NEI Northwest Global Equity Fund

Transcription

1 Interim Management Report of Fund Performance As at March 31, 2017 This interim Management Report of Fund Performance contains financial highlights but does not contain either interim or annual financial statements of the investment fund. You can obtain a copy of the interim or annual financial statements at your request, and at no cost, by calling , by writing us at NEI Investments L.P., 151 Yonge Street Suite 1200, Toronto, ON M5C 2W7 or by visiting our website at or SEDAR at Security holders may also contact us using one of these methods to request a copy of the investment fund's proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure. Management Discussion of Performance Investment Objective and Strategies The Fund aims for long-term growth by investing primarily in foreign equity securities across all market capitalizations. The Fund is usually invested in large and medium sized well-capitalized foreign (including the United States) companies, which are listed on principal global stock exchanges. The balance of the Fund s assets is short-term fixed income securities. Risk The risks of investing in the Fund are unchanged from the prior year and remain as discussed in the prospectus. The Fund is suitable for investors with an average tolerance for risk. Since the Fund makes its investments in other currencies, investors are subject to foreign exchange fluctuations. Any changes in the Fund have not affected the overall level of risk of the Fund. Results of Operations The NEI Northwest Global Equity Fund s Series A units returned 12.66% for the six months ended March 31, 2017 compared with a return of 18.62% for the benchmark explained below. Unlike the benchmark return, the Fund s returns are after the deduction of fees and expenses paid by the Fund. Performance differences between series of units are mainly attributable to management fees charged to each series. Refer to the Past Performance section for the details of returns by series. The benchmark index for this fund is the MSCI World Index. I n t e r i m M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e 1

2 Yearly Comparison of Holdings Comparison Period March 31, 2016 to March 31, 2017 The following tables summarize material changes, new and exited positions of individual securities within the Fund during the period whereby materiality of changes is defined as 1% of the current year NAV. Name Material Changes Change in NAV Ownership (%) Symantec Corporation Unilever Name New Positions % of Current Year NAV Amazon.com 0.71 Asahi Glass Company 0.66 Ashtead Group 0.94 Atos Origin 1.04 Bank of America 1.11 Bank of China, Class H 0.68 Charoen Pokphand Foods Public Company 0.53 Cummins 0.93 Fresenius SE & Co Humana 0.69 Iida Group Holdings Co L3 Technologies 1.03 Mitsubishi UFJ Financial Group 0.55 NN Group 1.43 OSRAM Licht 0.78 Packaging Corporation of America 1.03 Qualicorp 0.75 Roche Holding 0.66 Sberbank, ADR 0.63 Union Pacific Corporation 0.89 Wolseley i Group 1.05 AMN Healthcare Services 0.57 Becle S.A.B. De C.V British American Tobacco 2.42 Canadian Dollar 0.00 Celgene Corporation 1.19 Compass Group 1.21 Exited Positions Atea Compagnie Financià re Richemont GEA Group Bayer Halliburton Company Kellogg Company Oracle Corporation Vodafone Group Amdocs American Express Company Baxter International Merck Sky Verizon Communications BASF BB&T Corporation Caterpillar Compagnie Gà nã rale Michelin HeidelbergCement Teradyne 2 I n t e r i m M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e

3 Factors That Have Affected Performance NEI Northwest Global Equity Fund Equities markets continued their upward trend in the first quarter of 2017, extending the brisk post-election rally of late 2016 capping the 6-month period with strong total returns. The advance was far from uniform, however, with significant leadership reversals seen during the period. The prior strong rallies in infrastructure related industrials and financial services sectors faded in the first quarter of 2017, as early investor enthusiasm for the republican pro-growth, tax-reform and deregulation agenda in the US began to show signs of waning. This left for value to fall out of favor as the period moved along in favor of growth. Additionally, the previously lagging international markets, especially the emerging variety, closed the gap with the United States in the latter part of the period thanks to tempting relative valuations and a weakening US Dollar. Perceived negative impacts to global trade pertaining to Trump s protectionism also faded as the period moved along. Much of the sentiment shift stemmed from the failure in March to repeal and replace the Affordable Care Act raising doubts of potential implementation of other aspects of the Trump agenda. Emerging Markets were beneficiaries with the MSCI Emerging posting of total return of +6.8% in US dollar terms. The European region also fared well with the MSCI Europe Index returning +7% in USD terms. Despite a stronger Yen, Japan trailed its global peers with the MSCI Japan returning +4.3% hampered relatively by uneven economic and earnings performance. Despite continuing solid returns, underscored by a series of new record highs for the US market, the republican failure to revamp health care in March, tempered optimism broadly for regulatory, tax reforms and infrastructure growth. Despite this, the strong returns in the months following the US election carried much of the strength in returns with the S&P 500 finishing with a +10.1% advance in USD terms (+11.75% in CAD terms). Performance headwinds were evident in the period highlighted by the portfolio s return lagging the MSCI ACWI Index. Stock selection was challenged by the latest round of style and sector leadership rotation. The sub-advisor also encountered stock specific challenges, many of which featured positive earnings surprise, yet were thwarted by cautious longer-term management guidance. Lower beta/defensive posture during risk rallies explains a large part of the portfolio s underperformance as the highest quintile of beta significantly outperformed the lowest quintile; Spread of +12% leaving for a significant negative allocation effect to the portfolio s downside protection strategy. The portfolio benefitted from stock selection within the financial sector led by positions within the insurance industry, most notably Unum and Prudential Financial. President Trump and his administration's speculative initiatives agenda leave for the expectation of less regulation and lower taxes. This is growth positive. Lower corporate taxes, large scale deficit financed fiscal stimulus and deregulation should result in higher growth and higher inflation expectations. This suggests the yield curve steepening can persist leaving for upside to bank and life insurance earnings and valuations. Large exposure to the health care sector, which usually are defensive in nature and protects on the downside, did not protect due to concerns over government pricing controls and rising sentiment for earnings recovery over earnings growth. Recent Developments 2017 has started off strong for equity markets and remains in a favourable relative position for the rest of the year. Corporate profits are returning to health as the sharp pick up in the US Dollar as well as the significant downturn in commodity prices are seemingly behind us. Multiple rerating is unlikely to push further advances in equity prices given higher valuations leaving earnings growth as the main upside catalyst to prices. While markets are likely to deal with bouts of volatility as the President and Congress try to make good on policy change rhetoric and fiscal stimulus coupled with Brexit developments, earnings globally are coming through and will likely drive the markets next leg. Policy remains a source of upside risk to equities in the sub-advisor s opinion. I n t e r i m M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e 3

4 The past year has been notably challenging for downside-protection-orientation amid the multiple brisk pro-risk rallies of the past year. Indeed, most forms of defensive equity have been left behind in this environment, with the widely followed Minimum Volatility benchmarks capturing only about one-half of the aggregate market advances in the past 12 months. Perhaps it s no irony that the recent shortfalls for such strategies followed directly on a period of immense popularity in the prior two years, particularly in the smart beta ETF arena. Again, maintaining a consistent downside risk protection discipline will remain the subadvisor s mantra, but within the flexible opportunistic framework that the long-term success of the sub-advisor s strategy was built. The sub-advisor reiterate that the customary growth premiums and valuation discounts embedded in the portfolio are among the best they have seen over time, providing compelling opportunities, in the sub-advisor s opinion, on a forward-looking basis once GARP style attributes inevitably return to favour. The sub-advisor believes that on a prospective basis, it is a positive backdrop that a large and growing proportion of trading in the market being conducted without regard to the fundamental differentiation of individual companies, sets the stage for a richer opportunity set. The portfolio continues to place emphasis on stocks with improving business fundamentals, rising investor expectations and attractive relative valuations. Stock selection remains the primary source to generate outperformance, and the sub-advisor continues to primarily focus on large- and mid-cap companies with selective exposure to smaller companies. The portfolio continues to pursue its borderless approach across a truly global opportunity set of both developed and emerging markets. The sub-advisor invests where they see the most compelling growth opportunities with attractive valuations, rather than positioning in relation to a market index. Financial Notes HST Following the introduction of a single harmonized tax HST levy and collection system on July 1st, 2010 Investment Funds had to change the way in which government taxes are charged to the Funds. The new rules require HST to be calculated and charged based on a blended tax rate derived from the residency of the unitholders and the current value of their units. This blended rate is required to be calculated and updated periodically and the table below indicates the current rate being charged until the Fund s next year end as well as the most recent completed period s rate for comparison. NEI Northwest Global Equity Fund For the Period Ending September 30, 2016 September 30, 2017 Series A 12.30% 12.26% Series F 13.26% 13.26% Effective April 1st, 2013, British Columbia replaced the 12% HST with separate PST and GST. A 5% GST rate is applicable going forward. Prince Edward Island introduced a new HST rate of 14%. On January 1st, 2013, Quebec increased the combined tax rate charged on the QST portion of taxable services from 14.95% to %. 4 I n t e r i m M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e

5 Accounting Standards The Fund's financial statements have been prepared in compliance with International Financial Reporting Standards ("IFRS"), applicable to the preparation of financial statements. The Funds adopted this basis of accounting in 2015, as required by the Canadian Securities Administrators and the Canadian Accounting Standards Board. Related Party Transactions Northwest and Ethical Investments L.P NEILP is the Manager, the Trustee, the Fund Manager and the Registrar of the Fund. NEILP is 50% indirectly owned by the Federation des Caisses Desjardins du Quebec (Federation) and 50% owned by five Provincial Credit Union Centrals. NEILP charges the Funds a fixed administration fee in place of certain variable expenses. NEILP in turn, pays all operating expenses of the Fund, other than specified fund costs (e.g. the fees and expense of the Independent Review Committee, taxes, and brokerage commissions) which include payments to related parties of which the Federation is a significant owner. These services are in the normal course of operations and are measured at an exchange amount that is consistent with other independent parties. At the end of the period, the accrued expenses payable to related third parties are listed below. Where applicable the amounts received from underlying funds during the period are also presented. September 2016 March 2017 Accrued Expenses Payable to Related Parties 65,612 65,195 The Fund s sub advisors may place a portion of their fund transactions with brokerage firms which are affiliates of NEILP; provided that the affiliates trade execution abilities and costs are comparable to those of non-affiliated qualified brokerage firms. The Fund is distributed through Credential Asset Management Inc., Credential Securities Inc., Desjardins Securities Inc., Desjardins Financial Services Firm Inc., Desjardins Financial Securities Investments Inc., and Gestions SFL Inc., and other nonrelated parties by way of shared ownership. NEILP pays to these parties distribution and servicing fees based on a percentage of the daily values of the units of each held by the dealer s clients and additionally, in some cases, on the amount of initial purchase. This document contains forward-looking statements. Such statements are generally identifiable by the terminology used, such as plan, anticipate, intend, expect, estimate, or other similar wording. These forward-looking statements are subject to known and unknown risks and uncertainties and other factors which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic, market and business conditions; fluctuations in securities prices, fluctuation in interest rates and foreign currency exchange rates; and actions by governmental authorities. Future events and their effects on the fund may not be those anticipated by us. Actual results may differ materially from the results anticipated in these forwardlooking statements. We do not undertake, and specifically disclaim, any obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise. I n t e r i m M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e 5

6 Financial Highlights The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for each of the past five years, as applicable. Net Assets per Unit (1) Series Period Net Assets, Beginning of Period Total Revenue Increase (Decrease) from Operations: Total Expenses Realized Gains (Losses) Unrealized Gains (Losses) Commissions and Other Portfolio Transaction Costs (2) Total Increase (Decrease) from Operations (3) From Income (Excluding Dividends) Distributions: From From Underlying Dividends Funds (6) A Mar N/A From Capital Gains Return of Capital Total Distributions (4,5) Sept N.A N/A Sept N/A N/A Sept N/A Sept N/A Sept N/A F Mar N/A Sept N.A N/A Sept N/A N/A Sept N/A Sept N/A Sept N/A I Mar N/A Sept N.A N/A Sept N/A N/A Sept N/A Sept N/A Sept N/A (1) All per unit figures presented in 2017, are referenced to net assets determined in accordance with IFRS and are derived from the Fund's unaudited annual financial report for the period ended March 31, The beginning of period net assets per unit of 2015 and net assets per unit for prior periods were derived from the Fund's audited annual financial statements that were prepared in accordance with Canadian GAAP as defined in Part V of the CPA Handbook for prior periods. (2) From March 31, 2015, Commissions and other portfolio transaction costs are included in Expenses. (3) Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of units outstanding over the financial period. (4) Distributions were paid in cash or reinvested in additional units of the Fund. (5) Distributions (if any) that may have been made that included return of capital in excess of short term earnings were made to minimize disruption and provide stability to investors who have elected to take their distributions in the form of cash, and as disclosed in the Simplified Prospectus. These amounts are reviewed at each calendar yearend and management engages in discussions with the sub-advisor to determine the most applicable strategy on a go forward basis and will take any action(s) as needed for the long term stability of the Fund. (6) On March 31, 2017, distributions from underlying funds are presented separately. Previously, those amounts were split between the different type of revenues. Net Assets, End of Period 6 I n t e r i m M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e

7 Ratios and Supplemental Data Series Period Total Net Asset Value (000 s of $) Number of Units Outstanding (000 s) Management Expense Ratio (%) (1) Management Expense Ratio before Waivers and Absorptions (%) Trading Expense Ratio (%) (2) Portfolio Turnover Rate (%) (3) Net Asset Value per Unit ($) A Mar , , Sept , , Sept , , Sept , , Sept , , Sept , , F Mar Sept Sept Sept Sept Sept I Mar , , N/A N/A Sept , , N/A N/A Sept , , N/A N/A Sept , , N/A N/A Sept , , N/A N/A Sept , , N/A N/A (1) Management expense ratio is based on total expenses (excluding commissions and other portfolio transaction costs, as well as withholding taxes) for the stated period and is expressed as an annualized percentage of daily average net asset value during the period. (2) The trading expense ratio represents total commissions and other Fund transaction costs expressed as an annualized percentage of daily average net asset value during the period. (3) The portfolio turnover rate indicates how actively the Fund's subadvisor manages its investment holdings. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the period. The higher a fund s portfolio turnover rate in a period, the greater the trading costs payable by the Fund in the period, and the greater the chance of an investor receiving taxable capital gains in the period. There is not necessarily a relationship between a high turnover rate and the performance of a fund. Certain turnover rates for September 2011 were restated due to a formula inconsistency. I n t e r i m M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e 7

8 Management Fees The Manager is responsible for the management, supervision and administration of the Fund. The Manager receives from the Fund management fees, before HST, calculated daily on the net asset value of the Fund at an annual rate shown below. The management fee covers the cost of investment advisory fees, sales, marketing, and distribution expenses of the Fund. In addition, the Manager may pay a trailer fee to dealers out of this management fee. The trailer fee is a percentage of the average daily value of the units of the Fund held by the dealer s clients. The following table shows the major services paid for out of management fees as a percentage of the management fee for all series of the Fund: Management Fee Investment Advisory and Other Fees Trailer Fee Series A 2.00% 80.6% 19.4% Series F 1.00% 100.0% N/A (1) (1) No trailer fees are paid in respect of any Series F units of the Fund Past Performance The following charts and tables show the past performance for each series of units of the Fund and will not necessarily indicate how the Fund will perform in the future. The information shown assumes that distributions made by the Fund in the periods shown were reinvested in additional units of the relevant series of the Fund. In addition, the information does not take into account sales, redemption, distribution or other optional charges that would have reduced returns or performance. Year-by-Year Returns The following charts show the annual performance for each series of units of the Fund for each period shown and illustrate how the Fund s performance has varied from period to period. The charts indicate how much an investment made on the first day of each financial period would have grown or decreased by the last day of each financial period. Series A Series F Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Mar Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Mar-17 8 I n t e r i m M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e

9 Series I Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Mar-17 I n t e r i m M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e 9

10 Annualized Compound Returns NEI Northwest Global Equity Fund The following table shows the annual compound returns for all series of the Fund. All returns are in Canadian dollars, on a total return basis, net of all fees. For comparison, the returns for the benchmark are included. The benchmark index for this fund is the MSCI World Index. The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance. While the Fund uses this benchmark for long-term performance comparisons, it is not managed relative to the composition of the Index. As a result, the Fund may experience periods when its performance is not aligned with the Index, either positively or negatively. Please see the "Results of Operations" section of this report for a discussion of recent performance results. Group/Investment 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception MSCI ACWI NR USD MSCI World NR USD NEI Northwest Global Equity A NEI Northwest Global Equity F NEI Northwest Global Equity I I n t e r i m M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e

11 Summary of Investment Fund as at March 31, 2017 Total Net Asset Value: $240,967,796 Top 25 Positions (Long Positions) % 1 Cash and Equivalents J.P. Morgan Chase & Co Microsoft Corporation Alphabet, Class A British American Tobacco Amgen Cisco Systems AbbVie Synopsys Anthem Unum Group Gilead Sciences CBS Corporation NN Group Exelon Corporation Accenture, Class A Prudential Financial Merck & Co Suzuki Motor Corporation Compass Group Swiss Life Holding Celgene Corporation Waste Management Wal-Mart Stores EOG Resources 1.2 Total 45.4 There is no short position in this Fund. "Others" geographic category includes all countries representing less than 5% of the Fund s net asset value The Summary of Investment Fund may change due to ongoing Fund transactions of the investment fund. I n t e r i m M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e 1 1

12 Drill Down Total Net Asset Value Mix % Equities-Foreign 41.9 Equities-U.S Cash and Equivalents 4.6 Equities-Canadian 0.5 Mortgage-Backed Securities 2.9 Total Drill Down Sector Allocation % Information Technology 19.3 Industrials 12.6 Health Care 15.9 Telecommunication Services 1.9 Financials 19.1 Consumer Staples 8.2 Materials 2.2 Consumer Discretionary 7.6 Energy 2.3 Cash and Equivalents 4.6 Mortgage-Backed Securities 2.9 Utilities 3.2 Total Drill Down Geographic Distribution % Other 42.7 United States 52.1 Cash and Equivalents 4.6 Canada 0.5 Total I n t e r i m M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e