Q: What is the relationship between Trapeze Capital Corp. (TCC) and Trapeze Asset Management Inc. (TAMI)?
A: TAMI and TCC are affiliated companies. TAMI is a portfolio management firm, founded in 1999. TAMI and TCC have senior management and other personnel in common, and they share office premises. Both TAMI and TCC offer portfolio management services for high net worth individuals and the two organizations exchange research ideas and strategies.
TAMI currently uses TCC exclusively for trade execution and other brokerage services on behalf of TAMI’s client accounts.
Q: Who manages client accounts?
A: One of our experienced portfolio managers will discuss your objectives and circumstances with you to assess the appropriate asset allocation and investment mandate(s) for you and your account(s), and will maintain a direct relationship with you. In most cases, investment and trading decisions for managed accounts are made centrally by TCC’s co-founders, Randall Abramson and Herbert Abramson, with the support of other portfolio managers and research analysts.
Q: Do you have minimum investment requirements?
A: We have a minimum investment requirement for our portfolio management services of $500,000, which may be aggregated among a number of accounts within the same family, e.g., personal accounts, registered plan accounts and corporate accounts.
Q: Do you manage each client's account separately or do you pool accounts?
A: Although we generally manage each client’s account separately (i.e., direct holdings of individual securities), from time to time that may not be ideal for a particular account. For example, for a client with a relatively small account, in order to receive the same asset diversification benefits and to achieve cost benefits, all or a portion of the client’s account may be invested in one or more pooled funds or mutual funds managed by us or our affiliate, TAMI, provided the account is eligible for investment in such funds and each fund’s mandate matches the client’s objectives.
Q: What do you mean by focused, high conviction portfolio?
A: We invest client funds in portfolios which are focused, high conviction selections of securities influenced by our macro perspectives and may be concentrated in certain securities, sectors and jurisdictions depending on their attractiveness. We seek to emphasize our best ideas. We have since our inception had large positions in the energy sector, holding oil and gas positions which have represented as much as 60% of the overall portfolio. Similarly, we have held positions in gold stocks which have represented as much as 20% of the overall portfolio. These sector allocations were a result of our macro analysis that led us to over-weight the sectors based on our outlook for inflation, supply-demand fundamentals and prices for commodities, and a desire to invest in companies with hard or physical assets. This macro outlook was coupled with bottom-up stock selection where we had discovered many attractive investment opportunities within the same sector. Notwithstanding, we would typically not exceed 20% concentration in particular sectors such as: financials, technology, consumer discretionary, health care or other sectors where companies do not hold hard assets.
Since portfolios may be concentrated in a relatively limited number of investments or market sectors, the portfolio’s returns could be adversely affected by the performance of particular investments or market sectors.
We may also emphasize small to mid-cap companies when we believe they offer a significantly better risk-reward opportunity than larger companies. Often, illiquidity from an emphasis on small cap companies can contribute unduly to an outsized short-term fluctuation in price.
Q: Where are client assets custodied?
A: TCC is an Introducing Broker to Fidelity Clearing Canada ULC (“Fidelity”). Fidelity acts as Carrying Broker for TCC and is TCC’s agent for clearing, settlement, record keeping, and custodial services provided to client accounts, and for financing of positions in accounts, if applicable.
As an Introducing Broker, TCC is responsible for trade execution, the supervision of client transactions, and the suitability of securities transactions. TCC is also responsible for the opening and approval of client accounts. TCC and Fidelity are both responsible for adherence to all applicable bylaws and regulations of applicable self-regulatory organizations.
Fidelity is an indirect, wholly-owned subsidiary of FMR LLC. FMR LLC and its subsidiaries, including Fidelity, conduct business under the “Fidelity Investments” name throughout the United States and Canada and collectively comprise one of the world’s largest providers of financial services.
Q: How do you use short selling?
A: A short sale is a sale of a security not owned but borrowed from a holder and subsequently returned to that holder when it is repurchased in the market. The short seller profits if the repurchase price of the security is below the initial sale price.
Where we are so authorized for long/short accounts, we can short sell stocks which are overvalued relative to their fair market value and/or have poor or deteriorating fundamentals, such as an overleveraged balance sheet, diminished growth expectations and/or a low return on capital. We may use short selling for investment purposes where we have a negative view of a particular stock. We may also use short selling to potentially hedge or insulate our long positions in down or volatile markets where our outlook for the market or a particular sector is negative.
Q: What are your option strategies?
A: We may use options strategies for hedging or investment purposes to the extent such strategies are appropriate and permitted for a client’s account. We can use options to invest indirectly in securities or financial markets, and provide downside protection to the portfolio where we anticipate a bear market or changes to exchange rates. For example, we can sell put options to earn premiums to lower effective purchase prices (at a strike price where we would want to purchase a security in any event) or sell call options on securities we already hold to earn premiums to increase effective selling prices (at a strike price where we would want to sell or short sell a security in any event). We may also use options to initiate synthetic long or short positions with a view to maximizing risk-adjusted portfolio returns. We may apply our proprietary methodologies to these strategies by using put or call options with strike prices that are at or near floors or ceilings in our work.
Q: Do you use leverage?
A: Our managed accounts may use margin judiciously from time to time for clients who agree, where we are fully invested but wish to invest in additional attractive opportunities and/or further diversify. Margin involves borrowing funds against the assets of the account, a strategy which is often compelling from a tax point of view, since margin interest is tax deductible against earned or ordinary income and the potential capital gains are taxed at more favourable rates than dividend and interest income. Leverage increases both the possibilities for profit and the risk of loss for the account.
Q: How do you manage risk?
A: We have different layers of risk management, including:
– look for margin of safety in every holding, i.e., downside analysis
– seek financial, operational, management quality
– stock weight reflects risk/reward potential
– TRAC™: suggests entry and exit points
– TEC™: continuous analysis of economic activity
– inflation and interest rate expectations, currencies
– capital market cycles and sentiment, cyclical and secular trends, industries and commodities
– TRIM™: indicator for market stress points that may forewarn of broad market breakdown
– TRAC™: indicator for sentiment shift in markets, sectors and commodities—suggests entry/exit points
– seasoned portfolio managers and experienced team of research analysts
– portfolio guidelines
– diversity of ideas
– client policy permitting: long/short strategies; currency hedging; option strategies