We believe that our flexible equity mandate increases the potential of finding underpriced securities.
The Cowan Absolute Return Fund is an equity-focused portfolio. It invests globally across all industries and is not limited to large-cap companies. We believe this flexibility maximizes the potential of finding under-priced securities, as there are no arbitrary rules limiting what stocks we can and cannot hold.
We take a long-term view of investing. Individual securities within the Absolute Return Fund are typically held for three to five years, and we partner with clients who share this long-term view.
Our investment process is one of true active management, not simply charging fees to approximate the holdings of an index. We do not believe that money should be managed with relative performance in mind, but that absolute wealth creation and its sustainability are of the utmost importance.
As a result, we do not benchmark the Fund against any indices; rather, we measure our success by whether or not we increased our clients purchasing power by generating returns greater than inflation.
The Absolute Return Fund holds a concentrated selection of securities that are purchased at prices below estimated intrinsic values. We are steadfast in the view that purchases must incorporate this margin of safety. This approach has traditionally been considered value investing. Investments typically held within the Fund include: temporarily out of favour securities, temporarily depressed free cash flow, hidden assets, and under-followed companies.
Equity diversification is important, but only to a point:
More isnt better when it comes to the number of securities in a portfolio.
The Absolute Return Fund diversifies by holding securities in a variety of countries and industries, not simply by adding more and more stocks.
The correlation of these securities matters more than the sheer number of holdings.
Diversification is Important… Up to a Point
An equity portfolio holding 15 to 20 low-correlation securities eliminates nearly all stock-specific risk. The addition of more securities leads to unnecessary over-diversification.
To help our clients get proper value from their investment management, we are committed to keeping our fees fair. We understand the impact that fees can have on the results of a long-term investment return, particularly in todays low-rate environment. Our unique relationship with Princeton Holdings provides us with economies of scale savings which we are able to pass on to our clients in the form of lower fees.
Charged at an annual rate of 5% of the gains the Absolute Return Fund generates.
Paid only if the high-water mark has been exceeded we dont charge a fee on gains that only serve to offset previous losses.
Charged as a percentage of the assets under management in each account. For example, if the value of an account was $500,000, and the management fee was 1.00%, then a fee of $5,000 per year would be charged.
Fees can have a substantial impact on your investment returns. The dollar value of fees charged for investment services is often underappreciated by clients of asset management firms. Long-lasting client relationships are more important to us than collecting high fees one year at a time.
The hypothetical portfolio with the1 & 5fee structure has a value that is$416,000higher than the portfolio with the2 & 20structure and$208,320higher than the average mutual fund.
Ultimately, we want to generate attractive investment returns for our clients. Some investors believe the best way to predict the future returns of potential investments is to look at their historical returns. We disagree. We believe this is an example of outcome bias: evaluating the quality of a decision once the outcome of the decision is already known.
Instead, we believe that the best way to predict future returns of potential investments is to evaluate their fundamentals. We think potential asset managers should be evaluated in a similar way: whether their investment approach is repeatable over the long-term, not whether it has had success over the short-term.
We will never chase performance by adding securities to our portfolios solely because they have been successful recently. That is why we only partner with clients who believe in our fundamental investment approach not those who are simply focused on chasing performance.
We have partnered with industry leaders in the administration of the Cowan Absolute Return Fund to help ensure that our clients enjoy the highest level of service from some of the most respected organizations in the industry.