2016 September Newsletter

FIM Group Staff
By: FIM Group Staff

General Investment Team Commentary

FIM Group trading activity over the last few weeks has generally been focused on further reducing interest rate sensitivity from portfolios and boosting “dry powder” positions (cash and shorter-term investment grade corporate and government bonds). Like the actions we noted last month, we continue to trim back fixed income closed-end funds, real estate investment trusts, and other holdings that are benefitting from historically low global interest rates. Our buying has focused on investments with good, company-specific return drivers. Such holdings, we believe, will not require interest rates staying low or global economic growth surprising to the upside for expected returns to materialize.

Our flexible investment mandate enables us to invest in leading companies growing in attractive niche markets like outsourced Finnish health care and social services, water infrastructure inspection services, and off-grid, solar-powered infrastructure lighting. We can also invest in situations where management is restructuring inefficient operations (as we are doing with a leading global telecommunications infrastructure company) or diversifying away from a declining legacy business (as we are with Cott Corp; see below). This flexibility should continue to serve us well in the months ahead, and we look forward to deploying our relatively high levels of cash and dry powder positions as opportunities to do so come our way. For more on our investment thinking, please note that our website ( features a recording of our recently conducted webinar. Or give us a call and we’d be happy to chat more about how we are executing our strategies in your accounts.

FIM Group Staff
By: FIM Group Staff

Portfolio Holding Developments

Cott Corp (COT): Beverage manufacturing and distribution company Cott Corp announced its second significant acquisition of the summer, a $355m deal to buy S&D Coffee and Tea. S&D is the leading coffee roaster in the U.S., with custom coffee and tea solutions for the food service, hospitality, and convenience store channels. It has more than 20,000 customers and annual revenues exceeding $500m. The deal further transforms Cott away from its legacy private label carbonated soft drink manufacturing business and toward a more diversified beverage company with a much improved growth and risk profile. With the stock responding well to the news, we trimmed back our holding where appropriate, but we remain positive on Cott’s long-term prospects and strong market leadership positions.

Global Self Storage (SELF): Self-storage facility-focused real estate investment trust Global Self Storage recently announced a solid set of quarterly results 

with same-store revenues increasing more than 8% y/y. Higher average rents and increased occupancy drove the revenue gains. As the smallest of the listed self-storage REITs, the company remains off the radar for most investors despite one of the strongest relative growth profiles in the industry. With a recent $20m debt raise, management is poised to grow its footprint further. $13m in new property acquisitions are already under contract and expansion work at existing facilities is also under way. Despite strong share price performance this year, SELF still trades below its larger, listed peers on most metrics, a discount that we expect will close as management executes on its growth plan. 

FIM Group Staff
By: FIM Group Staff

Financial Planning Spotlight

“Your assumptions are your windows on the world. Scrub them off every once in a while, or the light won’t come in.” – Isaac Asimov 

The dangerous thing about assumptions is our inability to differentiate them from truth. With an assumption, we believe a thing with little or no evidence to prove us correct, accepting something as true or accurate without the measuring of consequences, because we haven’t taken the time to consider all that we don’t know. And when it comes to wealth and financial planning, incorrect assumptions often lead to financial pain and loss that otherwise might have been avoidable. When distilled to its basic tenets, our job as advisors is to take care of what you, the client, don’t know. We’re a source of knowledge and information, providing an expertise that allows you to focus on living and sleeping soundly. The issue, however, comes in that gray area in the middle – the assumptions, the areas where we assume you know something or where you feel there’s no need to talk with us about a particular issue because you assume it’s unnecessary or doesn’t apply. In estate planning this can be particularly devastating, so I’m here today to address a few of the more dangerous assumptions out there. The overarching message is fairly broad, and this won’t be a catalogue of horror stories – those near-countless articles and anecdotes are a Google search away if you’re interested – but rather it is my intention to get you thinking about your estate plan and the estate plan of your loved ones so you can hopefully sidestep a landmine or two. As always, if you have any questions or would like assistance, we’re only a phone call or email away. 

Assumption: The size of my estate is under the applicable exclusion amount ($5.45m in 2016 with a combined marital unified credit of $10.9m) so I don’t need to worry about estate planning. 

Estate planning is about far more than the size of a taxable estate. Often people confuse estate planning with tax planning. They are not, however, synonymous. There are numerous reasons to do non-tax estate planning, ranging from guardianship to medical care, advance directives, and so on. 

Assumption: My adult son or daughter doesn’t need an estate plan because they don’t have an estate. 

If you have young children, or your adult children have recently become parents, it is imperative to meet with an advisor and then an attorney to create an estate plan. A guardian needs to be named for those minor children, among other things. It’s not about money, but rather ensuring that the needs of a child are accounted for and met. This is not a light decision, nor is it one that should be left to the courts, which is what happens when parents of minor children die intestate (i.e. without a will). The website can provide you with a fairly clear, state-by-state picture of what happens when you die intestate. 

Assumption: My college-age child doesn’t need an estate plan because they’re young, healthy, single, and don’t have any money. 

Are you noticing a trend here? Every adult, regardless of age, health, and financial situation, should have at least some basic estate planning documents prepared. Simple items such as beneficiary designations and medical and financial powers of attorney should be established. 

Assumption: I have an estate plan and it takes care of everything. 

Of all the assumptions outlined here, this has the potential to be the most detrimental. Be it the evolution of needs and circumstances or simply the sea change of legislation, in time an estate plan may no longer accomplish ones goals. It is best to review and update an estate plan regularly to ensure that it continues to reflect your intentions. 


Investment Team Spotlight: Interserve 

Ticker: ISVJF Website: 

Share Price/Market Capitalization (8/18/2016): US$5.12/US$745m

Company Description: London-listed Interserve is one of the UK’s largest facility management and commercial construction services companies with both domestic and international operations. It also has a global equipment services business that provides formwork, falsework, and shoring solutions for large infrastructure and building projects. 

Investment Thesis: Interserve is a diversified commercial construction and services company with multiple avenues to increase shareholder value. We bought shares during a period of hyper-negative sentiment for less than 5x normalized earnings and with a dividend yield exceeding 7.5%.

Interserve’s core businesses serve clients globally, although more than 85% of revenues derive from the UK. Its facilities management services segments account for more than 50% of revenues and cover areas including catering, cleaning, and security as well as mechanical, electrical, elevator maintenance, and fire testing. Its construction services divisions combine for approximately 35% of revenues and focus on a wide range of commercial projects including schools, hospitals, and industrial buildings. Equipment services, supporting large infrastructure projects, make up the remaining share of revenues.

Like Halfords (profiled in our August Investment Team Spotlight), we took an initial position in Interserve around the time of the BREXIT decision as share prices slumped more than 50% from April levels (in US$ terms). Sentiment was already negative leading into the BREXIT vote, after management made the difficult choice of exiting a money-losing Energy-from-Waste construction business. It turned even worse amid uncertainty surrounding the UK economic outlook following the BREXIT vote. Taking a longer view, we see a leading company with multiple opportunities ahead. Demographic changes, increased public sector outsourcing, and deteriorating public infrastructure are secular tailwinds that should support long-term revenue and earnings growth. In the near-term, management is highly focused on cash flow generation, paying down debt, and increasing dividends to shareholders, while pivoting the construction services segment toward projects with less embedded risk. It is also in the midst of a strategic review for its equipment services business, with announcements related to that likely by year-end.


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