by the best to now be in a position to be that coach working with the other people on the team, is an incredible privilege. If you, I don’t know if you’re a sports fan but when you read interviews, you know, with athletes, they all think that it’s like a privilege to be able to be paid to play a game and they all know it’s for a finite period of time because our bodies don’t last forever. Our business is different because if you look at how long Ned Rowit, Mr. Buffett and Charlie Munger, how long people can work in this industry. We get to do it as our hobby, we get to be paid for it and we get to do it for a very long period of time. And it’s not like a bad elbow or a bad knee can take us out of it.
Anyway I hope that explains where I’m coming from.
John: Very much. So thank you for your time today David, very much appreciated David Fingold of Dynamic Funds.
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