Finding the sweet spot between risk and return. Sandy McIntyre President and Chief Executive Officer

Transcription

1 Finding the sweet spot between risk and return Sandy McIntyre President and Chief Executive Officer Updated on May 4, 2012

2 Disclaimer Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compound total returns net of fees (except for figures of one year or less, which are simple total returns) including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Certain statements in this document are forward-looking. Forward-looking statements ( FLS ) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as may, will, should, could, expect, anticipate, intend, plan, believe, or estimate, or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Sentry Investments and the portfolio manager believe to be reasonable assumptions, neither Sentry Investments nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise. The risk meter on the individual fund performance slides is based on the methodology recommended by the Fund Risk Classification Task Force of the Investment Funds Institute of Canada. The Task Force recommends that a risk assessment should be considered relative to the historical volatility risk as measured by the standard deviation of performance for the fund and its benchmark. The Task Force also acknowledges that other types of measurable and non-measurable risk may exist. The Task Force reminds investors that historical performance may not be indicative of future returns and a fund s historical volatility may not be indicative of future volatility. Sentry Investments and the Sentry logo are trademarks of Sentry Select Capital Corp. Finding the sweet spot between risk and return 2

3 Company and team accolades 2011 and 2012 Lipper Best Equity Funds Group 2010 and 2011 TopGun Asset Management Team Award One of only five firms in Canada to receive the honour from Brendan Wood International (BWI) in 2011, and one of only four firms to receive it in 2010 TopGun Portfolio Managers Kevin MacLean (2009, 2010, 2011), Dennis Mitchell (2009, 2010, 2011), Sandy McIntyre (2009, 2010), Michael Simpson (2009, 2010) and Mason Granger (2011) received TopGun Investment Mind Awards, which recognize managers with the best grasp of the industries in which they invest and the most influence in the Canadian market. The 2012 Lipper Awards were awarded based on the best risk-adjusted performance over the three-year period ended October 31, The 2011 Lipper Awards were awarded based on the best risk-adjusted performance over the three-year period ended October 31, Lipper Inc. is a Thomson Reuters company. Finding the sweet spot between risk and return 3

4 Individual fund awards Sentry Canadian Income Fund Canadian Lipper Fund Award 2010 Canadian Investment Award for Income Trust Fund of the Year 2005; finalist in 2006, 2007 and 2008 Sentry Canadian Resource Class Canadian Lipper Fund Award 2011 Sentry Conservative Balanced Income Fund Canadian Lipper Fund Award 2012 Sentry Diversified Total Return Fund Canadian Lipper Fund Award 2011 Sentry Precious Metals Growth Fund Nine Canadian Lipper Fund Awards 2012 (2), 2011 (3), 2010 (2), 2008 (1) and 2007 (1) Morningstar Canadian Investment Award 2010 Sentry Small/Mid Cap Income Fund Canadian Lipper Fund Award 2010 Finding the sweet spot between risk and return 4

5 When you invest, you have to invest to a view of the future. Our view Inflation is not an issue; debt repayment and slow growth in Europe and the US are deflationary. This means: Get used to low interest rates. Make sure the borrower is capable of repaying the loan. Risk must be priced appropriately. Central bank tightening in the G8 is not a 2012 story. US Federal Reserve has said low rates will be in place until at least This will be the first business cycle where economic growth in emerging markets drives developed market growth. Slow growth is our most likely outcome; this is not likely to be a vibrant business cycle. Debt: income levels at both household and government levels need to be fixed. Finding the sweet spot between risk and return 5

6 Economic forecasting Both the economy and markets are more volatile than forecasts; risk management has to be anticipatory. The best economic forecasts come from the slope of the yield curve: do not fight the Fed. After every recovery it is normal for growth to slow. Source: RBC Capital Markets, Survey of Professional Forecasters, as at December 2011 Finding the sweet spot between risk and return 6

7 Earnings cycle: Earnings growth = Nominal GDP S&P 500 Earnings growth The earnings cycle peaked in Q and troughed in Q Recovery in earnings has brought index earnings back above the five-year cyclical average and to trend. Reported earnings of $96.70 now exceed the 2007 peak of $ Source: Bloomberg LP, Sentry Investments as at March 27, 2012 Source: Bureau of Economic Analysis, Sentry Finding the sweet spot between risk and return 7

8 Transition from secular bear to secular bull occurs during bear phase when price compensates for risk Major bear market bottoms are created by major asset mix shifts and1974 were generational lows for equities looks to be one as well. Source: Robert Shiller, Bloomberg LP, Sentry Investments as at February 10, 2012 Finding the sweet spot between risk and return 8

9 Market cycle Spread between the daily close of the S&P 500 Index and the 200-day moving average (MA) Recession bear markets are yellow; mid-cycle corrections are white When markets collapse, they will have aftershocks; the collapse low is rarely the final low. Markets do not live at the lows; they recover or transition into major bear markets. The third wave of this cycle should have started in the fourth quarter of Source: Sentry Investments, Bloomberg LP as at February 10, 2012 Finding the sweet spot between risk and return 9

10 US private pension fund flows: $6 trillion in assets US private pension asset mix US private pension defined benefit plan asset mix Source: Federal Reserve Board Z.1 Statistical Package L.118, Sentry Investments. Last data point Q4, 2011 Source: Federal Reserve Board Z.1 Statistical Package L.11.b8, Sentry Investments. Last data point Q4, 2011 Combined defined benefit and defined contribution data shows net flows into mutual funds since the market bottomed; equity weight continues to decline. Defined benefit data shows that direct equity weight continues to decline and fixed-income allocations are rising since the crisis: the pension fund asset mix remains very defensive. Finding the sweet spot between risk and return 10

11 Defined contribution asset mix Defined contribution plans exploded in the 1980/90s. As of Q4 2011, they amount to $3.9 trillion (63%) of total US private pension assets of $5.7 trillion. 47% (or $1.8 trillion) is in mutual funds. Net mutual fund flows since 2007 have been entirely into fixed income. US private pension defined contribution plan asset mix Investment Companies Institute: Cumulative mutual fund flows 2007 to date $725 billion Source: Federal Reserve Board Z.1 Statistical Package L.118.b, Sentry Investments. Last data point Q4, 2011 Source: Investment Companies Institute, Sentry Investments as at February 29, 2012 Finding the sweet spot between risk and return 11

12 When hot money is offside, the result is margin calls Margin calls peaked during October 2008 the largest decline in margin debt since October Margin debt has grown with the development of hedge funds/prime brokerage. August 2011 represented the 3rd largest reduction in outstanding margin debt in absolute terms. Margin calls have been a factor in the recent market volatility. Debit balance in margin accounts at broker/dealers $million compound annual growth rate 8.6% Debit balances in margin accounts at broker/dealers monthly % change Source: New York Stock Exchange, Haver Analytics, RBC Capital Markets, Sentry Investments as at February 29, 2012 Source: New York Stock Exchange, Haver Analytics, RBC Capital Markets, Sentry Investments as at February 29, 2012 Finding the sweet spot between risk and return 12

13 Volatility is structurally higher in a world of computers S&P 500 daily change S&P 500 daily change Source: Sentry Investments, Bloomberg LP as at March 27, 2012 Source: Sentry Investments, Bloomberg LP as at March 27, 2012 Normal volatility for the S&P 500 was for decades contained in a band of +2.5% and -2.5%. Since 1940, there have been 30 trading days where the market declined by 5% or more; 14 have been since January 1, 2000 and nine since the start of the current financial crisis. Big down days breed reflexive rebounds. Over the same time period, there have been 18 days with the market up 5% or more; 12 were in the 2000s and nine since the start of the current financial crisis. The last three years were the most volatile since the 1930s. Finding the sweet spot between risk and return 13

14 Volatility declines during established economic expansion SPX Index ( ) SPX Index ( ) Source: Bloomberg LP, Sentry Investments Source: Bloomberg LP, Sentry Investments as at March 27, 2012 The 16 trillion dollar question: have we entered an established economic expansion? Finding the sweet spot between risk and return 14

15 Relative valuation gives major market signals: risk on or off S&P 500 Trailing Recurring Earnings Yield less 10 Yr US Treasury Yield Large US companies offer the best relative price opportunities since Note that the best value opportunity occurred in the 1977/80 recovery period during the last secular bear market. We are looking south for opportunities! Source: Bloomberg LP, Sentry Investments as at February 10, 2012 Finding the sweet spot between risk and return 15

16 Which equities outperform over the long term? US: Total portfolio returns (Jan 1984 Dec 2010) US data shows that the strategy that delivers the best total return with the lowest volatility is to own moderate yield. These companies typically have a history of regular dividend increases and management exhibits shareholder friendly behaviours. Source: BofA Merrill Lynch Global Research US Quantitative Strategy, Russell Finding the sweet spot between risk and return 16

17 Volatility is very stressful: We focus on low-volatility, high-return-on-equity companies. Sector weight Average 30 day volatility* Volatility trend ROE 1 year trailing** ROE trend** Volatility: ROE ratio Dividend yield** High Beta Sectors 48.1% 30.9% Falling 13.3% Falling 2.3x 2.1% Energy 26.3% 27.9% Falling 12.2% Rising 2.3x 2.9% Materials 18.9% 35.1% Falling 14.9% Falling 2.3x 1.1% Health Care 1.7% 24.7% Falling 11.1% Rising 2.2x 0.4% Info Tech 1.1% 39.4% Falling 16.1% Falling 2.4x 0.3% % above (below) index 49.8% -10.6% -27.3% Financials 31.6% 22.4% Falling 15.6% Falling 1.4x 3.9% % above (below) index 8.7% 4.7% 38.9% Low Beta Sectors 20.3% 17.8% Falling 17.3% Rising 1.0x 3.0% Cons Discretionary 4.5% 16.2% Falling 11.5% Falling 1.4x 2.6% Cons Staples 3.0% 13.5% Falling 15.9% Rising 0.9x 1.7% Industrials 5.9% 22.3% Falling 18.6% Rising 1.2x 2.0% Telecom 4.9% 17.9% Falling 25.2% Rising 0.7x 4.6% Utilities 2.0% 15.2% Falling 9.1% Stable 1.7x 4.5% % above (below) index -13.2% 16.0% 5.4% S&P/TSX 100.0% 20.6% Falling 14.9% Stable 2.8% As at May 2, 2012; *Source: Bloomberg LP; 5 yr. average; **Source: Bloomberg LP Finding the sweet spot between risk and return 17

18 Equity income: More cash in your pocket, more power to your capital Equity income offers tax-efficient distributions through a combination of dividends, capital gains and return of capital. Equity income offers the potential for long-term capital appreciation. Dividend-paying companies are generally healthy and profitable. We apply a bottom-up process to identify the best dividend-growing firms. We diligently assess their balance sheets. We determine their stamina to withstand cyclical recessions. We aim at conservative, realistic income and growth targets with reduced risk. Finding the sweet spot between risk and return 18

19 Fixed income: The sweet spot between risk and return Any lenders worth their salt need to focus on three key things: Risk: whether the borrower can repay Time: how long it will take to recoup capital Price: the effect of inflation on returns We start with a big-picture look at the overall climate. Then we go top-down, determining overall credit exposures, sector weightings, yield curves and duration positioning. We zoom in on market positioning, free cash flow, liquidity coverage and covenant protection. Bonds are a global asset class. We are not restricted to the narrow Canadian market. Finding the sweet spot between risk and return 19

20 Thank you Be patient, play defence, own quality and remember that time heals all wounds. Questions? Finding the sweet spot between risk and return 20

21 Sentry Canadian Income Fund Investment strategy details Investment style INCEPTION DATE Feb. 15, 2002 AUM (MILLION) as at April 30, 2012 $1,975.1 LARGE-CAP MID-CAP SMALL-CAP VALUE BLEND GROWTH Risk meter LOW LOW TO TO HIGH HIGH Performance (as at April 30, 2012) SENTRY CANADIAN INCOME FUND AVERAGE ANNUAL COMPOUND RETURNS (SERIES A) 1 YEAR 3 YEAR 5 YEAR 10 YEAR SINCE INCEPT. 8.1% 21.5% 7.1% 12.9% 12.6% Finding the sweet spot between risk and return 21

22 Sentry REIT Fund Investment strategy details Investment style INCEPTION DATE Dec. 24, 1997 AUM (MILLION) as at April 30, 2012 $1,211.9 LARGE-CAP MID-CAP SMALL-CAP VALUE BLEND GROWTH Risk meter LOW LOW TO TO HIGH HIGH Performance (as at April 30, 2012) SENTRY REIT FUND AVERAGE ANNUAL COMPOUND RETURNS (SERIES A) 1 YEAR 3 YEAR 5 YEAR 10 YEAR SINCE INCEPT. 12.9% 27.0% 0.6% 8.5% 7.1% Finding the sweet spot between risk and return 22

23 Sentry Growth and Income Fund Investment strategy details Investment style INCEPTION DATE Aug. 21, 2008 AUM (MILLION) as at April 30, 2012 $377.4 LARGE-CAP MID-CAP SMALL-CAP VALUE BLEND GROWTH Risk meter LOW LOW TO TO HIGH HIGH Performance (as at April 30, 2012) SENTRY GROWTH AND INCOME FUND AVERAGE ANNUAL COMPOUND RETURNS (SERIES A) 1 YEAR 2 YEAR 3 YEAR SINCE INCEPT. 9.4% 12.6% 20.1% 9.1% Finding the sweet spot between risk and return 23

24 Sentry Conservative Balanced Income Fund Investment strategy details Investment style INCEPTION DATE Mar. 17, 2010 AUM (MILLION) as at April 30, 2012 $284.2 LARGE-CAP MID-CAP SMALL-CAP VALUE BLEND GROWTH Risk meter LOW LOW TO TO HIGH HIGH Performance (as at April 30, 2012) SENTRY CONSERVATIVE BALANCED INCOME FUND AVERAGE ANNUAL COMPOUND RETURNS (SERIES A) 6 MONTH 1 YEAR 2 YEAR SINCE INCEPT. 7.3% 7.6% 10.2% 9.6% Finding the sweet spot between risk and return 24

25 Sentry Small/Mid Cap Income Fund Investment strategy details Investment style INCEPTION DATE Jul. 28, 2005 AUM (MILLION) as at April 30, 2012 $275.7 LARGE-CAP MID-CAP SMALL-CAP VALUE BLEND GROWTH Risk meter LOW LOW TO TO HIGH HIGH Performance (as at April 30, 2012) SENTRY SMALL/MID CAP INCOME FUND AVERAGE ANNUAL COMPOUND RETURNS (SERIES A) 1 YEAR 3 YEAR 5 YEAR SINCE INCEPT. 13.2% 27.6% 11.8% 12.2% Finding the sweet spot between risk and return 25

26 Sentry U.S. Growth and Income Fund Investment strategy details INCEPTION DATE May 31, 2011 AUM (MILLION) as at April 30, 2012 $216.5 Invests primarily in a diversified portfolio of dividend-paying US equities Takes advantage of US sectors not typically available in Canada such as health care and technology Invests in US-domiciled companies with a multinational reach that can tap into the growth potential of emerging markets Delivers long-term growth potential and consistent monthly income Finding the sweet spot between risk and return 26

27 Sentry Diversified Total Return Fund Investment strategy details Investment style INCEPTION DATE Jul. 28, 2005 AUM (MILLION) as at April 30, 2012 $217.9 LARGE-CAP MID-CAP SMALL-CAP VALUE BLEND GROWTH Risk meter LOW LOW TO TO HIGH HIGH Performance (as at April 30, 2012) SENTRY DIVERSIFIED TOTAL RETURN FUND AVERAGE ANNUAL COMPOUND RETURNS (SERIES A) 1 YEAR 3 YEAR 5 YEAR SINCE INCEPT % 9.6% 1.2% 4.4% Finding the sweet spot between risk and return 27

28 Sentry Precious Metals Growth Fund Investment strategy details Investment style INCEPTION DATE Dec. 24, 1997 AUM (MILLION) as at April 30, 2012 $901.8 LARGE-CAP MID-CAP SMALL-CAP VALUE BLEND GROWTH Risk meter LOW LOW TO TO HIGH HIGH Performance (as at April 30, 2012) SENTRY PRECIOUS METALS GROWTH FUND AVERAGE ANNUAL COMPOUND RETURNS (SERIES A) 1 YEAR 3 YEAR 5 YEAR 10 YEAR SINCE INCEPT % 29.8% 9.3% 17.5% 13.2% Finding the sweet spot between risk and return 28

29 Sentry Tactical Bond Fund Investment strategy details Risk meter INCEPTION DATE May 28, 2010 LOW LOW TO TO HIGH HIGH AUM (MILLION) as at April 30, 2012 $193.5 Performance (as at April 30, 2012) SENTRY TACTICAL BOND FUND AVERAGE ANNUAL COMPOUND RETURNS (SERIES A) 3 MONTH 6 MONTH 1 YEAR SINCE INCEPT. 1.8% 4.8% -1.7% 2.3% Finding the sweet spot between risk and return 29