BC Central RRSP Equity Report

Transcription

1 1 [Type text] Quarterly Report March 31, 2017 BC Central RRSP Equity Report What you ll find inside: Current Equity Value Performance Analysis Review Listing of Equity Portfolio as at March 31, 2017 Historical listing of unit value for BC Central RRSP Equity Fund The material forming this review is unaudited and while present for information purposes, is not meant to give counsel to the member with respect to investment. Questions concerning this report should be directed to: Robert A. Perfonic Director Financial Services Department T bperfonic@central1.com

2 Report Name Here 2 Quarterly Report March 31, 2017 March 31, 2017 Unit Value: $ A. PERFORMANCE COMPARISON TO March 31, 2017* Central 1 S&P/TSX (Cdn) S&P 500 (US) First Quarter 1.28% 2.41% 5.05%$C B. LONG TERM PERFORMANCE* Average Annual Compound Rate of Return as of March 31, 2017 Average Annual Rate of Return Central 1 S&P/TSX (Cdn) S&P 500 (US) Five Years 9.14% 7.84% 20.01%$C Three Years 5.78% 5.82% 17.38%$C One Year 16.69% 18.62% 19.98%$C *Allocations assume the reinvestment of dividends and are after management fees. C. ATTRIBUTION ANALYSIS Your fund increased in value by 1.28% in the first quarter of 2017, which compares to an increase of 2.41% for the S&P/TSX Composite of Canadian stocks and an increase of 5.05% for the S&P 500 Index of U.S. stocks in Canadian dollar terms.

3 Cumulative relative performance Report Name Here 3 D. MACROECONOMIC AND CAPITAL MARKETS COMMENTARY AND OUTLOOK The positive macroeconomic signals that emerged in the second half of 2016 continued to thrive in the first quarter of Global leading economic indicators remain at their best levels in several years, economic surprises have been overwhelmingly positive, and corporate earnings continue to improve. The most significant uncertainty hanging over global investors today relates to what the Trump administration will do over the coming four years, but thus far, optimists would appear to outnumber pessimists: risk assets such as equities have soared, enjoying remarkably little volatility in their upward trajectory, the U.S. dollar has risen, bond yields have gone up, and credit spreads have narrowed. The combination of surprisingly strong economic data, surging consumer and business confidence, and better-than-expected earnings propelled global stock markets higher in the past quarter, with most major indexes delivering gains in the mid to high single digits. Emerging markets rose the most and European and U.S. equities also delivered solid gains, while the Canadian and Japanese markets lagged, but still generated positive absolute returns Major Global Stock Markets Continue to Rise in First Quarter 95 Jan-17 Feb-17 Mar-17 Source: FACTSET 15% 10% 5% 0% MSCI EM 10.9% MSCI EAFE 6.8% S&P 500 Index +6.3% MSCI World 5.9% TSX Index 1.7% Relative Style Performance S&P 500 value / S&P 500 growth S&P 600 small cap / S&P 500 large cap Our long-term view on equities -5% remains positive, but there are a variety of market trends that -10% Small caps bottomed relative may signal a need for near-term to large cap stocks Jan 18, % Jan 25, 2016 caution. The massive rotation Source: Bloomberg, RBC GAM into small-cap and value stocks of 2016 was prompted by expectations of improving economic data and corporate profits, and those expectations Nov 9, 2016: Trump wins U.S. election Value stocks bottomed relative to growth stocks

4 Report Name Here 4 ultimately came to fruition. However, since the start of 2017, growth has outperformed value and large caps have outperformed small caps, representing lack of follow-through in 2016 s style shift and, perhaps, a moderation in the positive outlook that rotation represented. There has been continued economic growth in both developed and emerging markets, with most countries managing some improvement in recent months. Although we continue to see an abundance of factors that will constrain economic growth going forward primary among them the aging business and credit cycles, rising populist movements, and higher interest rates we expect that the global economy will be able to move beyond these risks and continue to grow and possibly even accelerate, albeit at a pace below long-term historical norms. There is now clear evidence that the trend towards higher inflation is authentic. Over the short term, the end of the negative commodity shock has removed a profound deflationary pressure. Over the longer term, the most important influence is that developed-world economies continue to tighten, which results in larger wage gains and higher price increases both inflationary. Additionally, populism is known to be inflationary, most obviously via protectionist trade policies and immigration restrictions. The combination of these factors should not translate into especially problematic inflation, but it does signal that low-inflation worries are drawing to a close. After experiencing steady gains throughout most of 2016, oil prices declined this quarter, finishing the period down nearly 10% from where they started. Although a larger fraction of last autumn s announced OPEC production cuts were delivered than expected, this was somewhat overshadowed by the continued rise in U.S. output and inventories. Nevertheless, oil prices remain well off last February s lows, and the oil market continues to normalize, with 2017 set to be the year in which global supply and demand are expected to return to balance. In Canada, the S&P/TSX Composite Index returned 2.41% in the first Indicies Performance Comparison 3 Months quarter, lagging most major global March 31, 2017 % stock markets, though its notably strong performance in 2016 still places it firmly in positive territory over the one-year period, with a return of 18.62%. Utilities, Source: RBC GAM Information Technology, and Consumer Discretionary were the top-performing sectors in the first quarter, while Energy stocks one of the main drivers 1 Year % S&P/TSX Composite Index (C$) S&P 500 Index (C$) MSCI World Index (C$) MSCI EAFE Index (C$) MSCI Emerging Markets Index (C$)

5 Monthly GDP (YoY % change) Report Name Here 5 of returns in the fourth quarter of 2016 held back returns in the most recent quarter as prices declined amid worries that oil inventories remained elevated. In another reversal, after the share prices of insurance companies surged last fall with the rise in interest rates and contributed to making Financials the fourth quarter s top-performing sector, they have since consolidated as fourth-quarter earnings failed to meet expectations. Nevertheless, the Financials sector outperformed the broader index in the first quarter, and we continue to believe that higher interest rates will benefit insurers. Canadian economic growth has managed a revival in the last few months. Thanks to higher commodity prices, the profound regional divergences that underpinned Canada s economic slowdown are rapidly narrowing, as resource-exporting Alberta rebounded sharply in recent months, substantially bridging the gap with export-oriented Ontario. Further support comes from the significant fiscal stimulus the federal government is delivering, and the softer Canadian dollar. Looking ahead, there is some uncertainty about the many ways in which the Trump administration could affect Canada. The most prominent threat is the prospect of trade barriers, and declining U.S. corporate tax rates and looser environmental standards would also put Canada at a disadvantage. Potentially positive factors include Trump s support for the Keystone XL oil pipeline, a weaker Canadian dollar, and stronger U.S Ontario in Decent Shape; Alberta in Recovery Mode -4 Ontario GDP proxy -6 Alberta Alberta GDP proxy rebounding Note: Monthly provincial GDP estimated from available monthly economic variables, combined via principal component analysis and then regressed against annual provincial GDP. Source: Haver Analytics, RBC GAM Ontario growing demand in the short run. The considerable uncertainty around U.S. policy changes adds uncertainty to the Canadian outlook, too. Major developed equity markets as measured by the MSCI World Index returned 6.38% over the quarter in U.S. dollar terms. The currency effect on the global equity returns of Canadian investors was slightly negative, and in Canadian dollar terms the index returned 5.79% over the first quarter. Ten out of eleven sectors generated positive returns, with Information Technology and Health Care being the largest contributors and Energy being the sole detractor from performance.

6 Report Name Here 6 The U.S. stock market surged higher over the past three months, with the S&P 500 Index returning 5.05% in Canadian dollar terms (or 6.07% in U.S. dollar terms) over the period and extending the rally that began a little over one year ago. Much like the previous quarter, the most recent period featured aggressive rotation between sectors as investors weighed the likelihood of the individual elements of President Trump s legislative agenda. We believe this shift can be attributed to the realization that tax reform, regulatory changes, the potential for a massive infrastructure bill, and the replacement of Obamacare may not live up to early post-election expectations. Generally, European equities outperformed global stocks in the first quarter, and the outlook for corporate earnings and economic growth in the region appears to be brightening. That said, there is potential for disruption from rising populist sentiment combined with a number of federal elections scheduled this year. In the U.K., the shortterm damage that emerged from last summer s Brexit vote has been largely offset by the pound s subsequent weakness; however, the U.K. has not actually left the European Union yet. Thus, the inefficiencies associated with a diminished flow of goods, services, people, and capital have yet to take effect. The stock market in Japan managed to hold onto its significant post-u.s.-election gains, confounding investors who expected recent strengthening of the yen to crimp profits. The outlook for the yen remains critical for corporate profitability and capital expenditures, but geopolitical shocks or slower-than-expected economic growth could lead to further strengthening of the currency. Emerging market equities outperformed their developed-market counterparts (as measured by the MSCI World Index) in 2016, the first time that emerging markets have led in six years. This trend continued in the first quarter of 2017, with the MSCI Emerging Markets Index returning 10.83% over the quarter and bringing its one-year return up to 20.86%, outperforming all other major equity markets over both periods. The relative performance of emerging markets has been diverging, and the outlook varies significantly by country. Key differentiators include whether a country is a resource exporter (helping much of Latin America), is delivering important reforms (a positive for India, China, Argentina, Mexico, and Brazil), has succumbed to credit excesses (a negative for China in particular), enjoys particularly good competitiveness (frontier markets lead the charge; China has lost ground), and finally, whether it risks being disproportionately affected by U.S. protectionism (Mexico, China, and South Korea are the major emerging market economies toward the top of the list).

7 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Yield (%) EM-6 annual real GDP growth (%) Report Name Here 10 7 Although several of the negative forces mentioned above relate to China, the country has managed to stabilize its growth rate over the past year following many years of steady deceleration. There is a clear transition happening away from investment-driven growth towards a consumption-led expansion, and a strong EM Growth To Pick Up From 2016 Onward RBC GAM forecast Note: EM-6 includes Brazil, China, India, Mexico, Russia and South Korea. Source: Haver Analytics, RBC GAM commitment to reforms and crackdown on corruption by the Chinese government. That said, we believe that the economy will revert to a slowing trend, though this is hardly a problematic prediction as the country should continue to grow quickly on an absolute basis and will be a much safer place if it stops trying to sustain unnaturally fast growth. Turning to fixed income markets, FTSE TMX Canada Universe Bond Index Yields after having risen materially in the 3.0 latter stages of 2016, global bond yields traded in a fairly narrow 2.5 range during the quarter. A similar pattern unfolded in Canada, where the yield of the FTSE TMX Canada 2.0 Universe Bond Index fluctuated within a fairly tight range during the quarter, finishing the period in line 1.5 with where it started. Strong demand for risk assets resulted in spread compression and solid performance for provincial and corporate bonds. Broadly, longer maturity bonds outperformed shorter maturity bonds, and provincial and corporate bonds finished ahead of similar-term federal counterparts across the maturity spectrum. Our medium-to-long-term view has not changed; we continue to forecast that global bond yields will move gradually higher as extraordinary central bank monetary policy subsides and global economic growth normalizes. That said, the path to higher rates is not likely to be a straight line. Considering the present state of uncertainty, we anticipate the future path of interest rates to be volatile over the near term as market participants react and adjust to new information. 2.1%

8 Report Name Here 8 Performance of S&P/TSX Industry Sectors One Year Ended March 31, % -40.5% PHILLIPS, HAGER & NORTH -85.3%

9 Canadian Equity Pension Trust Attribution Analysis Three Months Return Weight Security Sector Value Portfolio Benchmark Difference Portfolio Benchmark Difference Selection Weighting Added Consumer Discretionary Industrial Utilities Healthcare Financials Information Technology Real Estate Telecom. Services Consumer Staples Materials Energy CANADIAN EQUITY RRSP EQUITY PORTFOLIO SUMMARY AS OF MARCH 31, 2017 COST CDN MKT % OF VALUE TOTAL CASH 9,823 9, % SHORT TERM NOTES TOTAL 898, , % CANADIAN COMMON STOCKS Energy 2,956,984 3,043, % Materials 386, , % Industrials 534, , % Consumer Discretionary 416, , % Consumer Staples 139, , % Financials 2,911,269 4,931, % Information Technology 293, , % Telecommunication Services 150, , % Utilities 315, , % Real Estate 174, , % Pooled Funds 1,889,008 2,344, % CANADIAN COMMON STOCKS TOTAL 10,168,631 13,809, % US COMMON STOCKS TOTAL 1,550,283 2,243, % NON-N.A. COMMON STOCKS TOTAL 980,484 1,233, % EQUITIES TOTAL 12,699,399 17,287, % TOTAL PORTFOLIO IN CDN DOLLARS 13,608,065 18,195, % ACCRUED INCOME 25,129 TOTAL PORTFOLIO INCLUDING ACCRUED INCOME 18,220,828

10 PAR VALUE SHORT TERM NOTES COST MARKET VALUE Federal 25,000 Canada Gov't T/B DISCNT APR ,971 24,971 50,000 Canada Gov't T/B DISCNT MAY ,941 49,941 25,000 Canada Gov't T/B DISCNT MAY ,973 24, ,000 Canada Gov't T/B DISCNT JUN , ,025 50,000 Canada Gov't T/B DISCNT JUN ,934 49,934 NO OF SHARES SHORT TERM NOTES TOTAL 898, ,843 EQUITIES COST UNIT PRICE MARKET VALUE CANADIAN COMMON STOCKS ENERGY 5,900 ARC Resources Common 125, ,100 2,700 Cameco Corp Common 80, ,744 11,500 Cdn Natural Resource Common 420, ,710 10,708 Cenovus Energy Common 221, ,155 6,500 Cenovus Energy Common 104, ,825 15,000 Crescent Point Energy Common 260, ,550 13,400 Enbridge Inc Common 638, ,514 3,800 Keyera Corp Common 146, ,238 11,400 Meg Energy Common 93, ,836 3,200 Pembina Pipeline Common 103, ,848 3,118 Prairiesky Royalty Common 80, ,491 6,050 Seven Generations Class A 142, ,015 3,864 Suncor Energy Inc Common 128, ,767 7,535 Tourmaline Oil Corp Common 246, ,413 3,160 Transcanada Corp Common 164, ,929 2,956,984 3,043,136 MATERIALS 1,100 Agrium Inc Common 73, , CCL Industries Inc Class B Non VTG 53, ,028 9,100 First Quantum Mnrl Common 131, ,583 3,200 Teck Resources Ltd Class B Sub VTG 93, ,056 5,280 Turquoise Hill Res Common 35, , , ,716 INDUSTRIALS 3,850 Cdn Natl Railway Common 80, , Cdn Pacific Railway Common 156, ,280 2,000 Finning Intl Common 45, , Stantec Inc Common 27, ,608 2,300 Waste Connections Common 223, , , ,550 CONSUMER DISCRETIONARY 1,800 Dollarama Common 114, ,378 3,550 Gildan Activewear Common 115, ,552 2,400 Quebecor Inc Class B Sub VTG 91, ,424 1,502 Restaurant Brands Common 63, ,268 1,550 Shaw Communications Class B Non VTG 32, , , ,355 CONSUMER STAPLES 5,500 Aliment Couche-Tard Class B Sub VTG 139, , , ,440

11 NO OF SHARES EQUITIES COST UNIT PRICE MARKET VALUE FINANCIALS 1,200 Bank of Montreal Common 81, ,196 9,550 Bank of Nova Scotia Common 511, ,990 10,975 Brookfield Asset Mgt Class A Ltd VTG 301, ,739 2,450 Cdn Imperial Bank Commerce Common 253, ,942 1,850 CI Financial Corp Common 57, ,896 7,800 Element Fleet Mgt Common 103, , Fairfax Fincl Holdings Sub VTG 92, ,780 18,400 Manulife Fincl Corp Common 333, ,056 11,850 Royal Bank CDA Common 520, ,148,147 5,200 Sun Life Fincl Inc Common 216, ,512 2,150 Thomson Reuters Corp Common 86, ,647 15,950 Toronto Dominion BK Common 352, ,062,430 2,911,269 4,931,350 INFORMATION TECHNOLOGY 3,050 CGI Group Inc Class A Sub VTG 107, , Constellation Sftwr Common 55, ,350 3,698 Open Text Corp Common 130, , , ,846 TELECOMMUNICATION SERVICES 1,900 Rogers Communication Class B Non VTG 53, ,720 3,950 Telus Corp Common 96, , , ,242 UTILITIES 2,850 Brookfield Infr Prtr LTD Partnership UNT 111, ,604 5,000 Fortis Inc Common 204, , , ,954 REAL ESTATE 6,200 Brookfield Property Partners L. P. U. 174, , , ,892 POOLED FUNDS 129,996 Phillips Hager & North Inst G&P MTL FD SR O 1,211, ,794 52,785 Phillips Hager & North Small Float SR O 677, ,670,488 1,889,008 2,344,282 CANADIAN COMMON STOCKS TOTAL 10,168,631 13,809,762 U.S. COMMON STOCKS - POOLED FUNDS 35,884 Phillips Hager & North US Equity SR O 1,550, ,243,740 NON-N.A. COMMON STOCKS - POOLED FUNDS 90,860 Phillips Hager & North Overseas Equity SR O 980, ,233,531 EQUITIES TOTAL 12,699,399 17,287,033 CASH 9,823 9,823 PORTFOLIO TOTALS IN CAN DOLLARS 13,608,065 18,195,699 ACCRUED INCOME 25,129 TOTAL PORTFOLIO INCLUDING ACCRUED INCOME 18,220, US = CA on March 31, 2017

12 Price HISTORICAL RRSP EQUITY PLAN UNIT VALUES Year January February March April May June July August September October November December ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** **after 8:1 unit split RRSP Equity Plan Unit Values (5 year period ending March 2017) Date