BC Central RRSP Equity Report

Transcription

1 1 [Type text] Quarterly Report June 30, 2017 BC Central RRSP Equity Report What you ll find inside: Current Equity Value Performance Analysis Review Listing of Equity Portfolio as at June 30, 2017 Historical listing of unit value for BC Central RRSP Equity Fund The material forming this review is unaudited and while present for information purposes, is not meant to give counsel to the member with respect to investment. Questions concerning this report should be directed to: Robert A. Perfonic Director Financial Services Department T bperfonic@central1.com

2 Report Name Here 2 Quarterly Report June 30, 2017 June 30, 2017 Unit Value: $ A. PERFORMANCE COMPARISON TO June 30, 2017* Central 1 S&P/TSX (Cdn) S&P 500 (US) First Quarter 1.28% 2.41% 5.05%$C Second Quarter -1.74% -1.64% 0.53%$C B. LONG TERM PERFORMANCE* Average Annual Compound Rate of Return as of June 30, 2017 Average Annual Rate of Return Central 1 S&P/TSX (Cdn) S&P 500 (US) Five Years 10.00% 8.74% 20.31%$C Three Years 3.58% 3.08% 16.99%$C One Year 10.28% 11.05% 18.34%$C *Allocations assume the reinvestment of dividends and are after management fees. C. ATTRIBUTION ANALYSIS Your fund decreased in value by 1.74% in the second quarter of 2017, which compares to a decrease of 1.64% for the S&P/TSX Composite of Canadian stocks and an increase of 0.53% for the S&P 500 Index of U.S. stocks in Canadian dollar terms.

3 MSCI 12-month trailing EPS MSCI 12-month trailing EPS Report Name Here 3 D. MACROECONOMIC AND CAPITAL MARKETS COMMENTARY AND OUTLOOK The economic uptick that began in the summer of 2016 continued in the most recent quarter. Expansion is occurring on a global scale and leading economic indicators are pointing to above-average economic growth across much of the world. That said, the initial acceleration phase has arguably come to an end and, while risk asset values are still rising, they are doing so with Global Corporate Earnings on Upswing DM (LHS) EM (LHS) U.S. (LHS) Canada (LHS) Europe (RHS) Asia Pacific (RHS) Note: Earnings per share (EPS) in U.S. dollars for developed markets (DM), emerging markets (EM), U.S. and Asia Pacific, euros for Europe,Canadian dollars for Canada. Source: MSCI, Bloomberg, RBC GAM less momentum than at the turn of the year. This is partially due to diminished expectations for major public policy changes under the new U.S. president as the political landscape proves more difficult to navigate than initially anticipated. Fortunately, several other drivers remain, including the lagged effect of past monetary stimulus, the fading pull of the financial crisis, and a meaningful rebound in corporate earnings. The combination of a synchronized global expansion and the acceleration in corporate earnings lifted global equities in the most recent quarter, and most major stock markets posted gains over the period. Emerging markets and Europe were in the lead in terms of performance, followed by low-single-digit gains in the United States. Canadian equities fell slightly in the quarter due to weakness in the Financials and Energy sectors. Although stocks are nowhere near as cheap as they were when the bull market began eight years ago, equities in Canada, Europe and emerging markets all remain attractively priced. On a relative basis, the U.S. equity market has the fullest valuations; as a result, further gains will likely need to come from increasing corporate profits. Fortunately for equity investors, corporate profits have recovered from their two-year swoon and are now growing at their fastest pace of the post-crisis era. This acceleration in earnings is welcome after the crash in oil prices and the strength in the U.S. dollar that pulled down profits between the end of 2014 and mid

4 Monthly GDP (YoY % change) Report Name Here 4 Annual measures of inflation have made a giant leap forward over the past year, exiting a multi-year period of deflation fears in favour of a somewhat more normal inflation environment. The end of the global commodity shock has been the greatest contributing factor; however, a less forceful but ultimately more persistent influence is the gradual abatement of economic slack around the world and the effect that this is having on wages and inflation. Having accelerated from rock-bottom to slightly low levels, inflation readings are now set to go mostly sideways over the next few quarters. Having long provided crucial support for economic growth, major central banks are now less stimulus-oriented due to the lower risk of deflation and signs that global economies appear to have achieved significant progress back toward their full potential. The Fed is setting the pace with a handful of rate increases already delivered and more on offer, and also plans to begin scaling back the size of its balance sheet (quantitative easing) toward the end of the year. Other central banks appear ready to follow suit, with the Bank of Canada having recently suggested rate hikes are likely in the near future. In Canada, the S&P/TSX Composite Index pared gains after hitting an all-time high in February of this year, returning -1.64% in the second quarter and pulling year-to-date returns down to 0.74%. The recent underperformance was primarily a result of weakness in the Financials and Energy sectors, which together represent just over 50% of Canada s benchmark stock index. Stocks in the Financials sector took a pause after a strong advance earlier in the year, and Canadian banks lost 1.85% in the quarter amid the Trump trade unwind and rising sovereign-bond prices. Energy sector performance also had a meaningful negative impact, as it was down 8.28% over the quarter. Meanwhile, the Canadian economy is growing at its fastest clip in several years, having shrugged off the worst of the oil shock and set to benefit from a further moderate appreciation in the price of crude oil over the remainder of Alberta has Surpassed Ontario in Growth Alberta rebounds -6 Ontario GDP proxy Ontario strengthens Alberta GDP proxy further Note: Monthly provincial GDP estimated from available monthly economic variables, combined via principal component analysis and then regressed against annual provincial GDP. Source: Haver Analytics, RBC GAM

5 Output gap (% of potential GDP) Report Name Here 5 Canada s regional economic convergence is running ahead of schedule, with Alberta s economy now growing faster than Ontario s after lagging for several years. While oil prices are likely to remain too low to justify substantial new investment in the Energy sector, the past year s rally in prices is making existing production more profitable. There are two potential threats to this happy narrative: the potentially adverse effect of U.S. public policy changes, and the prospect of the country s housing boom coming to an end. Major developed equity markets as measured by the MSCI World Index returned 4.03% over the quarter in U.S. dollar terms. Largely due to recent strengthening in the Canadian dollar, the global equity returns of Canadian investors were negatively affected, with the index returning 1.30% in Canadian dollar terms over the second quarter. Nine out of eleven sectors generated positive returns, with Industrials and Health Care being the largest contributors and Energy and Telecommunication Services detracting from performance. The U.S. stock market lagged the broader MSCI World Index in the second quarter, and the S&P 500 Index just managed to stay in positive territory with a 0.53% gain in Canadian dollar terms (or 3.09% in U.S. dollar terms). The market was led in the latest quarter by areas that could be characterized as either growth-oriented or defensive, with strong performances from the Health Care, Utilities, and Information Technology sectors powering gains, while negative returns in the Energy and Telecommunication Services sectors were a drag. In Europe, equities continued to recover from 2016 weakness in the second quarter and once again generally outperformed global stocks, with core European nations France, Switzerland, and Italy among the top performers in the MSCI World Index. The economies Indices Performance Comparison June 30, Months % 1 Year % S&P/TSX Composite Index (C$) S&P 500 Index (C$) MSCI World Index (C$) MSCI EAFE Index (C$) MSCI Emerging Markets Index (C$) Source: RBC GAM Eurozone Output Gap Bigger than U.S. U.S. Europe has more upside Eurozone Source: IMF, Haver Analytics, RBC GAM

6 Report Name Here 6 of both core and peripheral European nations are accelerating, and it is worth noting that the Eurozone economy has largely tracked that of the U.S. along a similar trajectory but with a lag of several years. Accordingly, it is at a much earlier stage of its economic recovery than the U.S., and could therefore have longer to go before it is likely to see another downturn. Furthermore, we continue to forecast a softer euro, which should help export growth. Despite the expected onset of economic issues linked to the U.K. s plan to secede from the European Union, few problems have shown up in the data so far. A key reason for this defiant economic strength can be found in the soft currency, which has done its job as a shock absorber to augment British competitiveness precisely when this help was needed most. We forecast further depreciation in the British pound over the next year. In Japan, markets were choppy during the latest period as its stock market is tied largely to changes in the value of the yen, which tends to rise when geopolitical tensions escalate as they did on the Korean peninsula. That said, Japan s economy has expanded for five consecutive quarters, and while some domestic considerations are at play, the main narrative is again one of a stronger global economy, as reflected in faster exports, higher profits, stronger credit growth, and an improved purchasing managers index. The recent pick-up in global trade is of particular relevance to trade-oriented Japan. Emerging market equities extended their recovery in the second quarter, with the MSCI Emerging Markets Equity Index returning 3.48% over the period, bringing their year-todate returns to 14.69%. As a result, they have outperformed all other major stock markets over both periods. Returns were driven primarily by macroeconomic and fundamental improvements that included the sustained global economic recovery, higher earnings, and strong inflows. From a sector perspective, the Information Technology and Real Estate sectors were the top contributors to returns in the second quarter, while the Energy and Utilities sectors lagged. After collectively suffering through a multi-year period of decelerating economic growth, emerging market economies have righted themselves in recent years. While the current rate pales in comparison with a decade ago, it remains more than double the developedworld pace. At the national level, economic drivers are more varied, and while China is currently growing more quickly than anticipated, a number of factors should slow this rate over the medium term, including vulnerability to U.S. protectionism, lost competitiveness, and the threat of significant credit excesses.

7 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Yield (%) Report Name Here 7 Turning to fixed income markets, global bond yields drifted lower in the past quarter as enthusiasm about Trump s pro-growth policies receded. A lack of progress on the president s economic agenda and speculation that Trump may not serve his full four-year term has caused investors to ratchet down their growth FTSE TMX Canada Universe Bond Index Yields 3.0 and inflation assumptions. In Canada, the yield of the FTSE TMX Canada 2.5 Universe Bond Index 2.2% trended downwards for the first two months of the 2.0 quarter before rising 0.3% after hawkish Bank of 1.5 Canada comments to end the quarter at 2.2%. Despite the material movement, this level is only 0.1% higher than where it began the period. A flattening of the yield curve (higher short-term yields and lower long-term yields) resulted in outperformance for longer maturity bonds relative to shorter maturity bonds. Continued demand for risk assets resulted in credit spread compression, enabling provincial and corporate bonds to finish ahead of similar-term federal counterparts across the maturity spectrum. Our models continue to suggest that the long-term direction of yields is higher, although a number of structural headwinds aging populations, a limited capacity to take on debt, wealth inequality, globalization, and a preference for safe assets may limit the pace of rising bond yields and restrain their ultimate long-term resting level. In this type of environment, it is not clear that a more permanent move to higher interest rates in the near term is certain. However, we believe that extraordinary central bank policies will continue to ease off, and coupled with the normalization of the global economy, will result in higher bond yields over the medium-to-long term.

8 Report Name Here 8 Performance of S&P/TSX Industry Sectors One Year Ended June 30, 2017 PHILLIPS, HAGER & NORTH -85.3%

9 Canadian Equity Pension Trust Attribution Analysis Three Months Return Weight Security Sector Value Portfolio Benchmark Difference Portfolio Benchmark Difference Selection Weighting Added Consumer Discretionary Materials Real Estate Utilities Consumer Staples Information Technology Telecom. Services Health Care Financials Industrials Energy CANADIAN EQUITY RRSP EQUITY PORTFOLIO SUMMARY AS OF JUNE 30, 2017 COST CDN MKT % OF VALUE TOTAL CASH -4,708-4, % SHORT TERM NOTES TOTAL 149, , % CANADIAN COMMON STOCKS Energy 2,981,401 2,717, % Materials 376, , % Industrials 518, , % Consumer Discretionary 499, , % Consumer Staples 134, , % Financials 2,962,659 4,771, % Information Technology 283, , % Telecommunication Services 111, , % Utilities 303, , % Real Estate 272, , % Pooled Funds 1,794,106 2,144, % CANADIAN COMMON STOCKS TOTAL 10,237,059 13,212, % US COMMON STOCKS TOTAL 1,487,690 2,178, % NON-N.A. COMMON STOCKS TOTAL 940,929 1,261, % EQUITIES TOTAL 12,665,678 16,652, % TOTAL PORTFOLIO IN CDN DOLLARS 12,810,752 16,797, % ACCRUED INCOME 23,913 TOTAL PORTFOLIO INCLUDING ACCRUED INCOME 16,821,753

10 PAR VALUE SHORT TERM NOTES COST MARKET VALUE Federal 150,000 Canada Gov't T/B DISCNT SEP , ,783 NO OF SHARES SHORT TERM NOTES TOTAL 149, ,783 EQUITIES COST UNIT PRICE MARKET VALUE CANADIAN COMMON STOCKS ENERGY 11,600 ARC Resources Common 227, ,736 2,600 Cameco Corp Common 77, ,706 10,100 Cdn Natural Resource Common 369, ,942 16,508 Cenovus Energy Common 311, ,816 13,725 Crescent Point Energy Common 238, ,152 13,700 Enbridge Inc Common 656, ,742 3,600 Keyera Corp Common 138, ,952 10,900 Meg Energy Common 89, ,529 3,100 Pembina Pipeline Common 99, ,145 3,018 Prairiesky Royalty Common 78, ,122 5,750 Seven Generations Class A 135, ,708 3,664 Suncor Energy Inc Common 122, ,829 8,735 Tourmaline Oil Corp Common 277, ,532 3,060 Transcanada Corp Common 159, ,169 2,981,401 2,717,079 MATERIALS 1,100 Agrium Inc Common 73, ,283 1,000 CCL Industries Inc Class B Non VTG 53, ,610 8,700 First Quantum Mnrl Common 125, ,439 3,100 Teck Resources Ltd Class B Sub VTG 90, ,688 5,080 Turquoise Hill Res Common 33, , , ,546 INDUSTRIALS 3,650 Cdn Natl Railway Common 76, , Cdn Pacific Railway Common 156, ,920 1,900 Finning Intl Common 43, , Stantec Inc Common 27, ,120 3,300 Waste Connections Common 214, , , ,040 CONSUMER DISCRETIONARY 1,700 Dollarama Common 107, ,647 3,450 Gildan Activewear Common 112, ,483 2,300 Quebecor Inc Class B Sub VTG 87, ,716 1,402 Restaurant Brands Common 59, ,758 4,850 Shaw Communications Class B Non VTG 132, , , ,810 CONSUMER STAPLES 5,300 Aliment Couche-Tard Class B Sub VTG 134, , , ,448

11 NO OF SHARES EQUITIES COST UNIT PRICE MARKET VALUE FINANCIALS 2,300 Bank of Montreal Common 183, ,006 9,150 Bank of Nova Scotia Common 490, ,792 10,075 Brookfield Asset Mgt Class A Ltd VTG 277, ,717 2,350 Cdn Imperial Bank Commerce Common 242, , CI Financial Corp Common 6, ,528 7,500 Element Fleet Mgt Common 99, , Fairfax Fincl Holdings Sub VTG 147, , Intact Financial Common 66, , Intact Financial Subscript Receipt 45, ,337 17,600 Manulife Fincl Corp Common 319, ,856 10,650 Royal Bank CDA Common 467, ,002,804 5,000 Sun Life Fincl Inc Common 208, ,800 2,050 Thomson Reuters Corp Common 82, ,082 14,750 Toronto Dominion BK Common 326, ,913 2,962,659 4,771,325 INFORMATION TECHNOLOGY 2,950 CGI Group Inc Class A Sub VTG 104, , Constellation Sftwr Common 55, ,841 3,498 Open Text Corp Common 123, , , ,481 TELECOMMUNICATION SERVICES 1,300 Rogers Communication Class B Non VTG 36, ,625 3,050 Telus Corp Common 74, , , ,174 UTILITIES 2,750 Brookfield Infr Prtr LTD Partnership UNT 107, ,860 4,800 Fortis Inc Common 196, , , ,644 REAL ESTATE 5,900 Brookfield Property Partners L. P. U. 166, ,012 5,300 First Captl Realty Common 106, , , ,740 POOLED FUNDS 124,314 Phillips Hager & North Inst G&P MTL FD SR O 1,158, ,282 49,516 Phillips Hager & North Small Float SR O 635, ,543,541 1,794,106 2,144,823 CANADIAN COMMON STOCKS TOTAL 10,237,059 13,212,110 U.S. COMMON STOCKS - POOLED FUNDS 34,435 Phillips Hager & North US Equity SR O 1,487, ,178,674 NON-N.A. COMMON STOCKS - POOLED FUNDS 87,194 Phillips Hager & North Overseas Equity SR O 940, ,261,980 EQUITIES TOTAL 12,665,678 16,652,765 CASH -4,708-4,708 PORTFOLIO TOTALS IN CAN DOLLARS 12,810,752 16,797,840 ACCRUED INCOME 23,913 TOTAL PORTFOLIO INCLUDING ACCRUED INCOME 16,821, US = CA on June 30, 2017

12 Price HISTORICAL RRSP EQUITY PLAN UNIT VALUES Year January February March April May June July August September October November December ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** **after 8:1 unit split RRSP Equity Plan Unit Values (5 year period ending June 2017) Date