The Takota Income Value Managed Account Strategy 1rst Q Update 2019

Date Added: April 23, 2019 | Comments Off on The Takota Income Value Managed Account Strategy 1rst Q Update 2019 | Filed under: Blog

The Takota Income Value Accounts rebounded nicely in the first quarter of 2019.

I seeded this strategy three years ago with my own capital for the purpose of generating income in a low volatility portfolio structure following the tenants of value investing (i.e. capital preservation). It has performed very well particularly on a risk adjusted basis as approximately 50% of the account was held in high yield savings accounts over most of the three year period. This strategy now has a 3-year track record that is very good and is available to investors in the form of a Managed Account through Takota.

As of this writing, the portfolio was invested in 4 bonds and 10 stocks representing approximately 60% of Account equity with 40% held in high yield savings awaiting compelling opportunities.

During the quarter a Imperial Metals bond matured at par (despite trading at 65 cents on the $1.00 one week prior to maturity – a fact that unfortunately found your anxious Portfolio Manager partially hedging the bond exposure with an offsetting share sale of approximately 50% of the value of the bond position – a hedge that was ultimately not required and which reduced the outcome from the Imperial Metals bond holding). The net result over the holding period was a -1% return including hedging costs.

When concerns developed about Apple’s future and it traded down below a market multiple, a trade was initiated in the common shares. This trade has now been completed for a +25%gain.

The portfolio is balanced with respect to industry concentration. The largest exposure might generally be called “energy” but in taking a deeper look one can see that this “concentration” is not actually that. In that group is the secured bond of a Company providing fracking sand to the oil industry, the convertible bond of a Company providing cranes to the oil and gas and other industries, and the common shares of a Company involved in the transmission of gas, power, and providing utility services to customers.

Beyond that we currently own securities involved in nickel extraction and refining, mutual fund management, tv and radio, telecommunications, royalties, pharmaceuticals, infrastructure, dissolving pulp production and ocean shipping.

We continue to look for opportunities in securities with yield that we believe to be undervalued for one reason or another. Often these securities are available at attractive prices when there has been recent bad news such as a dividend reduction. We endeavour to differentiate between those securities whose value has been permanently impaired and those that have transitory bad news (like the example of the Apple trade above). Of course, we are also interested in those securities that have the ability to grow their cash distributions into the future.

Why we take this approach and look at such securities despite the fact that since the financial crisis these kinds of securities have not been especially liked by investors is fairly simple: we know of no other approach that does not entail risks we are not willing to take. I recently undertook a review of these other investment methods and came back to the same conclusion: Intrinsic Value investing remains a better way (our portfolio uses intrinsic value principles as regards security selection, but shies away from concentration so as to reduce volatility and in many cases invests in bonds rather than shares to generate regular income).


This blog is for information purposes only. It is not a solicitation to invest in the Takota Income Value Strategy or any other Takota investment strategy. Individuals interested in actually investing in the Income Value Strategy would need to review with the Portfolio Manager the appropriateness of this strategy for their financial/investment objectives. The Takota Income Value Account is a managed segregated account strategy offered by Takota Asset Management. It is designed to provide income from a diverse source of opportunities, with reduced volatility, while preserving capital and retaining the capacity for some capital growth.

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