J.C. Hood Investment Counsel Inc.
John Hood started his career as an advisor and investment planner in 1980, and with 20 years of investment experience, he launched his own portfolio management investment counselling firm in 2000 — J.C. Hood Investment Counsel Inc.
Over the years, Hood became an authority on retirement investing in Canada, frequently published in the financial press, newspapers, and magazines, and with ongoing appearances on BNN (Business News Network). The firm is a member of the Portfolio Managers Association of Canada, the Toronto CFA Society and Hood is a fellow of the Canadian Securities Institute.
John Hood, in Toronto/Pickering, and Eric Wheatley, based in Montreal and a former option market maker in the TMX (Montreal Exchange), are the strategists behind the firm’s success.
The Canadian Business Journal spoke with John Hood and discussed the company’s investment style and the challenges of the investment industry today.
“What I wanted to give investors was customized portfolios for each individual client rather than pooled or mutual funds. All of our clients’ accounts are customised. I wanted to keep fees lows because the cost of investing in mutual funds is high, and I wanted to avoid that entirely, so I used exchange-traded funds [ETFs] because they have great diversification and I can keep low costs for client portfolios. Our firm was the first to use exchange-traded funds as its core management philosophy,” says Hood.
Hood sees high investment costs as a huge impediment to capital growth for the investors, and using ETFs lowers the firm’s fees, simplifies clients’ portfolios and increases client’s ability to monitor investment performance. The firm uses ETFs extensively, whether it’s the TSX, the S&P500, and global or market sector indexes. The firm manages its clients’ money commission-free, and at an all-inclusive fee of one per cent annually plus ETF expenses. Fees are 0.8 per cent on $1 million or more.
ETFs provide an affordable investment tool, allowing Hood to create more economic investment solutions. When Hood launched his firm, only a few investment firms offered services at such affordable rates (compared to mutual funds). “There was only one Toronto based ETF, the XIU from iShares when I started.
Today, it is possible to manage portfolios with not only Canadian but North American and global ETFs for equities and systems. There are domestic, government and corporate ETFs, sector-specific ETFs, and also some special ETFs, which are sometimes more of a risk.
“With the proliferation of the ETFs, the ETF universe can become quite confusing. There is about 300 funds out there, but realistically I look at 40 to 50 funds at the time, not all 300. There are a lot of redundancies and overlap out there, and I don’t use some of them because these ETFs are leveraged, which is a liability,” says Hood. “We use ETFs primarily from iShares, BMO, Vanguard and Horizon.”
According to Hood, most people who plan to retire don’t want to manage the money because they don’t feel they have the expertise or they simply don’t want to spend time on investment decisions therefore they want their savings managed by professionals. While the investors may lack the knowledge, they do value investment clarity — the ability to understand the strategy and direction of their assets.
To help his clients, Hood keeps things simple, investing in no more than eight ETFs at the time for smaller accounts, and 12 to 15 ETFs for larger accounts.
“Investing in this way, the clients have a better understanding of what they have. We also publish a monthly newsletter, sharing information and educating the investors as to what all the ETF symbols represent, and how we use them for asset allocation.
“In most cases, our investments are 60 per cent equities and 40 per cent bonds, if not 50/50. Our clients also have bonds in their asset portfolio, and these protected the investments five years ago during the credit crisis. Bonds are a safety belt,” says Hood.
Ethics and Profits
According to Hood, it’s all about customized service. The firm’s core clientele are older clients, 55 to 75 years of age, who are either on the cusp of retirement or already retired. The clients’ portfolios size (including both RRSP and non-registered assets) reach $300,000 to $3 million, with the median account size at around $700,000. “Our client profile is one of the reasons why we have a number of self-imposed restraints in terms of investments. We don’t do any limited partnerships, mortgages, hedge funds or private equity… nothing that isn’t 100 per cent liquid. I also think leverage is a predatory practice with a very high risk, and the returns don’t justify this risk. Also, the problem with mutual funds is that Canadian fund prices are the most expensive in the industrial world, and (expressed as a percentage of market return) will gobble up nearly 50 per cent of returns over a 20-year period. Comparable funds in the US are 1.5 per cent.
Our ETF management fees are 0.15 to 0.20 basis points, and we add on our fee of 0.8 to one per cent, which is tax deductible in non-registered accounts. Our total costs are 1-1.2 per cent.”
2013 Investment Outlook
Since its inception, J.C. Hood Investment Counsel has been investing 20 to 25 per cent of its portfolios in the U.S., and Hood still sees the U.S. as the most dynamic market and the place to invest. “Overall, I think what we’ve been seeing in the last year or so is more money going into equities than fixed income.
The U.S. government has a huge debt issue but our clients are not U.S. taxpayers. I’m buying US businesses, not their economy – that’s one thing investors have to keep in mind; markets and the economy are not the same thing! American businesses are making a lot of money in the U.S. and offshore. If I had listened to the economists, I would have missed out on 13 per cent S&P 500 rally in 2012.
“I see a few issues in Canada. In regards to energy, Canadian oil producers are losing about $30 to $40 per barrel because our oil is not getting to market and that just can’t continue. There is also the pipelines issue, and we either have to rely on Washington to make a decision on the Keystone XL pipeline, or we have to start seriously looking at alternatives; and there’s also so much foolish opposition in B.C. in regards to the Northern Gateway Pipeline. If B.C. doesn’t want it, there also has to be an alternative strategy in place. If Alberta and Ottawa can’t get greater revenue from the oil industry, it will have a negative impact on the value of the Canadian dollar and deficit reduction if this doesn’t get sorted out quickly.
“I would also like to look at investing in Europe, but they still have a recession going on, which is less than suitable for our conservative clients; and as much as I would love to invest there, I’m holding off on that. This is a market for aggressive investors right now,” says Hood.
Besides offering its services in Ontario, the firm also is licensed in Quebec and B.C.. and plans to offer its services soon in Calgary. J.C. Hood Investment Counsel Inc. continues to provide reliable and secure investment services by abiding by the market fundamentals, focusing on stable, liquid investments, and building individual investment solutions for each client.