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Video - Portfolio Management

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In this clip, Jean-René Ouellet, a specialist in our Portfolio Advisory Group, helps you boost your portfolio management knowledge. He explains concepts such as investor profiles, investment objectives, investment policy statements and rebalancing.

SUBJECT : Portfolio Management

EXPERT : Jean-René Ouellet

VERSION : English

Note: The information in brackets "[...]" describes the visual and audio content of the video other than the dialogue or the narration.

[Elegant music begins. Different parts of Desjardins Securities' head office appear on screen including, primarily, the prestigious trading floor where many employees work.  These images give way to a shot of the firm's logo and the dsia.ca website. This shot gives way to Mr. Jean-René Ouellet, whom we see appearing on a balcony overlooking the trading floor where employees are busy working].

Jean-René Ouellet (MBA, CFA, CIM, Senior Analyst, Portfolio Advisory Group): Hello, I’m Jean-René Ouellet, Senior Analyst in the Portfolio Advisory Group at Desjardins Securities. Today I’m pleased to present this Finance Matters clip about portfolio management.

I have been working for 10 years as a financial analyst in the field of securities. During these years I’ve held responsibilities including U.S. equities analyst and equity and asset-allocation strategist.

If you’re an investor, there are advantages to periods of turbulence. They tend to purge excesses and bring the value of good advice back to the forefront. To deal with adversity – or to keep a rein on euphoria in a bull market – it is essential to have a plan.

The first step in making a plan is to draw up an investor profile. Investors generally describe themselves as balanced. Few people call themselves unbalanced. But after a little discussion, it turns out that not everyone is balanced the same way. Assets differ, incomes differ, indebtedness varies, cash-flow requirements are diverse, rate of spending is unique to each investor. So we need to start by establishing who we are as an investor.

Then we need to consider what are the objectives we want from our investments . Too many people invest by the seat of their pants, without a clear idea of the returns required to attain their longer-term objectives. When you get on a plane, you usually know where you’re going. Yet many investors don’t know is their goal. Under today’s conditions, an investor whose objectives require a return of five or six percent but who doesn’t want any exposure to risk is certain to come up short. That means taking the discussion to another level. How many more years do I need to keep working? How much more do I need to be saving? What will I have to cut back on at retirement?

The next step is to take stock of the constraints specific to each investor – investment horizon, tolerance of risk, cash flow requirements and tax situation, among other points.

Finally we’re ready to write a statement of investment policy. The discipline of an investment policy is the main reason pension funds get higher returns than individual investors. It’s an instrument that helps separate emotion from investment reasoning. It often forces the directors of a pension fund to act against their feelings. Just when the news is good and the markets are going like blazes and appetite for risk is growing, the investment policy forces profit-taking and reallocation of assets to bonds, which may have been performing much more sedately. Or again, in times of bad news when stock prices are plunging and the gut feeling says “get out of equities,” the investment policy forces profit-taking in bonds – the very assets that have been doing well – and reinvestment of the proceeds in those forlorn-looking equities.

It is only after the investment policy is set that the investor should turn to the markets, gauge the outlook for the economy and establish an asset allocation that will reconcile investment objectives with the expected returns of various asset classes. Then is the time to decide how to spread assets among geographical regions and sectors, and finally, to select individual securities.

Investing doesn’t end there. Every portfolio needs to be monitored and rebalanced regularly. Rebalancing is a key factor in long-term success. For example, a portfolio that held 50% Canadian equities and 50% Canadian bonds at the beginning of 2008 would have lost almost 15% of its value over that year. Its equity portion would be down 33% and its bond portion would be up 7%. At the end of 2008, with no rebalancing during the year, the portfolio would be holding close to 65% bonds – almost a retirement allocation. If the investor profile had not changed, the portfolio would no longer be suitable. The rebalancing required by the beginning of 2009 would take a strong dose of courage in the face of the volatility of markets at the time and the fears their behaviour were arousing. But with that rebalancing, the portfolio would rebound 50% instead of only 35%. After the rebound, the same rebalancing requirement would dictate profit-taking in equities and reallocation to bonds. This process does not necessarily maximize profit in the short run. What it does do is position the portfolio better for the long run.

It’s a complex process. You don’t have to be alone in working through it. But you do need to be working with someone you can trust, at a sound financial institution.

Thank you for your attention.

[The music begins again. The dsia.ca website address appears in the middle of the screen and the following text appears at the bottom of the screen « Desjardins Wealth Management Securities is a trade name used by Desjardins Securities Inc. Desjardins Securities Inc. is a member of the Investment Industry Regulatory Organization of Canada ( IIROC ) and the Canadian Investor Protection Fund (CIPF). ». These images end with the Desjardins Securities logo. ]

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