Review of Pension Plans Performance (Period ending December 31 st, 2013)

Transcription

1 Review of Pension Plans Performance (Period ending December 31 st, 2013) prepared for Investment Subcommittee (Note all returns and values are expressed in Canadian Dollars- CAD s) 1

2 Canadian Equity The S&P/TSX index increased 7.3% in the quarter. All sectors finished higher with the exception of materials ( 2.0%), which was impacted by substantial declines in mining stocks. The leading sectors were those levered to growth and the US recovery, such as industrials ( +16.3%) and health care (+13.8%). The energy sector also posted a solid gain (+5.7%). The rise in longer term interest rates reduced the appetite for income oriented consumer staples (+4.1%) and utilities (+3.1%) Quarterly Market Overview As year end approached markets rallied strongly due to improved confidence in the prospects for a sustainable global expansion. U.S. Equity The 4 th quarter saw the US equity markets add to the strength of the market. The total return was 14.2% (CAD) during the quarter, bringing the year to date return to a whopping 41.3% (CAD). Economic news remained positive and part of an improving trend. The absence of bad news was one of the reasons the market continues to appreciate. Sectors most leveraged to an improving economy such as consumer discretionary, industrials, health care and financials outperformed while more defensive sectors, yield oriented sectors like telecom and utilities lagged. International Equity It was a remarkable quarter for global equity markets. Many markets ended at or near their highest levels for the year. The weakness in the loonie also improved returns for Canadian Investors. The MSCI EAFE index returned 9.3% over the quarter. The standout was the Japan which finished 12.7% higher, (in local currency terms) thanks to the bank of Japan s policy of aggressive monetary stimulus. The MSCI emerging markets index lagged the developed markets returning 1.5% for the quarter. For the quarter developed markets outperformed emerging markets as rising inflation and tighter monetary policy constrained growth and corporate profits. Fixed Income Bond yields moved up in 2013, which negatively impacted the performance of longer duration bonds the most. The best performing sector was corporate bonds which ended on a positive note. The Dex Bond Universe posted a modest quarterly return of (0.4%) for the quarter while the long bond index was negative ( 0.2%) REAL ESTATE : The IPD index returned 1.7% for the quarter. Property values remain steady supported by the stability of fundamentals and availability of capital. 2

3 Pension Plans Results: Relative to major asset class indices (Gross Returns for the 12 Months Ended December 31 st, 2013) The Total Plan returned 19.8% for the last 12 months reflecting strong equity returns across most markets. Canadian Equity Outperformed the index by 9.8%. Manager stock selection was the major contributor to outperformance accounting for approximately 7% of the value add. Within the industry sectors, underweighting of Materials relative to the index (9.3% vs 14.6%) was the largest contributor to outperformance. The materials component of the portfolio returned 13.4% vs 29.1% for the index. All the managers outperformed the index and Sionna s small cap mandate beat its index by 22%. Superior stock selection within the energy and materials sectors was the major contributor to Sionna's outperformance. International Equity Outperformed the MSCI EAFE index by 2.7% as all the managers posted strong absolute returns. Best performing countries included Germany, Spain and Italy while the far east markets including Japan lagged. Telecom, Technology, Health care and Energy led the market while defensive sectors such as Utilities and Consumer Staples lagged. LSV had the best relative performance beating the index by 4%. U.S. Equity Outperformed the S&P 500 index by 3.7% Exposure to US small and mid cap stocks continue to benefit the portfolio as they outperformed the larger cap stocks. The Mid and small cap portfolio's returned 44% and 46% for the year. Consumer staples and Industrials were the major contributors to outperformance for the year accounting for 2.9% of the value added return. In a sharply rising market in which value managers typically lag, the value biased portfolio beat the index for the year. Fixed Income 1.2% versus 1.2% for the Dex Bond Universe. This is a passive mandate and normal variance to the index is expected to be relatively small. REAL ESTATE : The portfolio returned 11.7 % for the year vs 7.7% for the IPD Canada Annual Property Index. Approximately 7.5% of the portfolio return came from capital appreciation and 4% from dividend return. 3

4 Total Pension Portfolio Vs Benchmark ( Gross Of Fees) Annualized Periods Ending December 31 st, 2013 Composite Benchmark : 30% S&P/TSX Comp Capped + 20% MSCI EAFE + 20% S&P 500 (CAD)+28% Dex Universe + 2% Dex 91 Day T-Bill 4

5 Asset Class Performance Annualized Periods Ending December 31 st, Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr % % % % % % % % % % Total Gross of Fees *Total Net of Fees Total Fund ex Currency Overlay (Gross) & Composite Benchmark 4& Canadian Equity S&P/TSX Comp Index US Equity S&P 500 ($CAD) Non-North American Equity MSCI EAFE Net ($CAD) Real Estate 11.7 IPD Canada Prop Index 7.7 Fixed Income Dex Bond Universe Footnotes on Page 13; & Currency Hedging was added effective December 2011; Real Estate was added in July

6 Pension Plan Results: Relative to the Composite Benchmark (for the 12 Months Ended December 31 st, 2013) Composite Benchmark is 30% S&P/TSX Comp + 20% MSCI EAFE ($CAD) + 20% S&P 500 ($CAD) + 28% Dex Universe + 2% Dex 91 Day T bills. 12 month Total Gross Portfolio return of 19.8 % versus Composite Benchmark returns of 17.2 %. The following chart breaks down the attribution factors for this higher return + 2.7% relative to the current Benchmark. It shows strong stock selection by Canadian, EAFE and US managers. The (Asset) Allocation Effect measures the impact of decisions to allocate assets differently from the policy benchmark. Eg. The Portfolio is underweight Canadian equity which underperformed the policy benchmark for the period ( 13% for the SPTSX vs 17.2% for the composite benchmark) resulting in a positive allocation effect. % Performance Attribution by Asset Class (1yr ended December 31st, 2013) Total Fund Canadian Equity US Equity EAFE Equity Fixed Income Cash 1.7 Allocation Effect Selection Effect Net Management Effect Other Note : Cash reflects the currency hedging effect which was negative over the period. Other includes real estate and the residual investment in Banyan Capital. Please note that numbers may not add up due to rounding. 6

7 Pension Asset Mix as of December 31 st, 2013 (Total Assets $ 1.16 Billion) Actual Policy EAFE Equity, $261.5M, 23% Real Estate & Alternatives, $39M, 3% Cash $45.7M, 4% Canadian Fixed Income, $291M, 25% EAFE Equity 20% Real Estate & Alternatives, 0% Cash 2% Canadian Fixed Income 28% U.S. Equity, $247.3M, 21% Canadian Equity, $276.3M, 24% U.S. Equity 20% Canadian Equity 30% 8.00% 2% Asset Allocation vs. Policy 1% 3% 3% 0.00% -3% 8.00% Cash Canadian Fixed Income -6% Canadian Equity U.S. Equity EAFE Equity Real Estate & Alternatives Note: Cash includes manger residual cash balances, internal cash of $ 14.2 mil and a negative currency hedging position of ($ 0.5 mill). Alternatives allocation includes Greystone Real Estate Fund and Banyan Capital Limited Partnership 7

8 Pension Currency Exposure as of December 31 st, 2013 Pension Currency Exposure % 90.00% 80.00% 70.00% Other 60.00% Swiss Franc 50.00% Japanese Yen British Pound 40.00% 30.00% Canadian Dollar, 54.2% Canadian Dollar, 76.1% Euro Currency Unit U.S. Dollar Canadian Dollar 20.00% 10.00% 0.00% December 31st 2013 Unhedged December 31st 2013 Hedged Currency Dec 31st, 2013 Unhedged % Gross Exposure (CAD in millions ) Hedge (CAD in millions) Dec 31st, 2013 Hedged % Net Hedged Exposure (CAD in millions) Canadian Dollar 54.2 $629.4 $ $883.5 U.S. Dollar 25.4 $ $ $150.7 Euro Currency 7.0 $80.9 -$ $41.5 Japanese Yen 3.5 $44.3 -$ $23.0 British Pound 3.8 $40.7 -$ $20.7 Swiss Franc 2.4 $27.8 -$ $14.6 Other 3.7 $43.1 -$ $26.7 8

9 Growth of Pension Assets Net Annual Returns and Market Values at December 31 st, 2013 $M Pension Fund Market Value $1,400 $1,200 $1,000 $800 $600 $400 $ % $ % $ % $859.2 $ % $ % 14.6% $ % $904.5 $ % 11.5% $ % $1, % 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Net Annual Returns $ % Prof Plan Non-Prof Plan Retirement Plan Total % CAD$ Return (Net) Total Pension portfolio increased $ M to $ M consisting of: Total Contributions of $ 49.2M and payments of $ 65 M Annual return (net of investment management fees) of 19.3 % compared to 11.5 % for the same period in