2015 June Newsletter

Paul Sutherland, CFP®
By: Paul Sutherland, CFP®

Anxiety, Lazy Brains, and Investing

Why invest? Why get an education? Why not just live for today? Why plan, be forward-looking or think about the future? Of course these are loaded questions, but the answer is simple: We must be forward-looking because we live in the future and have no choice but to assume that the world will be here tomorrow, that the economy will not crumble and my home will still be standing. I must assume that my three little, noisy boys will eventually go off to college, and that my wife Amy and I will enjoy playing with our own grandchildren one day. It seems that today, more than ever before, anxiety and worry have taken hold of our American psyche and put us in a “mental” place that’s far removed from reality. 

This anxiety appears to be rooted in current events, creating a pervasive feeling that society is adrift and that nothing is working as it is supposed to. Government can’t seem get out of its own way, and there is a definite lack of leadership both locally and nationally. Compared to past leaders who’ve emerged at important times, like Thomas Jefferson and Martin Luther King, Jr., it seems today that there are few leaders we can point to who are long on actions and short on narrative. Add to this sentiment the fallout from living in an instant information age with a daily overload of bad news – ISIS, Syria, Greece, Kathmandu’s earthquakes – and it feels like we are living in very risky times. We are also living in a time of great discoveries and technological advances – 3-D printing, robotics to name just two – but some Americans view these as threats rather than opportunities. As a result, a number
of Americans will simply “give up” and merely choose to “get by.”

>span class="s1">FIM Group’s average Balanced portfolio generates more than 4% in cash dividends and interest. FIM Group’s average Balanced Conservative and Yield Income portfolios have yields in excess
of 4.5%.

Brain science teaches us that half of our energy is used by the brain. To save energy, our brain likes to create habits, simplify things that are complex and avoid any challenge that might require a change in the way we see and believe. To me, all this uncertainty creates a bountiful place to invest. And for the individual who thinks and uses her or his brain for something more than surfing the net, gaming or watching sports, the opportunities are boundless. 

If we allow our brains to see what is real, we would see a very different landscape:

1. Our economy is growing and has been growing.

2. It is true that uncertainty/anxiety have a downside, but the upside is that people save and invest more. This helps raise prices on investments and lower interest rates, but the effect is very uneven as most investors interpret it as a trend. They tend to buy what is going up or has gone up already instead of what is a good value. This creates a lot of opportunity for those investors 

3. People are content to live more modestly, by design or by necessity. This is good long-term as it builds more resilience into our economy, because more stable households equals a more stable country.

4. We are educating ourselves like never before. College enrollment rates over the past 30 years have increased from 26% to more than 40% today. Career and technical education is booming as everyone from giant manufacturing companies to the local building trades are scrambling to find people who have skills. Community colleges are retooling themselves to provide education to the new jobs that are needed.

Last week I spoke with Priscilla Were, who runs a private boarding school in rural Kenya, about the importance of values and character-building in education. She said providing a child an education costs about 10,000 Kenyan shillings (or $100) per student, per year. I asked how this was possible, and she explained that the school has a garden, which supplies students’ food, and that the students make their own school uniforms.

America is expensive – so we assume it is expensive everywhere. With a $100 annual education expense, developing communities will advance quickly.  The bottom line is that the world’s knowledge economy continues to drive forward, setting the stage for greater productivity and resilience into the future.

5.>span class="s2"> America is rich. It is estimated that total world wealth is USD $241 trillion (2013) and the USA’s portion of that is USD $100 trillion. So if you’re an American, be grateful. To be among the wealthiest 50% of our world requires a mere USD $4,000. 

6. We rise to the challenge. Despite hypothecations and forecasts from the media on how we were all doomed by Ebola, it is being contained and under control even though the World Health Organ-ization (WHO), local governments and others responded a bit clumsy at first. While AIDS has devastated the world – we have found drug therapies that allow a child with the virus to live a full, active healthy life. Polio is non-existent in most of the world – and the cause of polio’s rare return is ignorance – people not immunizing their children by choice. 

Why It Is Rational to be Optimistic

I will not chat about investors or investing in general – rather, I will discuss FIM Group’s portfolios. We all eat, and while some believe that a calorie is a calorie, thinking that a calorie from a hamburger, Coke or potato chip has no different health benefits than a calorie from almonds, blueberries or kale is just plain silly. Dieticians call the unhelpful yet tasty and attractive calories from soft drinks and processed foods “empty calories.” And like empty calories, there are “empty investments” that sound good and look attractive, but are not really investments at all. Some investments become way overvalued – just like a food that requires (i.e., costs) a lot of calories to give any real nutrition, there are investments whose prices are so high that they have little ability to add fuel or nutrition to a portfolio. So let’s talk about FIM Group’s “healthy” portfolio characteristics.

A Healthy Portfolio 

A friend of mine owns a tea company. I asked her to give me a blend of teas that “might taste like dirt – but are good for me.” I drink hot tea all day, not really for the taste but more out of  habit and the need to stay hydrated. The tea doesn’t taste like dirt, but it’s good for me – it’s doing its job. All of our portfolios are designed assuming clients are patient and understand that investments will fluctuate in value, and who understand that investing is a long-term, multi-year endeavor with no finish line. For younger, working clients, the job is to “invest in more growth-oriented investments that grow wealth without the constraint of needing current income, with less emphasis on dampening volatility.” FIM Group-managed port-folios are not designed to look attractive – they are constructed carefully, opportunistically and with a long-term and risk-managed focus one investment at a time. All of our portfolios are designed assuming clients are patient and understand that investments will fluctuate in value, and who understand that investing is a long-term, multi-year endeavor with no finish line. So let’s look from the top down at what we own and are attracted to, and where see the opportunities today.

1) We are attracted to cash dividend-paying securities. FIM Group’s average Balanced portfolio generates more than 4% in cash dividends and interest. FIM Group’s average Balanced Conservative and Yield Income portfolios have yields in excess of 4.5%. 

2) We favor companies that have solid balanced sheets with reasonable  debt levels. A good balance sheet allows companies to weather the storms,
attract good employees, provide
stable dividends and grow. 

3) We like companies that we understand – real estate, energy, food, utilities, healthcare, technology and companies in basic industries where we can ascertain their prospects, threats and opportunities. 

4) We like good management that is values-driven and whose interests are aligned with investors. We favor companies that are family-owned or controlled, where management is incentivized long-term to benefit the shareholders and think about their social contract with society, their customers, the commons and their employees. FIM Group’s largest holdings are in family-controlled holding companies that have a few major shareholders, or smaller companies that are often managed/controlled by the founder or founder’s family. 

5) We look for companies generating lots of cash and cash flow or that have
a lot of assets that are selling at prices much less than their breakup value or the present value of the future cash flows and income and profits.

There Are Always Bargained-Priced Investments Somewhere

So notice that we did not mention in the five points above anything about indexes, ETFs (exchange-traded funds, or mutual funds), the S&P 500, passive management or asset allocation. Though these are considered “hot” or “nutritious” areas in which to invest by today’s standards, to us they are empty, expensive and oversimplified solutions. For our team at FIM Group , one of our fiercest beliefs is that price matters. This dictates that we look at each investment one at a time and constantly assess their appropriateness in client portfolios. 

We know that life, the economy and investing are cyclical and that prices rise and fall. We also know that anxiety, greed, and lazy brains can move asset prices far above and below the levels justified by changes in their fundamentals. Our job as an investment team is to bring flexibility, discipline, and patience to the work of managing healthy portfolios for the long haul. We must be willing to cut through the negativity that pervades society, take advantage of sentiment and behavior-driven price swings, and yes, be willing to lose a beauty contest or two along the way.

Zach Liggett, CFA®
By: Zach Liggett, CFA®

Impactapalooza v.6.2015

Over the last few years, my family’s been on a bit of a quest to better connect our financial life with our social and environmental values. I’m finding that an increasing number of FIM Group clients are doing the same. Some wish to know more about the impact their FIM Group-managed portfolio companies have on the world. Others are looking for ideas that might help them make everyday financial decisions more meaningful. While I have the opportunity to regularly chat with colleagues and clients about such things in meetings, I thought that the broader FIM Group readership might enjoy a taste of these discussions. So here is Impactapalooza, an alternative mishmash of impact investing highlights from FIM Group portfolio holdings, my personal financial experiments and other random snippets of loosely related happenings in the quest for triple-bottom-line returns. Have an idea for Impactapalooza or a desire to further the discussion? Please don’t hesitate to be in touch (, 231-929-4500).

Blue Gold

No Water, No Life. No Blue, No Green.
– Sylvia Earle

Welcome to the June 2015 edition of Impactapalooza! This month’s edition pivots around water, the world’s most critical natural resource and one that presents both pressing sustainability challenges and significant investment opportunities. We’ll start with a basic review of global water as an investment theme. Then we’ll explore some water-related portfolio companies, define an H20 term getting more attention, and look at some family-level water investments any of us can make.

Q: Zach, how does FIM Group view blue gold from an investment perspective?

A: Water is a gigantic investment theme. On the opportunity side, there are scores of global water-related companies chasing what one strategy team at Merrill Lynch estimates will soon be a $1 trillion market in areas like water management, treatment and supply1. But opposite these opportunities is a growing number of health, environmental, economic and geopolitical risks emerging from a developing global water crisis that many continue to ignore.

The World Economic Forum now ranks deteriorating global water supplies as the number-one risk facing the world in 2015.2 Decades of population growth, resource mismanagement and pollution have led to both scarcity and quality issues that are taking a significant toll on human and environmental health. Companies around the world are finally waking up to these issues as links between the water crisis and their financial bottom lines become clearer. The graphic from a recent report published by the non-profit organization Ceres3 provides a good visual summary of some of these linkages.

Our job as an investment team is to identify and analyze these opportunities and threats and thoughtfully incorpor-ate this information into our decision-making. We seek out companies that understand the importance of managing their water-related risks as well as those bringing world-class products and services to areas, including water management, treatment and supporting infrastructure. In the portfolio notes section below, let’s take a look at a few of these companies.

Portfolio Notes

(Bolded companies are FIM Group-managed holdings in appropriate accounts at the time of writing.)

Globally, some 70% of water consump-tion ties directly to agriculture. “Big Ag” uses a ton of water in supplying our addictions to cheap calories and blended “e” fuels. It also exposes our watersheds to a cocktail of chemicals in the quest to maximize crop yields. While scores of companies are striving to make mono-culture-oriented industrial farming “kinder and gentler” on global water supplies (in areas like drought-resistant plants, irrigation, etc.), others are targeting a new food economy that places a much bigger emphasis on long-term sustainability.

Organic food consumption, for example, is no longer just a fringe hippie thing. Businesses like Whole Foods and United Natural Foods now do billions in annual sales, and a wave of smaller companies is also rising to meet this demand. We recently began purchasing shares in Ontario-headquartered SunOpta, Inc. (Ticker: STKL), a leading company in the sourcing, processing and packaging of organic food products. In addition to sourcing from more watershed-friendly organic growers, SunOpta is also focused on the efficient utilization of water at its own facilities. For example, by 2020 it aims to reduce its water intensity by 20%.

The water utility sector is another major area where companies have the ability to significantly impact water use worldwide. Our current exposure to water utilities is primarily via Global Water Resources Corp. (Ticker: GWGWF), a Canadian-listed company with water utility operations in the greater Phoenix area. The company uses an integrated approach it calls Total Water Management (TWM) to promote sustainable water use and maximize its total economic value. A component of Global Water’s TWM is the increasing use of recycled water (treated and purified wastewater) through a separate distribution system. Recycled water is utilized in a variety of applications, including irrigation, facilities cooling and toilet flushing. Global Water also developed and maintains a minority stake in a software-as-a-service company (FATHOM), which provides smart data solutions to water utilities and their customers. These solutions, among other benefits, encourage consumer behavior changes and decreased water demand. 

And what about other companies across FIM Group-managed portfolios involved with water-related products, services and efficiency projects? Well, here’s just a small sampling:

The Liberty Utilities unit of Algonquin Power & Utilities Corp. (Ticker: AQUNF) offers free landscape audits that review irrigation timers, potential overwatering spots and other unusual patterns in a customer’s landscape. 

Sports apparel giant Adidas (Ticker: ADDDF) is progressing toward a 2018 goal of 100% sustainable cotton sourcing, phasing out the use of plastic bags across its 2,900 stores in an initiative with Parley for the Oceans, and continues to integrate its DryDye fabric (a no-water dyeing process) into a wider range of clothing items.

Singapore property company CapitaLand (Ticker: CLLDF) deploys a wide range of water conservation measures in its developments, including rainwater harvesting, condensate recovery technology in air-handling units and a wide range of water-efficient fittings.

Lingo: Virtual Water

The Pacific Institute defines virtual water as the water we consume indirectly. In other words, this is the water required to produce the food in our diets, the clothes on our backs and the goods we use. For example, the virtual water embedded in a cotton shirt, which includes the water for growing the cotton, dyeing and processing the fabric, and finishing the shirt, adds up to a whopping 650 gallons! Other eye-openers: 139 gallons for a 16-oz. cup of coffee and 449 gallons for a 100g chocolate bar. And that big T-bone on the grill? A pound of beef takes 2,036 gallons of water to produce. 

Action Anyone?

Governor Jerry Brown recently imposed mandatory water restrictions in drought-stricken California. China officials announced their own ambitious “Water 10” plan and multi-billion dollar water clean-up budget to attack the horrific state of water there. But what can we do at the personal level? Can we make triple-bottom-line investments at home that are good for the environment, our communities and our family finances? The EPA ( offers a variety of tips for water conservation like fixing leaks, upgrading to more efficient fixtures, etc., while the NRDC ( shares ideas for reducing pollution and runoff. Traverse City-based Circle of Blue ( is another great portal for tracking and learning more about global water issues. Here’s a few of my family’s attempts to be a little more water-smart and maybe even save a few bucks.

1) Sayonara Juice Boxes. We drink from the tap and send our kids to school with water-filled reusable bottles. Between our two kids, I figure we save about $150/yr. by eliminating the typical lunch or snack-time juice box. That’s about $2K over their K-12 years that we can put into shin guards, guitar lessons or the college fund instead. If more parents followed suit, we’d have a little less school garbage to fund with our taxes and a little less sugar-buzz insanity for teachers to deal with.

2) Edible Yard. Yep, we’re the outlier family that’s turning our yard into a permaculture experiment. Rather than pay the dandelion killers to poison our property and the Grand Traverse Bay watershed, we grow organic food instead. While this precludes us from being part of the weekly neighborhood lawn mower orchestra, we’ve adjusted just fine. Estimated annual savings: $1,000/yr. in lawn/mower maintenance + $1,000/yr. in fresh veggies + unlimited worm supply for fishing trips!

3) Water Talk. We might seem a bit nutty, but we show our kids (ages 5 and 8) the utility bills and try to help them connect the dots (more leaving the tap running = higher water bills = less money for fun stuff). We discuss our water, food and energy choices and the ways in which they are all quite intertwined. With a little luck, some of this will stick. I already get hollered at when my showers run too long, so I know at least some of the messaging is getting through! 

Closing Humor (Family Friendly)

What did the sink say to the water faucet?

You’re a real drip.

And a Riddle

What gets wetter and wetter the more it dries? 4

References and Links:



4 Riddle answer: A towel.


Lucas Schwaller, CES®
By: Lucas Schwaller, CES®

End-of-Life Planning: The Conversation Nobody Wants to Have

“Remembering that I’ll be dead soon is the most important tool
I’ve ever encountered to help me make the big choices in life.”
– Steve Jobs, Stanford Commencement Address, June 12, 2005

Planning for the end of our own life or the life of a loved one can, for obvious reasons, be an emotional and challenging experience. But it’s also a sensible practice that benefits ourselves and, perhaps more importantly, those we care about. 

A little more than a year ago, NPR’s Planet Money released a story called “The Town That Loves Death.” If you’re unfamiliar, know that the title can be
a bit misleading. The segment actually covered the rise of advanced medical directives in a small Midwestern city. While the national average hovers around 50%, in this town, 96% of residents planned ahead by establishing advanced medical directives. The result of all this planning (among many other contributing factors) is a region with some of the lowest healthcare spending of any in the country.

I guess now is when I should admit that I live in this town. It’s La Crosse, Wisconsin, and FIM Group’s office is in nearby Onalaska. When I first heard this piece on Planet Money, I was inspired to call up my mother and make sure she had documents in place so we may respect her final medical wishes. And I want to share it with you today because it provides a valuable underlying message: planning ahead, even in the face of something many of us don’t want to talk or even think about, is vital and often provides quantifiable benefits. 

End-of-life and estate planning, which should include the advance medical directives mentioned above, may not make for light conversation. You’re probably not going to chat about it over Thanksgiving dinner. But the fact that it might be difficult – the conversation nobody wants to have – doesn’t make it any less important.

But, you might ask, is this sort of planning for everyone? Yes! Everyone, from the young to the not-so-young, should ensure that their estate is prepared for the event of their passing. The next logical question is where to start. 

The concept at the heart of estate and end-of-life planning is a basic one: decide now what should happen to your assets and dependents when you’re no longer able to make those decisions. I suggest starting with an outline of your goals. Consider asking a loved one to assist, and do your best to address
the following:

    I.    Guardianship – What do your children need and who do you feel is best suited to care for them?

    II.    Advance Medical Directives – These are designed so that your wishes and preferences in regard to medical treatments and interventions are followed. Make sure you’ve appointed someone responsible for carrying out your instructions.

    III.    Arrangements – Is there a special way in which you would like to be remembered? A specific reading you would like shared at your funeral? This is your life and you have every right to outline these wishes.

    IV.    Financial Authority – If you’re reading this then you’re likely already working with a financial adviser. Continue to do so. Discuss with your adviser whether you might need a trust, confirm-ing from time-to-time the adequacy of assets left for survivors. 

    V.    Recordkeeping – End-of-life planning will require a number of documents, ranging from trusts and wills to powers of attorney and advance medical directives. Make sure all records and documents are kept in a secure place that’s known to your eventual survivors. I also highly recommend working with an attorney to ensure these docu-ments accurately and legally reflect your wishes. 

Like life, this is an ongoing process that isn’t completed overnight. It’s something that builds and grows and evolves as circumstances, our families, and financial situations change. In other words, it’s not so important as to where you start, but just that you do start.

In closing, it’s not fatalistic to recognize and admit that Father Time is unde-feated. And yet, we often struggle to address and prepare for the inevitable. When it comes to our estate and our family, it’s not just prudent to make these preparations, it’s our responsibility, and the time to begin is always now.


Brookfield Real Estate Services

Brookfield Real Estate Services (Ticker: BREUF,

Share Price/Market Capitalization (05/22/15): US$11.66/US$110M

Company Description: Brookfield Real Estate Services (BRES) is a multi-brand real estate franchisor in Canada.

Investment Thesis: BRES is a solid cash generator with a business model designed for resilience through cyclical real estate markets. Management continues to grow via small acquisitions into one of the leading players in the Canadian market. Shares offer an 8% dividend yield, and we expect this dividend to grow long-term.

BRES runs one of Canada’s largest realtor networks with more than 20% market share. Its Royal LePage, Johnston & Daniel and Via Capitale brands encompass more than 16,000 realtors under 300+ franchise agreements from 650+ locations. 

The business model at BRES emphasizes stability, with approximately 71% of revenues from fixed fees (realtors pay $100-$200 per month to be in the BRES network) and the remainder coming from agent sales commissions. BRES runs a first-rate operating platform that attracts the industry’s leading realtors. Attrition is low and management continues to build a solid pipeline of potential new acquisitions. 

Although the Canadian residential real estate market is currently mixed, with strength in the Toronto and Vancouver markets and weakness in oil-heavy areas like Alberta and Saskatchewan, we expect continued relative stability from BRES. The company pays out only about 70% of its cash flow, providing solid dividend support should the broader real estate market take a leg down. We believe that BRES will continue to be successful in attracting more agents to its network while benefiting from investments in training and education that lead to higher agent productivity. We expect that low-to-mid single-digit cash flow growth ahead will supplement the greater than 8% dividend yield currently offered by the shares providing solid double-digit annual total return potential.

Data Sources: Company Filings, Bloomberg


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