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Alberta & Company

September 6, 2012

Alberta is the 4th largest province of Canada (by area) with a population of 3.6 million people and a GDP of $180 billion or $50,000 per capita per year although it has also, at various times, been much higher (for example, $75,000 in 2007 but $50,000 in 2009). Interestingly, the southernmost regions of Alberta were at one time the northernmost reaches of Louisiana until ceded to Canada (Great Britain at the time) in 1818 and it retains a very diverse cultural heritage.  The Fraser Institute (2006 and 2008) also finds that Alberta has very high levels of economic freedom and rates Alberta as the freest economy in Canada and the second freest economy amongst all the U.S. states and Canadian provinces, trailing only the State of Delaware and tied with Texas. The Provincial flower is the Wild Rose. Indeed.

The benchmark public pension investment arm is the Alberta Investment Management Corporation (AIMCo). It is a Crown Corporation owned by the Province of Alberta and has the goal of inspiring the confidence of Albertans by achieving superior risk-adjusted investment returns. AIMCo currently manages a global (fifty-four countries and six continents excepting Antarctica at the present time) investment portfolio of $70 billion for its clients which include twenty-six public sector pension, endowment and government funds in the Province of Alberta.

Its benchmark return is 6% per year and AIMCo earned a total fund return of 7.9% (say 8%) for the most recent  fiscal year ended March 31, 2012, generating $5.2 billion in investment income and exceeding the total fund benchmark by 2.0%. AIMCo is an “active manager” and relies on CAPM and MPT and macro-economic models and forecasts to balance, overweight or underweight its portfolio and also has a growing exposure to “alternative investments” in real estate, private equity, timber lands and infrastructure.

That makes their performance result (+8%) all the more remarkable because the S&P TSX Composite Index was down -11% during that same period (April 2011 through March 2012). On the other hand, AIMCo had a similar performance result (+8%) when the market was up +17% in the previous year (April 2010 through March 2011) and that is partially explained by the fact that only about 40% of their assets ($30 billion) are invested in public equities (the secondary market) and of that, only 20% ($6 billion) in Canada.

AIMCo, in its corporate investment culture, uses the interesting metaphor that “risk is a scarce resource” and their animating principle is to find ways to “maximise the return on risk” which, indeed, is also known as the Sharpe Ratio and is an output or consequence of the Capital Assets Pricing Model (CAPM). It will no doubt surprise them that there is in fact a “price of risk” discovered by completely different methods (Goetze 2009) and applicable to every “asset class” and that asset prices above the price of risk are a “free good” in economic terms. Please see these Letters, The Price of Risk, August 2012.

The Alberta economy is, of course, resource driven in hydrocarbons (natural and synthetic oil, gas and tar sands) and agriculture, all products that are directly affected by the global supply (of which there is a great deal) and uncertain demand for commodities. The economy is further complicated by investor demands to “maximise returns” in opposition to a longer term and sustainable strategy of “optimising returns”. Please see these Letters, Maximising Shareholder Value (LOL), August 2012.

Within the context of these opportunities and challenges, the “Alberta & Company” Perpetual Bond™ is a regional “bond” whose domain is the common stock of companies that are registered or have head offices in Alberta and are listed in the S&P TSX Composite Index. The “bond” (B) is a replication technology in equities and consists only of those companies for which the Stock Price (SP) exceeds the Risk Price (SF) and are therefore priced for long periods of time as economic free goods. It is those profits that need to be (or may be) repatriated, so to speak, for the benefit of Albertans, now and in the future, and, in effect, re-cycled in the regional economy that creates them (notwithstanding the good folks in Toronto, New York, London, Paris, Hong Kong, and so forth, who are also buying and selling these stocks Made in Alberta).

The Alberta & Company Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
With No Loads and No Fees on Capital

For additional background on the meaning of these terms, please refer to just about any of these Letters or follow the Tags and Categories. Our recent post, Quebec Limited, September 2012, describes a similar regional bond and additional descriptions and examples of these methods.

The Cash Flow Statement (Exhibit 1 below) shows that we bought blocks of one hundred shares (nominally, for simplicity, although there is nothing but money between us and blocks of thousands or millions of shares and a company is a (B) or (N) regardless of how much of it we propose to own) in each of thirty-one companies of the seventy-one available in the domain (please see Exhibit 2 below for the complete list) in early January 2012 and subsequently managed them using our usual (B)(N) technology. A company is a (B) and therefore in the portfolio if and only if the Stock Price (SP) plausibly tends to exceed the Risk Price (SF) and is an (N) otherwise. We “buy” on transitions from (N) to (B) and “sell” on transitions from (B) to (N) enforcing our usual “selling” discretion (see, for example, The Wall Street Put, August 2012).

The “bond” cost $85,800 at that time (Portfolio line) and is now worth $71,500 plus a Cash Account of $19,500 (Cash line) for a total of $91,000 (Total line) and a return of +6% plus dividends to be determined but which we expect will add another 2%-2 1/2% to the return.

In contrast, buying all the companies on the same basis (100 shares in each) would have cost $171,700 in January and now be worth $158,100 for a loss of -8% (plus dividends). The market itself, the S&P TSX Composite Index, has returned nothing (0%) so far (Index line) and demonstrated the typical market volatility.

Exhibit 1: (B)(N) Alberta & Company – Cash Flow

(Please Click on the Chart to make it larger if required.)

Exhibit 2 below lists the entire domain of companies eligible for the “bond” and which companies and when they were selected. It is sorted in order of the stock price change (CHG column) between early January and the end of August but that, of course, is incidental ex post and has nothing to do with the active methodology of the Perpetual Bond. For some examples, please see these Letters, Quebec Limited, August 2012, and Exhibit 3: (B)(N) ECA Encana Corporation, below.

Exhibit 2: (B)(N) Alberta & Company – Portfolio

(Please Double Click on the Chart to make it larger if required. These data are also available for free by request from

ECA Encana Corporation is a $16 billion company and energy producer that is focused on growing its portfolio of diverse resource plays producing natural gas, oil and NGLs. The Chart (Exhibit 3) shows that we have owned Encana in the past between $28 in early 2009 and $34 in early 2010 – Red Line which is a step-function and shows the buying, holding and selling prices (SP) over the Black Line which is also a step-function and shows the calculated price of risk (SF) – but we have not owned it since and not recently despite the +10% gain in the stock price this year.

The reason is that the risk price provably distinguishes investor uncertainty from mere volatility. Please see these Letters, The Price of Risk, August 2012.

Exhibit 3: (B)(N) ECA Encana Corporation

For more information, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used.

These data may be obtained from us for free by simply sending us an email request at and consist of the three data files S&P TSX (B)(N), S&P TSX (B)(N) Risk Price and S&P TSX (B)(N) Stock Price, or for any of the major North American markets,  in a machine readable format.


Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”.

Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability.

We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now.

The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”,  ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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