NEI Environmental Leaders Fund

Transcription

1 Interim Management Report of Fund Performance As at March 31, 2018 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 investment objective of the Fund is to achieve long-term capital growth by investing primarily in equity and equity-related securities of companies located globally. The Fund follows a socially responsible approach to investing, as described in Part A of the prospectus. Risk The risks associated with investing in the Fund remain as discussed in the prospectus. The Fund is suitable for investors with a medium tolerance for risk, particularly those who are investing for the long term and are seeking growth through long term capital appreciation. Results of Operations The NEI Environmental Leaders Fund s Series A units returned 10.01% for the six months ended March 31, 2018 compared with a return of 11.02% 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 for this fund is the MSCI ACWI (C$). 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 September 30, 2017 to March 31, 2018 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 (%) Praxair 1.02 Sealed Air 1.10 TE Connectivity 2.00 Name New Positions % of Current Year NAV Aptiv 2.98 Autodesk 1.64 China Everbright International 1.30 Zhuzhou CRRC Times Electric Co 2.44 Exited Positions Aptiv (INACTIF) HORIBA Itron Kemira Leroy Seafood Group Linde LKQ Corporation Roper Technologies Thermo Fisher Scientific Inc Toro Company 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 The sub-advisor believes the overall fundamental economic picture remains supportive for global equity portfolios. While central banks are in the process of normalizing interest rates and monetary conditions, particularly in the United States, the data shows evidence of economies that are in positive growth territory, led by North America. At the same time, equity markets have been in a prolonged upturn and some areas of equity valuations look stretched. Against this backdrop, the fourth quarter of 2017 finished on a strong note, with more cyclical areas of the market, particularly Industrials and Materials, performing well. In contrast, these sectors fell behind in the beginning of 2018 with investor concerns about how rising rates, currency volatility, and trade tariffs might impact global growth. Regionally, share prices from US holdings showed the largest gains during the period. Over the past six-months, the performance for the NEI Environmental Leaders Fund was led by holdings in the environmental sub-sectors of Water Infrastructure, Pollution Control, and Energy Efficiency. Within Water Infrastructure, Xylem (US), Danaher (US) and Ferguson (UK) continued to show their leadership credentials by delivering strong earnings and positive 2018 guidance. Rising adoption of electric ( EV ) and hybrid vehicles around the world is accelerating due to technological advances and consumer concern about air pollution. This acceleration away from petrol and diesel engines is just one approach to tackle urban air pollution and the Fund s exposure to companies across the EV value chain contributed to performance over the period. TE Connectivity (Transport Energy Efficiency, US) continued to power ahead thanks to the rising content and penetration of its connectors and sensors across the auto sector as well as other end markets. Water Utilities globally underperformed during the period. An environment of rising rates combined with region and stock-specific headwinds weighed on water utility holdings. Suez (France) suffered from a profit warning early in the quarter, and in addition, Euro currency strength added to investor anxiety about its outlook. Beijing Enterprise Water (Hong Kong) suffered from weak 2017 results and lower guidance for Pennon Group (UK) fell on concerns about the potential nationalization of UK utilities. Separately, Acuity Brands (Buildings Energy Efficiency, US) saw a weaker share price due to a softer North American lighting market. Recent Developments Whether in the fast-changing area of Transport Energy Efficiency, sought-after products and services in Environmental Testing, or innovative smart water solutions in Water Infrastructure, the portfolio sub-advisor continues to identify high quality growth companies with attractive upside that offer compelling environmental solutions across a wide range of end-markets. The portfolio sub-advisor believes that the overall global economic picture is supportive for equities. Importantly, above market earnings delivery should continue to drive returns for the NEI Environmental Leaders Fund. The fund maintains a balance of both cyclical and defensive names with regard to earnings resiliency during economic cycles. The fund s valuation is at a reasonable premium to global markets, and justified by the long-term superior growth characteristics. The portfolio sub-advisor continues to see the strategy as a compelling long-term investment opportunity with attractive growth characteristics and holdings that are typically under-represented in investor portfolios. 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 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 Environmental Leaders Fund For the Period Ending September 30, 2016 September 30, 2017 Series A 10.00% 9.48% Series F 9.44% 10.28% Series P 9.13% 10.31% Series PF 10.81% 10.83% 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 2017 March 2018 Accrued Expenses Payable to Related Parties 179, ,105 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 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 Sept N.A N/A F Mar N/A Sept N/A Sept N.A N/A I Mar N/A Sept N/A Sept N.A N/A P Mar N/A Sept N/A Sept N.A N/A PF Mar N/A Sept N/A Sept N.A N/A (1) All per unit figures presented in 2018, are referenced to net assets determined in accordance with IFRS and are derived from the Fund's unaudited interim 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) 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 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 , , N/A F Mar , , Sept , , Sept , N/A I Mar , N/A N/A Sept , N/A N/A Sept N/A N/A 0.19 N/A P Mar , Sept , Sept N/A PF Mar , , Sept , , Sept , 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. 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% 78.65% 21.35% Series F 1.00% % N/A (1) Series P 1.75% 71.51% 28.49% Series PF 0.75% % N/A (1) (1) No trailer fees are paid in respect of any Series F or PF 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 N/A N/A N/A N/A N/A N/A N/A N/A Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Mar-18 0 N/A N/A N/A N/A N/A N/A N/A N/A Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Mar-18 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 Series P N/A N/A N/A N/A N/A N/A N/A N/A Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Mar-18 0 N/A N/A N/A N/A N/A N/A N/A N/A Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Mar-18 Series PF N/A N/A N/A N/A N/A N/A N/A N/A Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Mar-18 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 Environmental Leaders 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 for this fund is the MSCI ACWI (C$). The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance. Group/Investment 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception MSCI ACWI NR CAD NEI Environmental Leaders Series A NEI Environmental Leaders Series P NEI Environmental Leaders Series F NEI Environmental Leaders Series PF 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, 2018 Total Net Asset Value: $302,561,132 Top 25 Positions (Long Positions) % 1 Sealed Air Siemens TE Connectivity Cash and Equivalents Suez Legrand Danaher East Japan Railway Ecolab Aptiv Xylem Praxair Wolseley WestRock Company Ingersoll-Rand Company, Class A Kubota American Water Works Company Agilent Technologies Hubbell Waste Management IDEX Philips Lighting Zhuzhou CRRC Times Electric Co Delta Electronics GEA Group 2.2 Total 71.3 "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 52.7 Equities-U.S Cash and Equivalents 3.9 Total Drill Down Sector Allocation % Industrials 44.9 Utilities 11.6 Materials 14.3 Cash and Equivalents 3.9 Consumer Discretionary 5.7 Information Technology 11.8 Health Care 7.8 Total Drill Down Geographic Distribution % Other 52.7 United States 43.5 Cash and Equivalents 0.5 Canada 3.4 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