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For three decades, the firm’s parent company, Corby Capital Markets, Inc. has been a leading specialist in the fixed income business, which gave rise to the launch of a companion company in 2005 specializing in cash flow and income oriented equity investment strategies. Based on a core belief in the benefits of compounding, the Firm invested resources in a highly regarded strategist, a modern operational platform, and a proven software package under which to launch the new company.
Corby Asset currently specializes in offering a “Global Cash Flow Strategy” to investors in separately managed accounts. It is also in the product development stage of a second offering, consisting of global Exchange Traded and Closed-End Funds.
The Global Cash Flow Strategy seeks to produce high returns through compounding cash flows in a globally diverse, growth-oriented portfolio. This investment is designed to complement a fixed income portfolio with variable- income producing equities, thereby allowing an investor to enjoy dividend increases over time when fixed investments might not allow for it. Furthermore, unlike a portfolio of securities chosen strictly for the expectation of near-term growth resulting from capital gains, we believe that the longer-term dramatic effects of a compounding approach can generate superior returns. By prudently investing in a diversified portfolio, consisting primarily of long-dated, high income producing assets from selected regions around the world, our objective is satisfied by following a disciplined, intuitive, transparent investment process which exploits inefficiencies among non-traditional asset classes and investment sectors. Unlike a traditional investment portfolio of stocks, bonds and cash, we segregate assets into what we refer to as capital gains assets and cash flow or compounding assets. We refer to our approach as a Global Cash Flow Strategy. Of course there may be some risk in non-traditional asset classes such as closed end funds, master limited partnerships, global real estate, royalty trusts, high dividend paying stocks and preferred stocks.
The Overview
Investors are increasingly looking for new sources of added value without notably increasing their risk exposure, and are more fully aware of the personal long term liabilities that lie ahead of them in the form of retirement and/or estate planning. We believe our strategy allows for the creation of a portfolio of assets, unique in its composition and objective, and which seeks to immunize against or mitigate the financial risks inherent in an investor’s longer-term liabilities. The added advantage of its management via a separate account allows for an individual’s direct ownership of assets (no commingling) as well as for individualized tax benefits versus a mutual fund structure.
What is the Global Cash Flow Strategy?
The Global Cash Flow Strategy is one which uses the time tested concept of compounding as the primary source of growth, underlying the basis of its strategy. Albert Einstein called compounding “the greatest mathematical discovery of all time”. Benjamin Franklin supposedly said it was “the eighth wonder of the world.” We say “it’s a very prudent way to invest in the current environment, and generally an excellent way to invest for the long-term!” The key factor, however, in the compounding strategy, is the income or cash flow available for compounding. The greater the level of cash flow, the higher the return from compounding. Interestingly today’s environment of historically low bond yields and low dividend yielding equities (the dividend yield of the S&P 500 Index averaged less than 2% over the last fifteen years1) makes the more traditional domestic portfolio of stocks, bonds and cash a less appealing universe from which to employ a compounding strategy. Hence, the allure of the global markets, viewed as a treasure chest filled with cash flow opportunities from unique businesses enterprises that populate our investment universe. We include the S&P in our comparisons because many investors use the index as a benchmark. It is however, a different investment vehicle more concerned with capital appreciation than cash flow.
A Strong Case for Cash Flow Assets
History shows us that stock returns have been comprised of three basic components: inflation, growth, and the compounding of dividends. In fact, over the long term (1929-2004), 30% of stock returns have been attributed to inflation (over which there is little individual or company control), while an additional 30% has come from capital gains (via earnings, revenues, etc). However 40%, the largest percentage, reflects the contributions from the compounding of dividends (a.k.a. cash flow assets).2 This evidence, integrated with our strong belief in the principal of compounding, strongly supports the foundation for our Global Cash Flow Strategy and strengthens our commitment to focus our knowledge and investment expertise in opportunities from cash flow assets.
Cash flow assets typically generate higher levels of dividends and income than capital gains assets, and are often variable income-producing assets. They reward the investor by periodically paying out a stream of income that offers attractive compounding benefits. These assets also preserve the potential for capital gains and are particularly well-suited for the longer term, including unfavorable periods when market conditions inevitably lead to periods of declining prices. In many cases, compounding income flows often offset declining prices.
Conversely a no-yielding or low-yielding capital gain asset does not generally produce any returns until a third party is willing to pay a higher price for the asset than that which was originally invested. Granted, while stocks are typically more sensitive to economic growth on the upside, and fixed income (bond) prices more sensitive on the downside, a portfolio of variable income producing assets is likely to offer a reasonable defense during periods of inflation and rising interest rates.
The Days of Clear Cut Investment Selection are Gone
In today’s rapidly evolving investment climate, new products are coming to the market which have characteristics of both stocks and bonds. For example, a closed end bond fund trades like equity, but is composed of bonds. Similarly, Real Estate Investment Trusts (REITs) and Royalty Trusts are other examples with overlapping characteristics of stocks and bonds. These assets have generally been avoided by the Wall Street community as they frequently take considerable time to analyze, are often difficult to comprehend or offer too little revenue to follow. As such, they typically offer significant potential for both income and growth for someone with the background knowledge and willingness to evaluate and monitor them in a longer term investment portfolio.
What are some of the non-traditional asset classes/market vehicles that are used in the Global Cash Flow Strategy?
We believe that through careful investment analysis and skilled investment management, there are numerous market inefficiencies yet to be exploited within the expanding universe of non-traditional asset classes. While many of these asset classes by themselves are compelling, the risk-adjusted returns achievable by investing in a portfolio containing a blend of these asset classes is potentially an investor’s most efficient strategy. Included among the most interesting and attractive investments we purchase for our Global Cash Flow Strategy are: Closed End Funds (which represent a vast universe of market sectors with various objectives which offer income, growth and liquidity, particularly those that sell at a discount from their net asset value); Master Limited Partnerships (one of the highest performing asset classes over the last 15 years and one which has combined capital appreciation potential and price growth); Global Real Estate (i.e.- Hong Kong, Australia, and Singapore); Royalty Trusts (both American and Canadian forms which typically offer high yields and potential for capital appreciation from mature assets). High Dividend Paying and Preferred Stocks (such as Utilities and those issued predominantly in the international markets), offer stable cash flows from mature assets and are also among the broad investment universe we monitor, as are those in the Precious Metals and Mining Sectors (which offer the potential for growth, are a hedge against inflation and can also serve as a currency hedge). Furthermore, in our search for value, we often find that foreign-issued securities of politically stable countries, along with their underlying currencies (unhedged), can be particularly attractive for investment consideration. Clearly, the underlying bias in our investment preference list point toward the longer-dated, infrastructure assets, particularly those monopolistic in nature, rather than those deep seated in service oriented industries, or those representing the shorter-dated assets such as those in the technology sector.
A Disciplined, Intuitive, Transparent Investment Process
In addition to maintaining a broad global diversification of asset classes, sectors and demographic regions, our security selection process is flexible and opportunistic in nature. We begin our search for investments primarily within a broad universe of non-traditional asset classes as noted above. The universe is further refined by individual constraints and client guidelines before we evaluate a security’s investment strategy criteria. For any individual issue, a minimum of three major criteria are analyzed. The first screen is an “Income Analysis” where criteria, including cash flow, dividend yield and growth, interest rate trends, etc. are examined. Next is a “Top Down Analysis” where thematic trends, an overview of the global and domestic economies, asset allocation preferences and technical analyses are among the criteria appraised. Lastly, a “Bottom Up Analysis” which evaluates industry trends, sector coverage, pricing and relative valuation, and quality considerations, etc. is completed. If a security is assessed favorably within all three major criteria, it would be added for consideration as a new position, held or added to as an existing position. On the other hand, if one or more of the three major criteria are no longer met, for example, if the reasons for original purchase no longer exist or specific events alter a security’s prospects, the position would be sold outright or reduced either immediately or systematically, as market conditions and liquidity constraints warrant. Continuing to hold a security under such circumstances must be justified due to special considerations or unusual conditions. Security decisions give way to trading execution, where orders are batched for economies of scale in a competitive bidding process after which the securities are distributed on a pro-rata basis using a sophisticated portfolio allocation tool. A review of the most recently reported economic statistics, a discussion of the capital markets, and a periodic overview of technical market indicators are typical of the Team’s daily agenda, as is the daily cash management activity and the client specific portfolio reviews. Continuous idea generation and the ongoing portfolio due diligence and monitoring sequence complete the investment process and reinforce the foundation upon which our investment philosophy rests.
Cash is an Asset Class
While mitigation of risk is an important consideration in our investment objective, we view management of the portfolio’s “cash reserves” as an active source of capital preservation in the portfolio. During the course of time, if deemed prudent, cash may become a more integral component of our asset allocation process. We submit, however, that the Global Cash Flow Strategy is an outstanding complement to a high grade fixed income portfolio, which may offer the benefits of enhanced liquidity in difficult or uncertain market conditions.
Future Outlook Abounding With Opportunity
It should be noted that the Global Cash Flow Strategy is not wedded to any particular country or demographic region or unduly constrained by restrictive investment guidelines inadvertently imposed by adherence to formal benchmark considerations. Vigilance being noted, we will continually employ the utmost diligence in our investment selections and remain focused on enhancing the yield structure in the portfolio for purposes of generating an attractive backdrop for our compounding strategy. Furthermore, we believe that financial markets around the world are becoming increasingly more integrated, that non-traditional asset classes are slowly but surely gaining a more expansive institutional following, and that the largely unique strategy we offer is drawing the attention of other asset managers. We view these developments as encouraging and expect that our Global Cash Flow Strategy will be the benefactor of these movements.
Fees
Currently, our annual fees are 1% of the assets managed on or above $250,000 and 1.5% of assets managed below $250,000.
1 Source: Bloomberg L.P.
2 Source: Jeremy Siegel, Professor, Wharton School of Business and Author of Stocks for the Long Run
