Oak Bay Capital generates value through a disciplined, specialized, and progressive approach to portfolio management. Our strategy has three key components: Fundamental Equity, Portfolio Protection and Thematic Convexity. They are highly complementary and their combined application improves the risk and return profile of a typical investment portfolio. This approach helps investors achieve return objectives while minimizing drawdowns, helping them navigate market volatility with greater peace of mind.

Fundamental Equity

The Fundamental Equity component of the portfolio will consist of 20-40 equities selected through our unique portfolio construction process. Once shortlisted, every security must then pass our qualitative analysis and diversification criteria.

Our security selection process is designed to identify businesses with:

  • Identifiable and sustainable competitive advantages
  • Appropriate debt levels given the business risk
  • Good business economics
  • Shareholder friendly policies
  • Excellent stewardship of capital
  • Competent, trustworthy and effective management

We aim to minimize related businesses in the portfolio, which is comprised primarily of companies listed on North American exchanges.

The intelligent and effective use of data analytics is a central feature of our process. These are the steps required to fully express our investment discipline:

  • Data Collection
  • Clean, Adjust, Filter, Organize and Analyze Data
  • Business, Management, Stewardship and Risk Analysis
  • Portfolio Construction
  • Investment Execution

"In the short run the market is a voting machine, but in the long run it is a weighing machine."

― Benjamin Graham
Author of The Intelligent Investor and Security Analysis

Portfolio Protection

The Portfolio Protection component focuses on the preservation of capital, which should lead to market outperformance over the long term. The asymmetric impact of losses (the gains required to recover from losses increase exponentially with the amount of the loss) makes prudent risk management imperative to successful long-term investing. For instance, it takes a 100% gain to recover from a 50% loss.

The Impact of Losses

As a result of the asymmetric impact of losses, the active use of protective strategies is a critical component to long-term performance.

Oak Bay Capital’s team has extensive experience in the use of options which, when implemented properly, are an excellent risk management tool.

In order to mitigate market risk, we implement a proprietary options-based risk management program. This approach employs various strategies determined by market conditions and options price levels. Active management is required in order to:

  • Ensure appropriate levels of protection
  • Minimize the cost of protection
  • Monetize protection effectively
  • Actively reset protection when prudent

This disciplined and systematic approach to resetting portfolio protection will result in lower overall costs to protect the portfolio. Where appropriate, we will further mitigate costs through tactical options positioning.

"Predicting rain doesn't count, building the ark does."

― Warren Buffett

Thematic Convexity

The Thematic Convexity component of client portfolios involves small investments which have asymmetric risk/reward profiles where the potential payoff significantly exceeds the initial cost of the investment.

The thematic convexity piece aims to provide diversification benefits and introduce tactical flexibility to the overall portfolio. These investments seek to improve the portfolio’s long-term performance by achieving one or several of the following goals:

  • Enhancing defensive positioning at the end stages of economic or credit cycles
  • Amplify the portfolio’s upside participation under certain macro environments such as inflation, currency devaluation, or sharp recoveries
  • Provide exposure to significant and transformative economic trends
  • Further reduce risks of the portfolio which cannot be achieved through the Portfolio Protection component

The types of securities suitable for this component include equities, convertible bonds, warrants, options and other securities. However, options will be the primary instrument for articulating these thematic views and tactical positioning.

For a small amount of capital, options can provide substantial upside exposure to a theme, while having a defined downside (i.e. the premium paid).

Asymmetric risk

Options have a similar convex payoff profile, which makes them particularly attractive for these types of thematic investments. However, the implementation of this component is dependent upon our insights and the opportunities available in the marketplace.

Oak Bay Capital

Oak Bay Capital was founded on the core belief of helping our clients navigate an increasingly complex market environment by focusing on risk management and superior stewardship of capital. Our investment strategy is specifically designed to protect capital while delivering attractive returns over the long term.

“The essence of investment management is the management
of risks, not the management of returns.”
― Benjamin Graham