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The CPP as a Blueprint.


Readers who look to Pension Plans for leadership will have noticed a recent article regarding the Canada Pension Plan (CPP). Reading between the lines, the CPP reveals itself as an investment blueprint that Individual Investors can follow when managing their own investment portfolio.

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A recent article regarding the CPP is, at first glance, innocuous. See: Canada Pension Board ekes out 0.5% return in first quarter. But reading between the lines offers Individual Investors clues for managing their own investment portfolios.

With recent market uncertainty, (recent could mean the last few years) an Individual investor may find it challenging to maintain a long-term focus and avoid making broad sweeping changes based on emotion. But Individual investors would be wise to follow-the-leader.

The Euro and Europe

What is the CPP up to today?

Clearly, the focus is on opportunities in Europe and Emerging markets.

‘… looking to China and Europe as well as oversold assets for investment opportunities’.

The headlines make Europe sound like the last place anyone would want to invest just now. But, like any good Value buyer, the CPP is buying while things are on sale.

‘[at] markets that have been overly beaten-up’.

‘… alert to the kinds of deals that emerge in tough market conditions’.

‘in those markets and regions that are developing and growing relatively more quickly’.

Europe and Emerging Markets are key to the CPP’s growth and diversification plans.

CPP also maintains its course despite temporary marketplace setbacks.

‘… continue to diversify … by geography and asset class’.

Where are Pension Plans in general focusing today?

Check out ‘Canadian Companies Shop for European Assets’. ‘… pension funds are on a European acquisition binge.’ Note the bottom line: Canadian acquisitions in Europe totaled $15.1 billion in the first half of the year, ahead of China and second only to the U.S.’s $54 billion.

Investors are watching the confluence of a strong Loonie with cheap Euro assets.

Valuation.

Absolute Strategy Research claims that Euro-zone shares are at a P/E of 11.5.

BCA Research reports that Europe is at its cheapest relative to U.S. stocks in 40 years.

Further reading / Previous posts:

How to add Euro and Europe exposure.
When Germany Leaves the Euro.
An EAFE Triple Play.

These are good lessons for the Individual investor. Have a plan. Follow the plan. Have a long-term focus. Diversify. Buy what is out-of-favour. Have cash ready to take advantage of opportunities.

CPP and the Pension Investment Assoc. of Canada (PIAC).

Readers of this Blog will know that the average Pension Plan in Canada, per PIAC, has an Alternatives allocation (anything other than Stock, Bonds or Cash) of 28%. CPP claims, however, ‘ … a third of the portfolio today [is] in private asset classes – things like real estate and infrastructure, private equity and private debt’. The PIAC average asset allocation includes CPP assets but the CPP allocation leads the average.

Individuals can do a lot worse than to follow what Pension Plans are doing and mimic their portfolios.

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Next time? More Risk Management.
Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan
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