CI American Value Fund

Transcription

1 This annual management report of fund performance contains financial highlights but does not contain the complete annual financial statements of the investment fund. You can get a copy of the annual financial statements at your request, and at no cost, by calling , by writing to us at CI Investments Inc., 2 Queen Street East, Twentieth Floor, Toronto, ON, M5C 3G7 or by visiting our website at or SEDAR at Securityholders 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. INVESTMENT OBJECTIVE AND STRATEGIES The objective of the CI American Value Fund (the Fund ) is to achieve long-term capital growth by investing primarily in a broadly diversified portfolio of American equity securities. To achieve the objective of the Fund the portfolio advisor invests primarily in common shares of larger U.S. companies through following a disciplined value style, focuses on companies that are considered undervalued in relation to their future prospects and offer good absolute and relative value as characterized by measures such as lower-than-average price/book and price/earnings, and higher-than-average dividend yield as compared to the overall market, and using a bottom-up stock selection process to evaluate a company s current position and future prospects. The portfolio advisor may invest in companies located outside of the U.S. and may invest in corporate debt and/or convertible securities. The portfolio advisor uses techniques such as fundamental analysis to assess growth potential of a company. This means evaluating the financial condition and management of a company, its industry and the overall economy. The Fund may use derivatives, but only as permitted by securities regulations. In order to earn additional income, the Fund may also enter into securities lending transactions, repurchase transactions and reverse repurchase transactions, to the extent permitted by securities regulations. RISK There were no changes to the Fund over the period of this report that materially affected the overall level of risk associated with the Fund. The Fund is suitable for investors who want a U.S. equity fund that focuses on value, are investing for the medium and/or long term, and can tolerate medium risk. RESULTS OF OPERATIONS The net asset value of the Fund decreased by $8.3 million to $723.5 million from March 31, 2017 to March 31, The Fund had net redemptions of $53.0 million during the year. The portfolio s performance increased assets by $46.5 million. The Fund paid distributions totalling $1.8 million. Class A units returned 5.5% after fees and expenses for the one-year period ended March 31, Over the same time period, the Fund s benchmark returned 10.5%. The benchmark is the S&P 500 Total Return Index. to earnings upgrades based on strong economic activity combined with tax cuts enacted in December 2017, but fell sharply in February 2018 along with a spike in bond yields and the largest increase in volatility since August Stocks tumbled further in March, with the White House announcing tariffs and ratcheting up trade rhetoric, while revelations about Facebook s handling of user data resulted in calls for increased regulation of technology companies and the U.S. Federal Reserve (Fed) hiked interest rates. The best-performing sectors were information technology and financials. Growth indexes, with their large information technology components, fared better than value indexes. Defensive sectors, including telecommunication services and utilities, had the largest losses. The energy sector also declined more than the broader market. While bond yields rose across the yield curve, the U.S. dollar weakened at most other major currencies on trade concerns and worsening fiscal imbalances. The Fund posted strong absolute returns but still lagged the benchmark. Stock selection was the most significant relative detractor, particularly in the information technology and consumer discretionary sectors. Helping offset some of the losses were underweight allocations in the energy, consumer staples, and telecommunications sectors, among others. Among the most significant individual relative detractors was Universal Display Corporation. After serving as a top performer last year, shares of Universal Display declined despite strong results due to fears about slowing adoption of organic light emitting diode (OLED) phones driven by lower-than-anticipated sales of the iphone X. We expect OLED adoption to continue to increase over time, driving strong free cash flow growth. Among the top contributors to relative results was Applied Materials Inc. Applied Materials shares surged after the company unveiled a new three-year financial outlook illustrating how materials innovation is enabling a new era of computing to make possible the Internet of Things (IoT), big data and artificial intelligence. The company expects record spending on wafer fabrication and display equipment, and as a result is targeting higher levels of profit and cash flow growth in the future. Investments in PTC Inc., Marvell Technology Group Ltd., Centene Corp., Costco Wholesale Corp., DowDuPont Inc., Pfizer Inc., Bank of The Ozarks, MetLife Inc., Molson Coors Brewing Co, Class B and Eastman Chemical Co. were made during the year. The performance of the Fund s other classes is substantially similar to that of Class A units, except for differences in the structure of fees and expenses. For the returns of the Fund s other classes, please refer to the Past performance section. Stocks rose sharply through the end of 2017 as markets were aided by favourable tax legislation, a synchronized global recovery, and strong corporate results that generally topped Wall Street expectations. Markets got off to a strong start in January 2018 thanks Marvell is a fabless semiconductor provider of high-performance application-specific standard products. Its core strength of expertise is the development of complex Systemon-a-Chip ( SoC ) devices, leveraging its technology portfolio of intellectual property in the areas of analog, mixed-signal, digital signal processing, and embedded and standalone integrated circuits. After the recent entry of an activist, prior management has been forced out and replaced by more shareholder-friendly management focused on jettisoning non-core products, focusing research and development investment on high value areas, CIG

2 and improving growth and profitability. Centene Corporation offers health care plans to corporations and U.S. government-sponsored health care programs. The company primarily focuses on uninsured individuals and helps them access care facilities and social services through government subsidized programs. Centene generates a higher return on equity than its peers through efficient program management and greater business line diversification (Medicare, Medicaid, commercial), yet the shares trades at a discount to peers providing an attractive buying opportunity. Bank of the Ozarks is a full-service commercial bank headquartered in Little Rock, Arkansas and has 256 branches in nine states. In its 37-year history, Bank of the Ozarks has never lost money, including during the financial crisis, a strong indication of its overall credit discipline. The portfolio sold out of investments in CME Group Inc., PepsiCo Inc., General Electric Co., Procter & Gamble Co., Fidelity National Information Services Inc., Oracle Corp., McKesson Corp., Seagate Technology PLC, F5 Networks Inc. and E.I. du Pont de Nemours and Co. during the year. Seagate Technology PLC s short-term operating results have been volatile. As a result, we opted to sell the portfolio s position in the company in order to redeploy the proceeds into other ideas with higher levels of visibility in the near term. CME Group Inc. and PepsiCo appreciated throughout the year and as a result, we opted to close our positions. RECENT DEVELOPMENTS Growth in the U.S. is especially robust: the labour market is tight, solid domestic demand has helped the production side of the economy pick up, and the recent corporate tax cuts will add an additional boost in the short-term. Europe is experiencing its best growth in a decade and even Japan is growing above trend. Increasing rhetoric and action around U.S. trade policy is a risk to the positive growth backdrop, but it remains to be seen if it will be enough to derail the global economy. Valuation multiples are unlikely to expand much further now that central banks in North America and Europe are moving from quantitative easing to quantitative tightening. Equity returns will instead rely on cash flow growth and dividends. We also expect more frequent bouts of volatility will accompany incrementally higher interest rates and waning liquidity. Volatility could be exacerbated by the shift from active to passive managers and the increased use of systematic strategies that sell on auto pilot. We believe our investment approach is well suited to this environment, where investment returns are more closely linked to company fundamentals. As always, we seek companies that can generate a growing stream of free cash flow and can allocate that cash effectively for the benefit of shareholders. Effective April 3, 2018, Karen Fisher became a member of the CI Board of Governors ( BOG ) and the Independent Review Committee ( IRC ) of the Fund. Meanwhile, Christopher Hopper resigned from the role as a member of the BOG and IRC. RELATED PARTY TRANSACTIONS Manager, Portfolio Advisor, Trustee and Registrar CI Investments Inc. is the Manager, Portfolio Advisor, Trustee and Registrar of the Fund. CI Investments Inc. is a subsidiary of CI Financial Corp. The Manager, in consideration for management fees, provides management services required in the day-to-day operations of the Fund. The Manager bears all of the operating expenses of the Fund (other than taxes, borrowing costs and new governmental fees) in return for a fixed administration fee. fee and fixed administration fee rates as at March 31, 2018, for each of the classes are shown below: Annual management fee rate (%) Annual fixed administration fee rate (%) Class A Class A Class A Class A Class A Class A Class E Class EF Class F Class F Class F Class F Class F Class F Class I Paid directly by investor - Class Insight Class O Paid directly by investor 0.15 Class P Paid directly by investor 0.21 Class W Paid directly by investor 0.21 The Manager received $8.5 million in management fees and $1.0 million in fixed administration fees for the year. Fees Approximately 26% of total management fees were used to pay for sales and trailing commissions. The remaining 74% of management fees were used for investment management and other general administration. Independent Review Committee The Fund received standing instructions from the Fund s Independent Review Committee with respect to the following related party transactions: a) trades in securities of CI Financial Corp.; b) purchases or sales of securities of an issuer from or to another investment fund managed by the Manager; c) purchases or sales of other investment funds managed by the Manager or their affiliates; and d) mergers involving the Fund and another fund managed by the Manager that is subject to National Instrument Investment Funds.

3 The applicable standing instructions require that related party transactions be conducted in accordance with the Manager s policies and procedures and that the Manager advise the IRC of any material breach of a condition of the standing instructions. The standing instructions require, among other things, that investment decisions in respect of related party transactions (a) are free from any influence by an entity related to the Manager and without taking into account any consideration relevant to an entity related to the Manager; (b) represent the business judgment of the Manager uninfluenced by considerations other than the best interests of the Fund; (c) are made in compliance with the Manager s policies and procedures; and (d) achieve a fair and reasonable result for the Fund. Transactions made by the Manager under the standing instructions are subsequently reviewed by the IRC on a quarterly basis to monitor compliance. The Fund relied on the IRC s standing instructions regarding related party transactions during this reporting year. 3

4 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 past five years, as applicable. Net Assets per Unit ($) (1) (2) (4) * Increase (decrease) from operations: Distributions: Total Realized Unrealized Total increase From net investment Net assets Net assets at the beginning Total expenses (excluding (decrease) from income (excluding From From capital Total at the end of the year of year (2) revenue distributions) the year the year operations (2) dividends) dividends (2, 3) Return of capital distributions shown (2) $ $ $ $ $ $ $ $ $ $ $ $ Class A Commencement of operations May 27, 1957 Mar. 31, (0.87) 4.79 (2.71) Mar. 31, (0.77) Mar. 31, (0.75) 4.12 (4.85) (0.94) Mar. 31, (0.65) Mar. 31, (0.53) Class A1 Mar. 31, (0.22) 1.25 (0.58) Class A2 Mar. 31, (0.21) 1.27 (0.76) Class A3 Mar. 31, (0.20) 1.32 (0.79) Class A4 Mar. 31, (0.20) 1.32 (1.58) (0.29) Class A5 Mar. 31, (0.17) *Footnotes for the tables are found at the end of the Net Assets per Unit section of the Financial Highlights.

5 FINANCIAL HIGHLIGHTS (cont d) Net Assets per Unit ($) (1) (2) (4) * Increase (decrease) from operations: Distributions: Total Realized Unrealized Total increase From net investment Net assets Net assets at the beginning Total expenses (excluding (decrease) from income (excluding From From capital Total at the end of the year of year (2) revenue distributions) the year the year operations (2) dividends) dividends (2, 3) Return of capital distributions shown (2) $ $ $ $ $ $ $ $ $ $ $ $ Class E Commencement of operations October 4, 2011 Mar. 31, (0.58) 3.36 (1.71) Mar. 31, (0.52) Mar. 31, (0.50) 2.86 (3.55) (0.75) Mar. 31, (0.44) Mar. 31, (0.36) Class EF Commencement of operations July 29, 2015 Mar. 31, (0.14) 1.56 (0.73) Mar. 31, (0.13) Mar. 31, (0.08) 0.84 (0.95) (0.07) Class F Commencement of operations November 17, 2000 Mar. 31, (0.24) 2.38 (1.29) Mar. 31, (0.21) Mar. 31, (0.20) 2.01 (2.35) (0.28) Mar. 31, (0.17) (0.10) (0.10) Mar. 31, (0.14) (0.06) (0.06) Class F1 Mar. 31, (0.11) 1.30 (0.49) Class F2 Mar. 31, (0.12) 1.35 (0.75) Class F3 Mar. 31, (0.11) 1.35 (0.49) *Footnotes for the tables are found at the end of the Net Assets per Unit section of the Financial Highlights.

6 FINANCIAL HIGHLIGHTS (cont d) Net Assets per Unit ($) (1) (2) (4) * Increase (decrease) from operations: Distributions: Total Realized Unrealized Total increase From net investment Net assets Net assets at the beginning Total expenses (excluding (decrease) from income (excluding From From capital Total at the end of the year of year (2) revenue distributions) the year the year operations (2) dividends) dividends (2, 3) Return of capital distributions shown (2) $ $ $ $ $ $ $ $ $ $ $ $ Class F4 Mar. 31, (0.09) 0.98 (1.11) (0.05) Class F5 Mar. 31, (0.08) Class I Commencement of operations November 1, 1996 Mar. 31, (3.34) 3.70 (0.34) (0.34) Mar. 31, (0.25) (0.25) Mar. 31, (6.06) (0.25) (0.14) (0.14) Mar. 31, (0.70) (0.70) Mar. 31, (0.52) (0.52) Class Insight Commencement of operations July 15, 2003 Mar. 31, (0.43) 3.99 (2.24) Mar. 31, (0.38) Mar. 31, (0.36) 3.36 (3.95) (0.51) Mar. 31, (0.31) (0.13) (0.13) Mar. 31, (0.25) (0.07) (0.07) Class O Commencement of operations October 4, 2011 Mar. 31, (0.05) 3.61 (1.83) 2.21 (0.15) (0.15) Mar. 31, (0.04) (0.10) (0.10) Mar. 31, (0.04) 2.96 (3.52) (0.21) (0.04) (0.04) Mar. 31, (0.03) (0.28) (0.28) Mar. 31, (0.03) (0.27) (0.27) Class P Mar. 31, (0.02) 1.24 (0.50) 0.89 (0.05) (0.05) *Footnotes for the tables are found at the end of the Net Assets per Unit section of the Financial Highlights.

7 FINANCIAL HIGHLIGHTS (cont d) Net Assets per Unit ($) (1) (2) (4) Increase (decrease) from operations: Distributions: Total Realized Unrealized Total increase From net investment Net assets Net assets at the beginning Total expenses (excluding (decrease) from income (excluding From From capital Total at the end of the year of year (2) revenue distributions) the year the year operations (2) dividends) dividends (2, 3) Return of capital distributions shown (2) $ $ $ $ $ $ $ $ $ $ $ $ Class W Commencement of operations July 27, 2017 Mar. 31, (0.02) (0.05) (0.05) (1) This information is derived from the Fund s audited annual financial statements. (2) Net assets per unit and distributions per unit are based on the actual number of units outstanding for the relevant class at the relevant time. The increase (decrease) in net assets from operations per unit is based on the weighted average number of units outstanding for the relevant class over the fiscal year. (3) Distributions are automatically reinvested in additional units of the Fund. (4) This information is provided for the years ended March 31.

8 FINANCIAL HIGHLIGHTS (cont d) Ratios and Supplemental Data (1) (5) * Total net assets (5) Number of units outstanding (5) before taxes (2) after taxes (2) Effective HST rate for the year (2) Harmonized Trading Portfolio sales tax (2) (3) turnover rate (4) $000 s 000 s % % % % % % Class A Commencement of operations May 27, 1957 Mar. 31, ,986 8, Mar. 31, ,795 11, Mar. 31, ,950 13, Mar. 31, ,672 13, Mar. 31, ,029 13, Class A1 Mar. 31, ,186 4, Class A2 Mar. 31, ,276 1, Class A3 Mar. 31, , Class A4 Mar. 31, , Class A5 Mar. 31, *Footnotes for the tables are found at the end of the Financial Highlights section.

9 FINANCIAL HIGHLIGHTS (cont d) Ratios and Supplemental Data (1) (5) * Total net assets (5) Number of units outstanding (5) before taxes (2) Harmonized sales tax (2) after taxes (2) Effective HST rate for the year (2) Trading (3) Portfolio turnover rate (4) $000 s 000 s % % % % % % Class E Commencement of operations October 4, 2011 Mar. 31, , Mar. 31, , Mar. 31, , Mar. 31, , Mar. 31, , Class EF Commencement of operations July 29, 2015 Mar. 31, Mar. 31, Mar. 31, Class F Commencement of operations November 17, 2000 Mar. 31, ,569 3, Mar. 31, ,527 4, Mar. 31, ,215 4, Mar. 31, ,219 4, Mar. 31, ,010 4, Class F1 Mar. 31, ,220 1, Class F2 Mar. 31, , Class F3 Mar. 31, , *Footnotes for the tables are found at the end of the Financial Highlights section.

10 FINANCIAL HIGHLIGHTS (cont d) Ratios and Supplemental Data (1) (5) * Total net assets (5) Number of units outstanding (5) before taxes (2) Harmonized sales tax (2) after taxes (2) Effective HST rate for the year (2) Trading (3) Portfolio turnover rate (4) $000 s 000 s % % % % % % Class F4 Mar. 31, Class F5 Mar. 31, Class I Commencement of operations November 1, 1996 Mar. 31, ,588 4, Mar. 31, ,827 5, Mar. 31, ,838 4, Mar. 31, ,041 5, Mar. 31, ,432 5, Class Insight Commencement of operations July 15, 2003 Mar. 31, Mar. 31, , Mar. 31, , Mar. 31, , Mar. 31, , Class O Commencement of operations October 4, 2011 Mar. 31, , Mar. 31, , Mar. 31, , Mar. 31, , Mar. 31, , Class P Mar. 31, *Footnotes for the tables are found at the end of the Financial Highlights section.

11 FINANCIAL HIGHLIGHTS (cont d) Ratios and Supplemental Data (1) (5) Total net assets (5) Number of units outstanding (5) before taxes (2) Harmonized sales tax (2) after taxes (2) Effective HST rate for the year (2) Trading (3) Portfolio turnover rate (4) $000 s 000 s % % % % % % Class W Commencement of operations July 27, 2017 Mar. 31, (1) This information is derived from the Fund s audited annual financial statements. (2) is calculated based on expenses charged to the Fund (excluding commissions and other portfolio transaction costs) and is expressed as an annualized percentage of daily average net assets for the year, including the Fund s proportionate share of any underlying fund(s) expenses, if applicable. The Effective HST tax rate is calculated using the attribution percentage for each province based on unitholder residency and can be different from 13%. (3) The trading represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net assets during the year, including the Fund s proportionate share of such expenses of any underlying fund(s), if applicable. (4) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor manages its portfolio investments. 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 fiscal 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 in the year. There is not necessarily a relationship between a higher turnover rate and the performance of a Fund. Portfolio turnover rate is calculated by dividing the lesser of the cost of purchases and the proceeds of sales of portfolio securities for the year, and excluding cash and short-term investments maturing in less than one year, and before assets acquired from a merger, if applicable, by the average of the monthly fair value of investments during the year. (5) This information is provided for the years ended March 31.

12 PAST PERFORMANCE This section describes how the Fund has performed in the past. Remember, past returns do not indicate how the Fund will perform in the future. The information shown assumes that distributions made by the Fund in the years shown were reinvested in additional units of the relevant classes 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 Fund s annual performance for each of the years shown and illustrate how the Fund s performance has changed from year to year. In percentage terms, the charts show how much an investment made on the first day of each financial year would have grown or decreased by the last day of each financial year, except where noted. Class A Class E Class EF Class F Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Class I Insight Units Class O Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar return is for the period from October 4, 2011 to March 31, return is for the period from July 29, 2015 to March 31, 2016.

13 Annual Compound Returns The following table shows the Fund s annual compound returns for each year indicated, compared to the S&P 500 Total Return Index. The S&P 500 Total Return Index is an index composed of 500 stocks weighted by capitalization and representing all major U.S. industries. The Index is a broad measure of the stock performance of the largest U.S. companies with market capitalization in excess of US$5.3 billion. A discussion of the performance of the Fund as compared to the benchmark is found in the Results of Operations section of this report. One Year (%) Three Years (%) Five Years (%) Ten Years (%) Since Inception (%) Class A n/a S&P 500 Total Return Index n/a Class E n/a 15.6 S&P 500 Total Return Index n/a 19.4 Class EF 6.8 n/a n/a n/a 6.7 S&P 500 Total Return Index 10.5 n/a n/a n/a 10.7 Class F n/a S&P 500 Total Return Index n/a Class I n/a S&P 500 Total Return Index n/a Insight Units n/a S&P 500 Total Return Index n/a Class O n/a 18.2 S&P 500 Total Return Index n/a

14 SUMMARY OF INVESTMENT PORTFOLIO as at March 31, 2018 Category % of Net Assets Category % of Net Assets Top 25 Holdings % of Net Assets Country allocation U.S.A Ireland Bermuda Cash & Equivalents Singapore Other Net Assets (Liabilities) Switzerland U.K Sector allocation Information Technology Financials Health Care Consumer Discretionary Industrials Materials Consumer Staples Energy Cash & Equivalents Utilities Other Net Assets (Liabilities) Microsoft Corp Apple Inc Alphabet Inc., Class C Visa Inc., Class A UnitedHealth Group Inc Bank of America Corp Applied Materials Inc Morgan Stanley Boeing Co PTC Inc Marvell Technology Group Ltd Home Depot Inc Cash & Equivalents Danaher Corp Centene Corp Johnson Controls International PLC Allergan PLC Costco Wholesale Corp Occidental Petroleum Corp DowDuPont Inc Pfizer Inc Dollar General Corp Ingersoll-Rand PLC Bank of the Ozarks Inc MetLife Inc Total Net Assets (in $000 s) $723,518 The summary of investment portfolio may change due to ongoing portfolio transactions of the Fund and updates will be available on a quarterly basis. A NOTE ON FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements about the Fund, its future performance, strategies or prospects, and possible future Fund action. The words may, could, should, would, suspect, outlook, believe, plan, anticipate, estimate, expect, intend, forecast, objective, and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance. Forward-looking statements involve inherent risks and uncertainties, both about the Fund and general economic factors, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement made by the Fund. These factors include, but are not limited to, general economic, political and market factors in Canada, the United States and internationally, interest and foreign exchanges rates, global equity and capital markets, business competition, technological changes, changes in laws and regulations, judicial or regulatory judgments, legal proceedings and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith but without legal responsibility. 14