Investment Policy Statement
For
Bobby John & Jennifer Luke
CONFIDENTIAL
Prepared By
Sodhi Asset Management
6711 Mississauga Rd. Suite 112
Mississauga, ON
L5N 2W3
647-500-0040
29 August 2016
[email protected]
Investment Analysis
Above average investment results can be obtained if you know your investment objectives and your investments are
evaluated and monitored on a systematic basis.
In formulating an investment strategy, consideration must be given to a number of important factors. The following
concerns should be evaluated:
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Safety of Principal
Liquidity of Investments
Current and Future Income Needs
Tax Consequences
Inflation Protection
Future Appreciation
Ease of Management
After you have considered these objectives and concerns, you can determine their importance to you. This will provide
you with a basis for making sound ongoing investment decisions. The next step is to evaluate your present investments.
These are summarized in the analysis which follows and detailed in your Investment Portfolio included as Appendix I.
Proposed changes to your investment portfolio, consistent with your investment objectives are then compared to your
current portfolio
Investments and their Associated Risk
Level 1
.
Very Low
Cash, Savings, GICs (CDIC covered), Treasury Bills, Money
Market Funds, Annuities, Life Insurance Cash Value
Level 2
Low
Pension Plans, Mortgage Funds
Level 3
.
Medium Low
Asset Allocation Funds, Balanced Funds, Real Estate Funds
Fixed Income Funds, Dividend Funds, Bonds
Level 4
Medium
Equity Funds, International Funds, Real Estate
Level 5
Medium High
Stocks, Specialty Funds.
Level 6
High
Precious Metals, Collectibles, Commodities, Currencies
Level 7
Very High
Business Interests, Penny Stocks, Options, Futures, Tax Shelters
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Asset Allocation Strategy
An asset allocation strategy is designed to identify the mix of asset classes, such as equities, fixed income
investments, cash, real estate, precious metals, etc., that is expected to provide a favorable and consistent longterm rate of return given your risk tolerance and any identified portfolio constraints.
Asset Class Mix
Your asset allocation strategy is aligned with your investment objectives and will focus on capital preservation
and long-term capital growth.
To effectively implement your asset allocation strategy, equities, fixed income, and cash will be employed.
Investments will be made in the following categories and the breakdown of your portfolio is expected to be
approximately as follows:
Weighted Average Value Of holdings:
Equities:
40-90%
Fixed Income:
0-40%
Cash:
10-50%
This mix is intended to be a guideline only and variations will occur depending on market conditions. Please
note that it is expected that the percentage allocation to each asset class may vary as much as ±10%.
Notes on Asset Classes
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Equities and Equity Exchange Traded Funds have historically produced the higher returns compared to
other asset classes or fund that focus on specific asset classes. Increasing your weighting in this asset
class within your portfolio will increase your portfolio volatility in the short term, but is expected to
result in higher returns on a long-term basis. Investing in international equities also provides diversified
currency exposure and typically reduces the volatility of your annual returns by increasing overall
portfolio diversification.
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Fixed-income securities such as government treasury bills (T-Bills) and treasury bonds have the lowest
risk of any asset class. High-quality corporate bonds have higher risk compared to T-Bills, and typically
provide a higher rate of return. Please note that during periods of rising interest rates, you may have to
hold this asset class to maturity in order to achieve your prescribed rate of return
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Portfolios Managed By Sodhi Asset Mgmt Inc.
Sodhi will manage the following portfolios on your behalf:
Name
Type (Cash, RRSP, TFSA, etc.)
Limitations on Investment Holdings
You may instruct Sodhi to retain or purchase specific security positions for your account(s). Furthermore, you
can specifically request Sodhi to refrain from purchasing or holding specific securities in your portfolio. Please
list below the names of any such securities.
Please retain/purchase the following securities:
Client Initial
Sodhi Initial
________________________________________
___________
_____________
________________________________________
___________
______________
________________________________________
___________
______________
You own 10% of any class of equity securities or are otherwise an insider of the following reporting issuers or
other issuers whose securities are publicly traded:
__________________________________________________
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Rebalancing & Tax Strategies
Rebalancing Strategy
Certain events may precipitate the need to rebalance your assets. Your asset rebalancing strategy specifies
those events that may initiate a portfolio rebalance.
Your assets will be maintained in the appropriate proportions by rebalancing to the long-term policy target asset
mix within the ranges specified in this IPS. This periodic adjustment, usually done on a quarterly basis, will
take into account the impact of market returns on the underlying securities and allows us to maintain the critical
balance of the portfolio(s). Rebalancing allows you to take advantage of short-term market volatility and
maintain the long-term risk/return balance you desire. Your portfolio may be rebalanced if the associated
transaction costs and/or tax consequences are considered reasonable
Please note that during periods of extreme market volatility, rebalancing may not be an effective strategy. A
more effective approach may be to wait for markets to stabilize and then re-evaluate your asset mix at that time.
Tax Strategies
Sensitivity to taxation is an important consideration when evaluating the triggering of taxable gains and/or
losses, should any exist.
Any investment income earned in a non-registered account will be subject to taxation at your marginal tax rate,
based on the following tax treatment:
(a) Interest income is subject to full taxation.
(b) Dividend income from non-Canadian sources is subject to full taxation.
(c) Dividend income from Canadian sources is eligible to receive a dividend tax credit.
(d) Realized capital gains are subject to a 50% inclusion rate for taxation.
Sodhi does not provide tax advice. You must consult with your tax advisor/accountant with respect to matters
involving taxation issues. Your portfolio management fees may be tax deductible. Please consult with your tax
advisor to determine if this is the case for your particular circumstances.
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Risk Tolerances and Performance Expectations :
The Investor recognizes that the objectives of the Portfolio cannot be achieved without incurring a certain
amount of principal volatility. The Portfolio is comprised of a 30% allocation to low risk securities, 60%
allocation to medium risk and 10% high risk securities.
No guarantees can be given about future performance and this Statement shall not be construed as offering such
guarantee.
There are two types of investments the fund typically makes -- investments in great businesses selling below
their intrinsic value.
There are no options or derivatives etc. that the portfolio delves into at all. Typically the portfolio assets are
divided between under 15 securities with the typical allocation for a given security being 10% of assets in the
portfolio. Before doing the rigorous analysis on a given company, Sodhi is looking for specific answers to the
following three questions:
1. Do I understand this business well? Is it well within my circle of competence?
If the answer is no, the security is simply skipped over.
Is this a great business?
If you look at the universe at public or private companies, applying Buffett's definition of a great business
would mean a business that has some of the following characteristics:
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Recurring Revenue Streams (e.g. IBM)
Ability to raise prices ahead of inflation (e.g. Johnson & Johnson)
Some sort of Monopoly or Oligopoly type market positioning (e.g. American Express)
Strong franchise/brand that gives it insulation from most competitors (e.g. Coca Cola)
Most businesses do not have ANY of the above characteristics and some may just have one of the above. A
business that has more than one of the above characteristics is, by definition, rare.
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If he finds a great business then Sodhi asks the third, and more difficult, question:
Is it on sale at a price well below its intrinsic value (IV)?
The combination of a great business and it being on sale is, by definition, an anomaly. Manager looks for these
anomalies. When they occur, after rigorous analysis, Manager backs-up the truck
In terms of defining our investment style we consider ourselves a Growth at Reasonable Price (GARP)
investors.
In high-growth markets, GARP companies have shown a history of fast growth, and we expect they’ll continue
to do so. GARP companies are also priced well below their intrinsic value (IV), but probably not as cheap as the
straight value plays.
The best returns will come from great, high growth companies that are available well below Intrinsic Value. In
fact, most of Warren Buffett's wealth has come from GARP investments, including Coca Cola, American
Express, IBM, and Johnson & Johnson to name a few.
GARP businesses remain in in our portfolio until:
1. They go well beyond Intrinsic value. I hate to sell a good GARP business unless it's well beyond intrinsic
value.
2.
A better GARP business comes along, and it presents a better investment opportunity.
The second part of our investment style is based on Principle Protection. Almost 100% of our equity portfolios
are in matured businesses, with some companies that have been in operations for nearly 75 years. Our mature
investments are in companies that maintain clean balance sheets, and have established an economic moat within
their industry – meaning they are very difficult for competitors to compete against.We are very long term
focused and would like to earn a minimum of 6% annual growth within 5, 10 and 15 years of business.
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Change Protocol
Notification of Changes to Your Financial Situation
To ensure that this investment program continues to meet your ongoing needs, it is imperative that you provide
immediate updates of any material changes in your financial or family situations that could affect your risk
tolerance, time horizon, liquidity needs, income needs, return requirements, tax situation, or other unique needs
and circumstances. Such events may include, but are not limited to, retirement, a significant change in taxable
income, relocation, a significant change in investment strategy for other assets not supervised by Sodhi and
family situations that may impact your financial requirements.
Procedures for Modifying This Investment Policy Statement
Sodhi recommends that we schedule a review of your portfolio at least once per year. However, review and
modification of this IPS is possible at any time and it should be reviewed if there are any significant changes to
long term goals or risk tolerances. Sodhi does not charge for this service. A new IPS must be prepared and
authorized by you in writing, prior to account holdings being affected by requested changes.
Summary
This IPS forms the foundation of a comprehensive, long-term investment plan for you based on your stated
investment objectives and risk tolerance. On a longer-term basis, return results are expected to adhere to the
investment objectives identified in this document. Avoiding investment decisions based on short-term market
fluctuations will increase the likelihood of achieving your investment objectives. However, return results are not
guaranteed and overall returns are contingent on market fluctuations and performance.
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Acknowledgements & Acceptance
Please sign this statement to confirm your agreement with the recommended asset allocation
and the guidelines for structuring your investment portfolio(s). Further, it is mutually
understood that this agreement is subject to the terms and conditions within other pertinent
documentation from Sodhi such as the Investment Management Agreement(s).
Sodhi Asset Management Inc.
Date:
_________________________________________
Ravinder Sodhi
President and Portfolio Manager
Agreed on:
___________________________________
Date:
Name:
Title:
__________________________________
Date:
Name:
Title:
__________________________________
Date:
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