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Investment Objective The objective of this fund is to generate both capital appreciation (or growth) and income, while maintaining a relatively low level of risk and ensuring short-term preservation of capital.
†Growth is calculated based on compounded monthly returns. Canadian Equities Highstreet Asset Management - Quantitative Core Manager Highstreet uses a multi-factor quantitative model which must meet their specific criteria for Growth, Value, Quality & Risk (GVQ+ R(tm)) when considering buy and sell decisions. Investors’ appetite for risk remained low during the first two months of 2009. While golds continued to offer support, this was offset by the decline in the other sectors, led by Financials and Energy, the S&P/TSX index declined by 15% to March 9th. In the latter part of the quarter, investor confidence was buoyed by further announcements of government co-ordination to address the economic downturn, marking a strong rebound in the markets. The rally was most pronounced in the Financial, Energy, and to a lesser extent, the Materials sectors. Overall, one out of three stocks advanced, as the S&P/TSX lost 2%. The portfolio performed in line with the index over the quarter. Stock selection in Financials favoured diversified banks over insurance companies, and this benefited the portfolio. Conversely, stock selection within the Energy and Materials sectors detracted from the portfolio’s performance, principally during the late-quarter rally that had stock prices recovering, as investor risk aversion subsided. The portfolio was better than the benchmark, as two out of every four stocks gained ground during the quarter. Top contributors to the portfolio over the quarter were not holding Manulife Financial for the majority of the quarter, and holding Petro-Canada. Not holding Suncor or Canadian Oil Sands during the quarter hurt the portfolio. The rebound late in the quarter took place despite declining corporate earnings, indicating a measured return of investor confidence in equity markets. While earnings are expected to continue to decline into the next quarter, this earnings season will be critical in determining whether government actions around the world are beginning to stabilize the economy. The direction of analyst estimates over the next several weeks will provide a better picture of where the markets are headed in the near future. Throughout the economic cycle, we adhere to our promises to provide a portfolio with superior growth, value, quality and risk. Lincluden Management - Value Manager Lincluden, using a “value-buyer” approach, favours companies that its analysis shows to be undervalued. Identifying trends that will enhance future value is important. Canadian Equity markets were extremely turbulent in the quarter, declining precipitously in the first two months of the year, led by further uncertainty surrounding global bank liquidity. The subsequent announcement of a plan by the U.S. Treasury to help banks deal with bad loans saw global markets recover, and the S&P/TSX Index recover most of its losses by the end of March. The TSX ended in moderately negative territory as 8 out of 10 sectors declined in the quarter. Relative performance of the portfolio versus the benchmark suffered, as the portfolio was underweight in gold and fertilizer stocks, which rebounded quite strongly in the quarter – following significant losses in the last half of 2008. Holdings in acquisition targets Petro Canada and Nova Chemicals appreciated quite strongly in the period, helping to cushion the impact of the underweight to gold and fertilizer. In this environment, our investment discipline continues to identify solid industry-leading companies at valuation levels that have not been available for many years. While extreme volatility continues to make short-term stock results unpredictable, we are of the view that today’s valuations will translate into exceptional results in the medium term. J. Zechner Associates - Top-Down Growth Manager Zechner’s expertise is the identification of economic and business trends and the weighting of industry sectors. Stocks selected must have good growth characteristics and be liquid. Stock markets finally gave investors some good news in March, as the S&P/TSX Composite index rallied almost 20% in the 14 days after the lows reached on March 9th, and generated a total return of 7.8% for the month – the first monthly gain for the stock market since August of last year. For the first quarter though, the index still fell by 2.0% – the third straight quarter of stock market losses. The leading sector in the index for the first quarter was the Basic Materials group, which showed a 7.7% gain on strength in base metals and gold stocks. Financials lagged with a quarterly decline of 7.4%. Although we had an underweight to gold, our investment strategy benefitted from strength in the oil sector, as well as strong performance from metals and fertilizers and a timely purchase of financial stocks, as they hit their lows in early March. We have used the strength in the market to upgrade the quality of the portfolio by moving to larger, more liquid stocks. In terms of stock exposures, we added to the Financial sector, where the strategy had previously been substantially underweight. Another focus in the portfolio continues to be on the resource stocks with overweight positions in the energy, base metal and agricultural stocks. Uranium continues to look like a great play in the commodities sector, as inventories are low, demand is increasing, and China has started to stockpile supplies for future expansion of nuclear energy. The growth sectors that currently look most attractive to us are in the wireless and high bandwidth sectors, including the telecom service providers and equipment and software vendors. U.S. Equities Analytic Investors - Core Manager Analytic Investors uses a 70-factor quantitative approach to select stocks currently ‘in favour’ and maintain risk consistent with the S&P 500 Index. The U.S. Equity strategies posted strong relative results during the quarter, benefiting primarily in January and February. Trends that began during the fourth quarter of 2008 persisted through January, February and the first nine days of March. In particular, higher-quality factors such as Interest Coverage Ratio and Asset Utilization added value during the period. As well, Leverage, the leading negative exposure in the model, added value, as investors continued to shy away from companies with this characteristic. Valuation factors, however, remained somewhat neutral to negative during the quarter. However, growth factors such as Return on Equity, Return on Assets, and Recent Earnings Growth, all with positive exposures in the model, performed well during January and February and contributed accordingly. March painted a slightly different picture. Although many of the stock selection factors that added value during January and February continued to do so, reversals were also evident. The latter half of the month exhibited a flight to risk, as beaten-down companies, particularly in the financial sector, drove market returns. This junk rally helped factors such as Leverage rebound after the Fed announced intentions to bring liquidity back into the market. International Equities Acadian Asset Management - Value Manager Acadian identifies market inefficiencies and exploits them using a structured, multi-factor process and sophisticated portfolio optimization techniques. Global equity markets saw negative results in what was another highly volatile quarter. Dismal returns in January and February were mitigated by more favourable results in March after the U.S. initiated some well-received moves in economic policy – helping to restore investor confidence in the equity asset class. Despite the March rally, Europe’s collective performance for the full quarter was markedly negative. Germany’s manufacturing sector continued to contract amid a sharp downturn in orders. France saw business confidence slump to its lowest level on record, while retail sales in Italy continued to languish. The U.K. saw further deterioration in consumer spending and investment as credit conditions remained tight. Asia performed modestly better than Europe for the quarter, but was still negative. Japan’s equity market was hurt by waning factory output and a sizeable drop in exports. Australia saw favourable data on the housing front assuage the effects of near-record low business sentiment, while reports of rising unemployment in Hong Kong was tempered by news that home values saw a moderate recovery year-to-date. The U.S. realized negative returns for the quarter, as equities were battered by the announcement of dismal fourth-quarter earnings and massive layoffs at a number of large companies. Investors reacted favourably, however, after President Obama signed a $787 billion economic stimulus plan into law and proposed a public-private partnership to absorb banks’ toxic assets. Fixed Income Lincluden Management - Credit Analysis & Yield Spreads Canadian bonds posted modestly positive results as the Bank of Canada cut its target overnight rate by 1% to 0.5%, joining other major central banks in a co-ordinated effort to ease global monetary conditions. The Federal Reserve Bank left the target fed funds rate at 0.25%. The Canadian government yield curve showed little change in the quarter, although long yields increased marginally. Corporate spreads for most issuers narrowed considerably, although spreads for specific sectors, such as insurance companies, showed little improvement. In this environment, the portfolio performed well, benefiting from our strong position in corporate bonds. Newton Capital Management - Global Thematic Core U.S. bond yields fell across the curve late in March, after the U.S. authorities finally adopted quantitative easing (QE), but not enough to compensate for the rise in yields witnessed earlier in the month, as investors indicated their concern over the Federal Reserve’s initially voluble reluctance to undertake QE. Over the quarter, U.S. long bond yields rose by 86bps. Long-dated German bund yields also rose 32bps with the European Central Bank resisting calls for the adoption of QE and investors’ adopting an increased risk appetite (at the expense of ‘safe-haven’ government bond markets) as the quarter progressed. The investment strategy’s overweight position in this area was also consequently a drag on absolute and relative performance. The strategy ended up slightly behind its benchmark over the quarter. This underperformance was largely attributable to the portfolio’s long U.S. duration stance. Currency exposure remained fully hedged back to Canadian dollars throughout the first quarter. Putnam Investments - Core Manager The economy remained weak in the first quarter, extending the recession that took hold in 2008, as financial markets stayed in disarray. Consumer confidence was feeble, housing prices continued to retreat, and unemployment rose to levels not seen in decades. The U.S. government implemented several wide-ranging measures to restore market stability and investor confidence, joining policymakers around the globe in efforts to shore up bank balance sheets and re-establish the flow of credit. The portfolio generated a positive absolute return, and outperformed the DEX Universe Index during the first quarter of 2009. The portfolio benefited from strategies on the belly of the U.S. Treasury curve, and a long duration position in Europe. In terms of sectors, prepayment strategies were beneficial, as liquidity improved in the market. Our exposure to AAA-rated home equity, and AAA commercial mortgage-backed securities (CMBS) detracted marginally. The portfolio benefited from spreads tightening on the shorter-dated CMBS cash bonds, but the net result was slightly negative due to allocations to longer-dated CMBS. Our allocation to emerging markets debt bolstered returns. State Street Global Advisors - Enhanced Core/Active Bond Manager The DEX Universe Bond Index posted a 1.52% total return for the first three months of 2009, while 10-year Government of Canada bonds ended the quarter yielding 2.78%. Lack of trust in the global financial system and coordinated central bank action, drove short-term government debt yields to lower levels with Canada 91-day T-bills ending the month yielding 0.39%. In this relatively volatile market, the DEX Corporate Bond IndexTM returned 3.48%, outperforming the DEX All-Governments Bond IndexTM by 2.68% for the period. However, while corporate bonds did improve modestly over the quarter, outright spreads remain elevated and the corporate sector of the DEX Universe Bond IndexTM remains the worst performing sector of the index over the last 10 years. All performance is presented in Canadian dollar terms, gross of investment management fees. Past performance is not indicative of future results. |
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