2015 Semi-Annual Management Report of Fund Performance

Transcription

1 (the Fund ) For the period from November 13, 2014 to March 31, 2015 (the period ) Manager: BMO Investments Inc. (the Manager or BMOII ) Portfolio manager: BMO Asset Management Inc., Toronto, Ontario (the portfolio manager ) Sub-advisor: F&C Management Limited, London, England 2015 Semi-Annual Management Report of Fund Performance This semi-annual management report of fund performance contains financial highlights but does not contain the complete semi-annual or annual financial statements of the Fund. If the semi-annual financial statements of the Fund do not accompany the mailing of this report, you may obtain a copy of the semi-annual or annual financial statements at your request, and at no cost, by calling , by writing to us at BMO Investments Inc., First Canadian Place, 100 King Street West, 43rd Floor, Toronto, Ontario, M5X 1A1 or by visiting our website at or SEDAR at You may also contact us using one of these methods to request a copy of the Fund s proxy voting policies and procedures, proxy voting disclosure record and/or quarterly portfolio disclosure. MANAGEMENT DISCUSSION OF FUND PERFORMANCE Results of Operations During the period, the Fund s total net asset value increased to approximately $10 million. Series A units of the Fund returned 7.62%. Please see the Past Performance section for information on the performance returns of the Fund s other series. During the period, much of the performance came from equities, which returned over 13% as represented by the MSCI ACWI Quality Index (C$). Bond prices extended their gains, with yields continuing to fall as geopolitical and financial challenges in emerging market countries put global capital markets on the defensive. The crisis in Ukraine, a sharp devaluation of the Argentinian peso, political and economic turmoil in Venezuela and doubts about the Chinese banking system and real economy, pulled capital away from emerging markets and directed it back into developed market bonds. As a result, the German benchmark bund touched new historic lows of 20 basis points by the end of the period. The U.K. 10-year Gilt was also near all-time lows, ending the period at 1.59% from 2.18% in mid-november Yields are currently negative in the two- and five-year terms in many countries, including Spain. Although confidence returned later in the period, returns for most equity markets around the world were muted, and interest-sensitive sectors such as government bonds, utilities and REITs, which had underperformed since the U.S. Federal Reserve Board began its tapering (i.e., monetary stimulus reduction) in the fall, added value in the last three months of the period. Both bond and equity components contributed to performance. The Fund had a slight overweight exposure to equities, underweight exposure to fixed income and was fairly neutral in terms of currencies. Much of the performance contribution came from the equity component of the Fund. Early on, the portfolio manager made the decision to overweight exposure to equities and that allocation decision was rewarded. Within equities, the Fund s sector allocation emphasised the Industrials, Consumer Discretionary and Information Technology sectors, while maintaining an underweight exposure to Financials, Energy and Materials sectors. A slight overweight exposure to the U.S. equity market benefitted the Fund, notably in Health Care. Fund holdings UnitedHealth Group Incorporated, Anthem, Inc. and Medtronic PLC were amongst the best performing securities for the Fund. Good stock selection in Japan also contributed to performance with the likes of Panasonic Corp. performing well. Within the fixed income component, the Fund maintained an underweight exposure to both U.S. and Japanese bonds, while overweighting its exposure to European bonds. The Fund also adopted an overweight position in the corporate bond sector and an underweight position in the securitised bond sector. A more positive U.S. macroeconomic picture and equity market optimism have not yet led to higher bond yields, probably because of easier monetary policies by the Bank of Japan, European Central Bank ( ECB ) and the Peoples

2 Bank of China. Credit spreads (i.e., difference in yields) have returned to more normal levels and higher profit margins and easier monetary policy, given deflationary pressures in many parts of the world, point to low risk of recession and lower overall volatility. While the portfolio manager believes that the optimism surrounding the ECB s quantitative easing programme (i.e., monetary policy used by central banks to increase money supply) is somewhat exaggerated, it remains a substantial positive for European equity markets despite structural challenges and the Greek debt crisis. Lower commodity prices, notably crude oil prices, bode well for importers such as Japan, China, India and Taiwan. Chinese equities have rebounded strongly on the back of central bank credit easing and Chinese authorities efforts to crack down on the shadow banking system and corruption. Japan should continue to profit from lower commodity prices, a lower Japanese yen and additional fiscal and monetary stimuli. While U.S. equity markets have set new historic closing highs, lower profit expectations are keeping expectations for the S&P 500 Index muted. The Manager confirms that the Fund did not borrow money during the period. For information on the Fund s performance and composition, please refer to the Past Performance section and Summary of Investment Portfolio section of this report. Recent Developments Although a number of risks remain, the portfolio manager believes that they will continue to witness a gradual recovery led by the U.S. Emerging markets remain tentative on the back of a strong U.S. dollar. The challenges that China is facing as it transitions from an investment-led economy to a consumer-led model, will be daunting. The inflationary environment is expected to remain relatively low, although the portfolio manager is witnessing mild wage pressure in both the U.S. and the U.K., which could entice both countries respective central banks to start raising key lending rates. The divergence in monetary policies, however, with the U.S. Federal Reserve Board, and possibly the Bank of England, intending to start normalising interest rates and the ECB and the Bank of Japan stimulating their respective economies through loose monetary policies and quantitative easing programmes, could bring some volatility in equity markets in the near future. Valuations have certainly increased and there is a potential for a mild correction in the near future. Any such period would be considered a buying opportunity for the portfolio manager. RELATED PARTY TRANSACTIONS BMO Investments Inc., an indirect, wholly-owned subsidiary of Bank of Montreal ( BMO ), is the Manager of the Fund. From time to time, the Manager may, on behalf of the Fund, enter into transactions or arrangements with or involving other members of BMO Financial Group, or certain other persons or companies that are related or connected to the Manager (each a Related Party ). The purpose of this section is to provide a brief description of any transaction involving the Fund and a Related Party. Portfolio Manager The Fund s portfolio manager is BMO Asset Management Inc. ( BMOAM ), an affiliate of the Manager and F&C Management Limited, also an affiliate of the Manager, is a sub-advisor to BMOAM. BMOAM provides portfolio management services to the Fund. BMOAM receives from the Fund a management fee based on assets under management, calculated daily and payable monthly. Administration Fees and Operating Expenses The Fund pays a fixed administration fee to the Manager in respect of each series other than Series I. The Manager in return pays the operating expenses of these series of the Fund, other than certain specified expenses that are paid directly by the Fund ( Fund Expenses ). Fund Expenses include interest or other borrowing expenses, costs and expenses related to the operation of the Fund s Independent Review Committee ( IRC ), including fees and expenses of IRC members, taxes to which the Fund is or might be subject, and costs associated with compliance with any new governmental or regulatory requirement introduced after December 1, 2007 (e.g., cost associated with the production of fund facts, filed in compliance with the relevant amendments to NI ). Fund Expenses are allocated proportionately among the relevant series. If the Fund Expenses are specific to a series, the Fund Expenses are allocated to that series. The fixed administration fee is calculated as a fixed annual percentage of the average net asset value of each relevant series of the Fund. Separate fees and expenses are negotiated and paid by each Series I investor. Further details about the fixed administration fee and/or Fund Expenses can be found in the Fund s most recent simplified prospectus at or

3 Distribution Services The Manager markets and distributes the Fund through Bank of Montreal branches and/or (depending on the series) through registered dealers and brokers, including BMO InvestorLine Inc. and BMO Nesbitt Burns Inc., both affiliates of the Manager. The Manager pays to these affiliates a service fee called a trailing commission based on the average daily value of the units and/or shares that are held in investor accounts. This service fee is paid monthly or quarterly and varies by purchase option and by series. Management Fees The Manager is responsible for the day-to-day management of the business and operations of the Fund. The Manager monitors and evaluates the Fund s performance, pays for the investment advice provided by the Fund s portfolio manager and provides certain administrative services required by the Fund. As compensation for its services, the Manager is entitled to receive a management fee payable monthly, calculated based on the daily net asset value of each series of the Fund at the maximum annual rate set out in the table below. As a Percentage of Management Fees General Maximum Annual Administration, Management Dealer Investment Fee Rate* Compensation Advice and Profit % % % Series A Units Advisor Series Units Series F Units Series D Units Series I Units * For Series I Units, separate Series I fees are negotiated and paid by each Series I investor. Because the Manager pays no distribution, service or trailing fees on Series I Units, Series I Units will have lower Series I fees than the management fees for Series A Units. 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 the periods indicated. The Fund s Net Assets per Unit (1) Series A Units Total revenue $ 0.07 Total expenses (2) $ for the period $ 0.09 for the period $ 0.70 from operations (3) $ 0.76 (excluding dividends) $ 0.00 From dividends $ From capital gains $ 0.04 Total Annual Distributions (4) $ 0.04 Net assets, end of period $ Advisor Series Units Total revenue $ 0.07 Total expenses (2) $ for the period $ 0.19 for the period $ 0.48 from operations (3) $ 0.64 (excluding dividends) $ 0.00 From dividends $ 0.00 From capital gains $ 0.05 Total Annual Distributions (4) $ 0.05 Net assets, end of period $ 10.71

4 Series F Units Series I Units Total revenue $ 0.08 Total expenses (2) $ for the period $ 0.54 for the period $ from operations (3) $ 0.49 (excluding dividends) $ From dividends $ 0.01 From capital gains $ 0.05 Total Annual Distributions (4) $ 0.06 Net assets, end of period $ Series D Units Total revenue $ 0.08 Total expenses (2) $ for the period $ 0.25 for the period $ from operations (3) $ 0.24 (excluding dividends) $ 0.01 From dividends $ 0.00 From capital gains $ 0.04 Total Annual Distributions (4) $ 0.05 Net assets, end of period $ Total revenue $ 0.06 Total expenses (2) $ for the period $ 0.03 for the period $ 0.77 from operations (3) $ 0.85 (excluding dividends) $ 0.00 From dividends $ 0.02 From capital gains $ 0.04 Total Annual Distributions (4) $ 0.06 Net assets, end of period $ * Initial net assets. (1) This information is derived from the Fund s unaudited financial statements. (2) Includes commissions and other portfolio transaction costs and withholding taxes. (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. This table is not intended to be a reconciliation of beginning to ending net assets per unit. (4) Distributions were either paid in cash or reinvested in additional units of the Fund, or both. The allocation of the distributions from each of income, dividends, capital gains and return of capital is based on the Manager s estimate as at March 31 and September 30 of the period shown, which is the Fund s interim and financial year-end, respectively. However, the actual allocation of distributions is determined as at December 15, the Fund s tax year-end. Accordingly, the actual allocation among income, dividends, capital gains and return of capital may differ from these estimates. Ratios and Supplemental Data Series A Units Total net asset value (000 s) (1) $ 9,419 outstanding (000 s) (1) 879 (2) % 2.13 before waivers or absorptions % 2.13 Net asset value per unit $ 10.71

5 Advisor Series Units Total net asset value (000 s) (1) $ 382 outstanding (000 s) (1) 36 (2) % 2.09 before waivers or absorptions % 2.09 Net asset value per unit $ Series F Units Total net asset value (000 s) (1) $ 47 outstanding (000 s) (1) 4 (2) % 0.91 before waivers or absorptions % 1.44 Net asset value per unit $ Series D Units Total net asset value (000 s) (1) $ 32 outstanding (000 s) (1) 3 (2) % 1.13 before waivers or absorptions % 2.30 Net asset value per unit $ PAST PERFORMANCE The Fund s performance information assumes that all distributions made by the Fund in the periods shown were used to purchase additional securities of the Fund and is based on the net asset value of the Fund. The performance information does not take into account sales, redemption, distribution or other optional charges that, if applicable, would have reduced returns or performance. Please remember that how the Fund has performed in the past does not indicate how it will perform in the future. The returns of each series may differ from one another for a number of reasons, including if the series was not issued and outstanding for the entire reporting period and because of the different levels of management fees and expenses allocated and payable by each series. Year-by-Year Returns The Fund commenced operations on November 13, The following bar charts show the performance for each series of the Fund for the financial period November 13, 2014 to March 31, The charts show in percentage terms how an investment made on the inception day of the Fund would have increased or decreased by the last day of the financial period. Series A Units Series I Units Total net asset value (000 s) (1) $ 1 outstanding (000 s) (1) 0 + % before waivers or absorptions + % Net asset value per unit $ Operating expenses are paid by BMOII and management fees are paid directly to BMOII as negotiated with the investor. (1) This information is provided as at March 31, (2) is based on total expenses (excluding commissions and other portfolio transactions costs) for the stated period and is expressed as an annualized percentage of daily average net asset value during the period. (3) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. (4) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio manager manages its portfolio investments. A portfolio turnover rate of 10 is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher a fund s portfolio turnover rate in a year, the greater the trading costs payable by the Fund in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of a fund Advisor Series Units

6 Series F Units Series D Units Series I Units (1) For the period beginning November 13, 2014 to March 31, 2015.

7 SUMMARY OF INVESTMENT PORTFOLIO As at March 31, 2015 % of Net Portfolio Allocation Asset Value United States 46.2 United Kingdom 8.0 Canada 7.0 Cash/Receivables/Payables 6.1 Germany 5.7 Japan 4.2 Australia 3.6 France 2.6 Italy 2.4 Spain 1.7 Austria 1.6 China 1.4 Switzerland 1.4 Netherlands 1.3 South Korea 1.3 Sweden 1.2 Taiwan 1.0 Other 3.3 Total Portfolio Allocation Sector Allocation Bonds and Debentures 33.0 U.S. Equities 29.6 International Equities 21.4 Money Market Investments 8.0 Cash/Receivables/Payables 6.1 Canadian Equities 1.9 Total Sector Allocation % of Net Top 25 Holdings Asset Value Issuer Cash/Receivables/Payables 6.1 Government of Canada, 1.50 Feb 1, United States Treasury Notes, 0.37 Apr 30, United States Government, Treasury Bills, 0.00 Apr 2, M Company 2.8 EMC Corporation 2.6 DIRECTV 2.3 Southwest Airlines Co. 2.3 United States Treasury Notes, 2.37 Aug 15, United Kingdom Treasury Gilt, 1.75 Jan 22, ebay Inc. 1.8 Morgan Stanley 1.8 Becton, Dickinson and Company 1.7 UnitedHealth Group Incorporated 1.7 Heta Asset Resolution AG, Notes, Subordinated, 2.37 Dec 13, Archer Daniels Midland Company 1.5 Kohl s Corporation 1.4 United States Treasury Notes, 1.62 Aug 31, United States Treasury Notes, 0.25 Feb 29, Edwards Lifesciences Corp. 1.3 Samsung Electronics Co., Ltd., GDR 1.3 Medtronic PLC 1.2 Anthem, Inc. 1.2 Republic of Italy, Unsecured, 2.50 Dec 1, Federal Republic of Germany, Series 167, Unsecured, 1.00 Oct 12, Top Holdings as a Percentage of Total Net Asset Value 52.7 Total Net Asset Value $9,881,262 The summary of investment portfolio may change due to the Fund s ongoing portfolio transactions. Updates are available quarterly.

8 and BMO Investments Inc. First Canadian Place, 43rd Floor, 100 King Street West Toronto, ON M5X 1A1 For more information please call BMO Investment Centre at (investors who purchased BMO Mutual Funds through a BMO Bank of Montreal branch or BMO Online Banking) or call Client Services toll-free at (investors who purchased BMO Mutual Funds through a full-service or discount broker) or at (investors who purchased Series NBA and NBF through a full-service or discount broker). This document may contain forward-looking statements relating to anticipated future events, results, circumstances, performance or expectations that are not historical facts but instead represent our beliefs regarding future events. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed or implied in the forward-looking statements. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including but not limited to market and general economic conditions, interest rates, regulatory and statutory developments, the effects of competition in the geographic and business areas in which the Fund may invest in and the risks detailed from time to time in BMO Mutual Funds simplified prospectus. We caution that the foregoing list of factors is not exhaustive and that when relying on forward-looking statements to make decisions with respect to investing in the Fund, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Due to the potential impact of these factors, BMO Investments Inc. does not undertake, and specifically disclaims, any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law. Registered trade-mark of Bank of Montreal, used under licence. Trade-mark of Bank of Montreal, used under licence. BMO Mutual Funds are offered by BMO Investments Inc., a financial services firm and separate legal entity from Bank of Montreal.