The firm launched two actively managed ETFs, one based on its U.S. strategy and the other on a similar Canadian strategy.
By: Barry Critchley
A few miles north of the financial district in Toronto sit the offices of Bristol Gate Capital Partners, a privately held money manager which, over the past nine years, has posted results from investing in U.S. stocks, that place it in the top 10 per cent of managers around the world.
In other words, performance, with a more than commensurate risk management focus, doesn’t come from proximity to the rest of the investment professionals but from implementing a carefully and scientifically based approach to investment management, in this case picking the best 22 stocks from the S&P 500 index.
Since May 2009, when the U.S. strategy started, to Jan. 31, the firm recorded an 18.43 per cent annual compound rate of growth – or 200 basis points above the 16.46 per cent gain for the S&P 500 over the same period. The numbers are gross of fees.
The firm, which manages about $1 billion for institutions and high net worth individuals, uses a unique evidence-based investment approach that combines data science with rigorous fundamental analysis to pick those 22 stocks.
But the 22 are all selected because they are all dividend growers — companies which can be expected to grow their dividends and provide more income to the portfolio over the next year.
It’s the way the 22 are selected that’s Bristol Gate’s secret sauce: the process starts with those companies that have revenue growth and is then adapted for operational performance (essentially growth in cash flow). Put the two together and the firm’s proprietary methodology, that it says leverages machine-learning algorithms, predicts the 22 stocks with the highest dividend growth for the upcoming 12 months. Over the past year, the U.S. strategy posted an 18.9 per cent growth in dividends.
On all three measures, growth in sales, cash flow and dividends, Bristol Gate’s equally weighted portfolio, which is rebalanced each quarter, is in the top 10 per cent of all funds. But rising dividends is not a natural outcome: 34 per cent of the members of the S&P 500 have cut dividends over the past 23 years.
Now the singularly-focused firm, whose U.S. strategy had only been available to accredited investors, and whose two co-chief investment officers are Peter Simmie and Reyer Barel, is taking the next step in its development.
This week it launched two actively managed ETFs, one based on its U.S. strategy and the other based on a Canadian strategy that uses the same methodology. In this way, investment advisors and their clients will have better access to investment strategies like Bristol Gate’s.
“Our objective has always been to identify opportunities that can support our investors portfolios through capital growth and by providing them more income in the future as well,” founder Richard Hamm said in an interview.
Hamm stressed the two ETFs will be actively managed. “We will be combining the firm’s skills in data science and fundamental analysis. We won’t be using a rules-based passive model.”
And Bristol Gate is not embarking on this new development blind: it does have a track record for both its U.S. and Canadian strategies.
In July 2013, it put its own money into the Canadian strategy and since then has been managing the fund using the methodology that will be used for the Canadian ETF.
Performance has been stellar: according to Global Investment Performance Standards verified numbers, that real money has generated a 13.7 per cent annual compound rate of return or 440 basis points above the TSX’s return over the same period. (Those numbers are gross of fees.) The Canadian fund, which is underweight the financial and energy sectors, is home to 25 stocks.
There is a risk of loss inherent in any investment; past performance is not indicative of future results. Prospective and existing investors in Bristol Gate’s pooled funds or ETF funds should refer to the fund’s offering documents which outline the risk factors associated with a decision to invest. Separately managed account clients should refer to disclosure documents provided which outline risks of investing. Pursuant to SEC regulations, a description of risks associated with Bristol Gate’s strategies is also contained in Bristol Gate’s Form ADV Part 2A located at www.bristolgate.com/regulatory-documents.
This piece is presented for illustrative and discussion purposes only. It should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities and it does not consider unique objectives, constraints, or financial needs of the individual. Under no circumstances does this piece suggest that you should time the market in any way or make investment decisions based on the content. Investors are advised that their investments are not guaranteed, their values change frequently, and past performance may not be repeated. References to specific securities are presented to illustrate the application of our investment philosophy only, do not represent all of the securities purchased, sold or recommended for the portfolio, it should not be assumed that investments in the securities identified were or will be profitable and should not be considered recommendations by Bristol Gate Capital Partners Inc. A full list of security holdings is available upon request. For more information contact Bristol Gate Capital Partners Inc. directly. The information contained in this piece is the opinion of Bristol Gate Capital Partners Inc. and/or its employees as of the date of the piece and is subject to change without notice. Every effort has been made to ensure accuracy in this piece at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and Bristol Gate Capital Partners Inc. accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. We strongly recommend you consult with a financial advisor prior to making any investment decisions. Please refer to the Legal section of Bristol Gate’s website for additional information at bristolgate.com.
A Note About Forward-Looking Statements
This report may contain forward-looking statements including, but not limited to, statements about the Bristol Gate strategies, risks, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events and conditions or include words such as “may”, “could”, “would”, “should”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate” and similar forward-looking expressions or negative versions thereof.
These forward-looking statements are subject to various risks, uncertainties and assumptions about the investment strategies, capital markets and economic factors, which could cause actual financial performance and expectations to differ materially from the anticipated performance or other expectations expressed. Economic factors include, but are not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. Readers are cautioned not to place undue reliance on forward-looking statements and consider the above-mentioned factors and other factors carefully before making any investment decisions. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith. Forward-looking statements are not guarantees of future performance, and actual results could differ materially from those expressed or implied in any forward-looking statements. Bristol Gate Capital Partners Inc. has no specific intention of updating any forward-looking statements whether as a result of new information, future events or otherwise, except as required by securities legislation.