NEI Money Market Fund

Transcription

1 Annual Management Report of Fund Performance As at September 30, 2017 NEI Money Market Fund This annual 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 objective of the Fund is to conserve capital while maintaining liquidity and achieving regular income. For that purpose, the Fund s assets are primarily invested in short-term money market instruments such as commercial paper and bankers acceptances issued and guaranteed by major Canadian corporations and all financial institutions, including Canadian chartered banks, trust companies and savings and credit unions. The weighted average maturity of the Fund s portfolio does not exceed 90 days. Risk The risks of investing in the Fund remain as discussed in the Prospectus. This Fund is suitable for investors with a low tolerance for risk. Any changes in the Fund have not affected the overall level of risk of the Fund. Results of Operations The NEI Money Market Fund s Series A units returned 0.92% for the twelve months ended September 30, 2017 compared with a return of 0.54% 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 FTSE TMX Canada Canadian Treasury Bill 60 Day Index. A n n u a l 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 September 30, 2016 to September 30, 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 (%) Cash and Equivalents Name New Positions % of Current Year NAV Lower Mattagami Energy,2.228%, Scotiabank, Series DPNT, f.r., Toronto-Dominion Bank, f.r., Canada Housing Trust, 1.75%, CIBC Bank, f.r., Cash and Equivalents 0.12 Royal Bank of Canada,.f.r Canadian Dollar 0.68 Canada Housing Trust, 1.700%, Royal Bank of Canada, 2.26%, Exited Positions National Bank of Canada,2.019%, Canada Housing Trust, f.r., Manufacturers Life I C, 4.21%, Royal Bank of Canada, 2.580%, Cash and Equivalents 2 A n n u a l 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 Positive contributions are mainly due to the asset allocation and curve positioning strategies put forth by the portfolio sub-advisor. Mr Poloz, Bank of Canada s governor, raised overnight interest rates twice by increments of 0.25% in July and September, from 0.50% to 1.00%, although inflationary pressures were absent. Economic growth was more vigorous than initially anticipated and job creation stayed its course. One could argue that the Bank of Canada hiked rates in order to compensate for a quicker resorption of excess capacity relative to initial expectations. The Canadian economy grew at an average annualized rate of 3.80% from July 2016 to July 2017, way above the Bank of Canada s expectations as well as the IMF s. On the other hand, inflation generally remained below 2.00% (with the exception of January and February with, respectively, 2.10% and 2.00%) and most recently sat at 1.40% according to the latest available data (August 2017). The weighted average term to maturity of the Fund was maintained above the benchmark's in an environment exhibiting lacklustre economic growth coupled with low and stable inflation. The asset allocation of the fund was maintained in order to benefit from an elevated exposure to credit spreads. This explains why corporate and bank exposures represented around 80% of the fund s holdings, close to the maximum allowed amount set forth by the investment policy. The steepening of the longer portion of the yield curve allowed the portfolio sub-advisor to gradually position the fund s holdings further out on the curve and increase the portfolio s yield. Floating rate note exposure was maintained throughout the period. Shorter term positions were rolled out further on the curve, keeping the overall risk exposure leveled. Recent Developments The IMF s world growth forecasts were recently revised upwards. Forecast growth for real Canadian GDP went from 1.9% to 3.0% in 2017 and the 2018 print is now expected to reach 2.10%. The Fed also increased its benchmark rate in a similar fashion with an economy being characterized by decent growth, steady job creation and no inflationary pressure. Credit exposures should continue to fare well in this context. In the current environment, the portfolio sub-advisor intends to maintain the average term to maturity above the benchmark's while favouring quality credit exposures. Shorter term credit exposures will be replaced by longer ones to capture the term premium offered by a steep interest rate curve and to lock in higher spreads relative to government exposures. This will likely also allow the fund to benefit from any downward revision to interest rate hike expectations. Close attention will be given to the structure of the short-term curve in order to assess which portion offers the best value relative to expected Bank of Canada moves. Floating Rate Note exposure will be maintained near current levels in order to benefit from higher Canadian Dollar Offered Rate fixings, but their tenure will be managed in order to maximize exposure within policy limits. A n n u a l 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 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 Money Market Fund For the Period Ending September 30, 2016 September 30, 2017 Series A 7.88% 7.92% 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 %. 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 September 2017 Accrued Expenses Payable to Related Parties 28,974 29,551 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. 4 A n n u a l 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 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. A n n u a l 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 Sept 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 Sept N/A I Sept 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 audited annual financial report for the period ended September 30, 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) From September 30, 2016, distributions from underlying funds are presented separately. Previously, those amounts were split between the different type of revenues. Income and Realized gains (losses) have been revised accordingly, if applicable. Net Assets, End of Period 6 A n n u a l 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 Sept , , N/A Sept , , N/A Sept , , N/A Sept , , N/A Sept , , N/A Sept , , N/A F Sept N/A I Sept , N/A N/A 0.00 N/A Sept N/A N/A 0.00 N/A Sept N/A N/A 0.00 N/A Sept N/A N/A 0.00 N/A Sept N/A N/A 0.00 N/A Sept , N/A N/A 0.00 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. A n n u a l 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 0.70% 100.0% 0.0% 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 Historic performance reporting is not permitted until the series has at least 12 months of performance Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 8 A n n u a l 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 Sep-17 A n n u a l 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 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 FTSE TMX Canada Canadian Treasury Bill 60 Day Index. The FTSE TMX Canada Canadian Treasury Bill 60 Day Index is designed to track the performance of Government of Canada Treasury Bills. Each T-Bill index is assumed to always own the current on the run 2-month Government of Canada T-Bill. 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 FTSE TMX Canada Cdn Trsy Bill 60 Day NEI Money Market NEI Money Market Series I FTSE TMX Global Debt Capital Markets Inc( FTDCM ), FTSE International Limited ( FTSE ), the London Stock Exchange Group companies (the "Exchange") or TSX INC. ( TSX and together with FTDCM, FTSE and the Exchange, the Licensor Parties ). The Licensor Parties make no warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE TMX Canadian Universe Bond ( the Index ) and/or the figure at which the said Index stands at any particular time on any particular day or otherwise. The Index is compiled and calculated by FTDCM and all copyright in the Index values and constituent lists vests in FTDCM. The Licensor Parties shall not be liable (whether in negligence or otherwise) to any person for any error in the Index and the Licensor Parties shall not be under any obligation to advise any person of any error therein. TMX is a trade mark of TSX Inc. and is used under licence. FTSE is a trade mark of the FTSE International Limited in Canada and Taiwan, and the London Stock Exchange Group of companies in the rest of the world and is used by FTDCM under licence. 1 0 A n n u a l 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 September 30, 2017 Total Net Asset Value: $41,274,453 Top 25 Positions (Long Positions) % 1 Canada Housing Trust, 1.700%, CIBC Bank, f.r., Lower Mattagami Energy,2.228%, Bank of Montreal, f.r., Greater Toronto Airports Authority, notes, Scotiabank, Series DPNT, f.r., Toronto-Dominion Bank, f.r., Royal Bank of Canada,.f.r Ontario Treasury Bills, Honda Canada Finance, notes, SociAtA de transport de MontrAal, notes, National Bank of Canada, notes, Royal Bank of Canada, 2.26%, Honda Canada Finance, notes, Scotiabank, notes, Toronto-Dominion Bank, notes, National Bank of Canada, notes, Canada Housing Trust, 1.75%, Cash and Equivalents 0.7 Total 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. A n n u a l 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 % Bond-Corporate 41.8 Cash and Equivalents 36.5 Bond-Government of Canada 15.6 Total 93.9 Drill Down Sector Allocation % Bond-Corporate 41.8 Cash and Equivalents 36.5 Bond-Government of Canada 15.6 Total 93.9 Drill Down Geographic Distribution % Canada Total A n n u a l 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