2018 INTERIM MANAGEMENT REPORT OF FUND PERFORMANCE

Transcription

1 MD Family of Funds 2018 INTERIM MANAGEMENT REPORT OF FUND PERFORMANCE DISCLOSURE This interim management report of fund performance contains financial highlights but does not contain the complete interim financial statements of the investment fund. You can obtain a copy of the interim financial statements at your request, and at no cost, by calling , by writing to us at MD Financial Management Inc., 1870 Alta Vista Drive, Ottawa, Ontario, K1G 6R7, or by visiting our website at md.cma.ca or SEDAR at sedar.com. 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.

2 A Message to MD Family of Funds Investors Dear MD Family of Funds Investor: As part of our commitment to keeping you informed about your MD Fund investments, please find attached the 2018 Interim Management Report of Fund Performance (MRFP). If you also opted to receive the fund s financial statements, they are included in this package. The interim MRFP is a regulatory document that supplements the interim financial statements. The document includes a brief discussion and analysis of the funds as well as an explanation of how the markets and overall asset mix have affected the fund investment activities, performance and financial highlights, as well as an explanation of how the markets and overall asset mix have affected the fund. The report is produced on a fund-by-fund basis, and your report only includes information on the funds you owned as of June 30, If you have any questions regarding these documents, please contact your MD Advisor or the MD Trade Centre at We thank you for your continued investment in the MD Family of Funds. MD Financial Management Inc. wholly owns or has a majority interest in its seven subsidiaries (the MD Group of Companies). It provides financial products and services, is the fund manager for the MD Family of Funds and offers investment counselling services. For a detailed list of the MD Group of Companies, visit md.cma.ca. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the mutual fund or returns on investment in the mutual fund. Standard performance data assumes reinvestment of distributions only and does not take into account sales, redemption, distribution or optional charges payable by any securityholder which would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the prospectus before investing. You may obtain a copy of the prospectus before investing by calling your MD Advisor or the MD Trade Centre at

3 Results of Operations For the six-month period ended June 30, 2018, the Fund had a total return of 4.9% (series A), 5.5% (series F) and 5.6% (series I). Markets started the year on a very positive note after 2017 delivered one the strongest years in the global economy since the global financial crisis. Sentiment was further buoyed by expectations for material fiscal stimulus in the US as congress agreed to material tax reform. However, the optimism in January ceded to concerns about rapidly rising bond yields and increasing prospects for inflation in North America and a peaking of the business cycle in international economies in early February. Additional concerns around a rebound in the US dollar and rising US interest rates and its potential impact on Emerging Market economies, a number of which were already facing domestic challenges, created further headwinds leaving the global stock market roughly in line with start of year levels as of the end of June. The MD Strategic Opportunities Fund delivered positive returns over the period, partly due to the Fund s global exposure benefiting from a weakening Canadian dollar over the period. The Fund s material exposure to US Small Cap securities was a material benefit as these companies stand to benefit from the domestic strength in the US economy while having less exposure to uncertainty around international economies. The Fund also benefitted from exposure to a number of assets expected to provide protection from rising inflation, as commodities and companies with exposure to global natural resources delivered positive returns over the period. Despite rising uncertainty and prospects for greater inflation, the Fund s allocation to precious metals through Gold and Silver were less beneficial to overall returns as a rising US dollar and higher bond yields increased the relative opportunity cost of holding these assets. Tactical asset allocation added value over the period as the Fund s maintained a pro-cyclical stance. In particular, the overweight to US Small and Micro cap securities over the period improved the Fund s overall returns. Additionally, rising lumber prices benefitted the Fund s overweight to Timber-related companies while an underweight to US Real Estate provided value as bond yields rose early in the year. As at June 30, 2018, the total net asset value of the Fund was $206 million, an increase of 5% since the beginning of the year. The increase is mainly due to net investment income. Recent Developments STRATEGIC CHANGES On May 31, 2018, The Bank of Nova Scotia (Scotiabank) and the Canadian Medical Association (CMA) announced that they had entered into a share purchase agreement pursuant to which Scotiabank will, through a wholly owned subsidiary, acquire CMA Holdings (2014) Inc., an indirect holding company of MD Financial Management Inc. (MD Financial) which is the investment fund manager of the Funds. Immediately upon completion of the acquisition, which is scheduled to close in the fourth quarter of 2018, Scotiabank will acquire MD Financial and all of its subsidiaries. The proposed acquisition of MD Financial is subject to receipt of all required regulatory approvals, as well as satisfying the conditions of closing. On June 25, 2018, MD Financial Management Inc. launched Series D units of the Fund. The new units are available to Qualified Eligible Investors who acquire units through a MD Direct Trade account with MD Management. On January 1, 2018 the Fund's benchmark became a blend of: 9.0% S&P Global Ex-U.S. Small Cap Index 12.2% CRSP US Small Cap Index 5.9% Russell Microcap Index 1.9% Deutsche Bank DBIQ Diversified Base Metals Index 2.2% Deutsche Bank DBIQ Optimum Yield Diversified Commodity Index 3.4% Bloomberg Silver Subindex 7.6% MSCI US REIT Index 7.4% Dow Jones Global ex-us Select Real Estate Securities Index 8.0% S&P Global Infrastructure Index 1.2% S&P Global Water Index 0.7% NASDAQ OMX Global Water Index 2.5% NASDAQ OMX US Water Index 12.9% S&P Global Natural Resources Index 1.2% S&P Global Timber and Forestry Index 7.8% MVIS Global Agribusiness Index 6.6% NYSE Arca Gold Miners Index 3.3% Solactive Global Silver Miners Index 5.2% MSCI World Index 1.0% FTSE/TMX Canada 91 Day T-Bill Index The previous benchmark for the Fund was: 40% Russell 2000 Index 25% FTSE Global Small Cap ex US Index 20% FTSE EPRA/NAREIT Developed Index 15% Bloomberg Commodity Index Related Party Transactions MD Financial Management Inc. is the Manager, Registrar and Trustee of the Fund. As Manager, MD Financial Management Inc. manages the overall business of the MD Fund and is responsible for: setting investment objectives, providing and/or retaining the services of third party service providers for fund accounting services, administration services, and promoting the sales of the Fund s units. As Registrar, MD Financial Management Inc. keeps track of the owners of units of the MD Fund, processes purchase, transfer and redemption orders, issues investor account statements, and issues annual tax reporting information. As the Fund is organized as a Trust, investing in the Fund means purchasing units of the Trust. As Trustee to the Fund, MD Financial Management Inc. holds actual title to the property in the Fund the cash and securities the Fund invests in on behalf of the unitholders. The principal distributor is MD Management Limited. As principal distributor, MD Management Limited markets the units of the MD Fund through its offices across Canada. MD Management Limited is owned by the Fund Manager, MD Financial Management Inc., which is owned by MD Financial Holdings Inc. 1 MD Family of Funds Interim MRFP 2018

4 Management Fees MD Financial Management Inc. provides the Fund with investment management and administrative services, including fund accounting and unitholder record-keeping. In return, MD Financial Management Inc. receives an annual management fee and an annual administration fee, both based on a fixed percentage of the daily net asset value of the Fund. Management fees are paid weekly and administration fees are paid monthly. MD Financial Management Inc. pays MD Management Limited, a related party, a fee for providing financial planning services to Series A unitholders. The estimated breakdown of the services received in consideration of the management fee for Series A is as follows: (As a percentage of management fees) Financial Planning Services 75.2% Investment Management and Other 24.8% The Fund invests a large proportion of its assets in ETFs, which are managed by parties unrelated to MD Financial Management Inc. Because those ETFs pay their managers a management fee and bear certain operating costs, the management expense ratio ( MER ) for the Fund includes the fees and expenses of those ETFs. Series F unitholders pay a separate managed account fee directly to MD Management Limited. 100% of the management fee on Series F and Series D is for investment management and other services. No management fees are paid by the Fund with respect to Series I units. Series I unitholders pay a negotiated fee directly to MD Funds Management Inc. for investment management and administrative services. Past Performance The following bar chart shows the Fund s annual performance for each of the years shown, and illustrates how the Fund s performance changed from year to year. The chart shows, in percentage terms, how much an investment made on the first day of each calendar year would have grown or decreased by the last day of each calendar year. The performance information assumes that all distributions made by the Fund were reinvested in additional units of the Fund and does not take into account sales, redemption, distribution or other optional charges that would reduce returns. How the Fund has performed in the past does not necessarily indicate how the Fund will perform in the future. YEAR-BY-YEAR RETURNS % Return Series A Series I Series F 7.4% 8.8% 8.2% 9.5% 9.6% 11.0% 4.9% 5.6% 5.5% Series F units were not reported in 2017 as they had been in existence for less than 12 months. Series D units are not reported in 2018 as they have been in existence for less than 12 months. For the six-month period ended June 30, Regarding Forward-Looking Statements 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. Actual results may differ materially from the results anticipated in these forward-looking statements. MD Family of Funds Interim MRFP

5 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, if applicable. This information is derived from the Fund s audited annual financial statements and unaudited interim financial statements. THE FUND'S NET ASSETS PER UNIT 1 Six months ended Year ended December 31 SERIES A June 30, Net assets beginning of the period $ $ $ $ 9.95 $ Increase (decrease) from operations: Total revenue $ 0.08 $ 0.22 $ 0.23 $ 0.31 $ 0.28 Total expenses $ (0.07) $ (0.15) $ (0.13) $ (0.13) $ (0.06) Net realized gains (losses) for the period $ 0.15 $ 0.71 $ 0.13 $ 0.13 $ 0.02 Net unrealized gains (losses) for the period $ 0.40 $ 0.30 $ 0.72 $ 0.05 $ (0.03) Total increase (decrease) from operations 2 $ 0.56 $ 1.08 $ 0.95 $ 0.36 $ 0.21 Distributions: From income (excluding dividends) $ - $ (0.14) $ (0.07) $ (0.05) $ - From dividends $ - $ - $ - $ - $ - From capital gains $ - $ (0.46) $ - $ (0.10) $ - Return of capital $ - $ - $ - $ - $ - Total annual distributions 3 $ - $ (0.60) $ (0.07) $ (0.15) $ - Net assets end of the period $ $ $ $ $ 9.95 SERIES D For the period June 25, to June 30, Net assets beginning of the period $ Increase (decrease) from operations: Total revenue $ - Total expenses $ - Net realized gains (losses) for the period $ - Net unrealized gains (losses) for the period $ (0.09) Total increase (decrease) from operations 2 $ (0.09) Distributions: From income (excluding dividends) $ - From dividends $ - From capital gains $ - Return of capital $ - Total annual distributions 3 $ - Net assets end of the period $ MD Family of Funds Interim MRFP 2018

6 Financial Highlights (continued) THE FUND'S NET ASSETS PER UNIT 1 Six months ended Year ended December 31 SERIES F June 30, Net assets beginning of the period $ $ Increase (decrease) from operations: Total revenue $ 0.14 $ 0.15 Total expenses $ (0.01) $ - Net realized gains (losses) for the period $ 0.17 $ 0.40 Net unrealized gains (losses) for the period $ 0.43 $ (0.50) Total increase (decrease) from operations 2 $ 0.73 $ 0.05 Distributions: From income (excluding dividends) $ - $ (0.01) From dividends $ - $ - From capital gains $ - $ (0.21) Return of capital $ - $ - Total annual distributions 3 $ - $ (0.22) Net assets end of the period $ $ Six months ended Year ended December 31 SERIES I June 30, Net assets beginning of the period $ $ $ $ $ Increase (decrease) from operations: Total revenue $ 0.08 $ 0.22 $ 0.23 $ 0.29 $ 0.26 Total expenses $ - $ - $ - $ - $ - Net realized gains (losses) for the period $ 0.17 $ 0.69 $ 0.12 $ 0.13 $ 0.04 Net unrealized gains (losses) for the period $ 0.42 $ 0.36 $ 0.73 $ 0.44 $ 0.15 Total increase (decrease) from operations 2 $ 0.67 $ 1.27 $ 1.08 $ 0.86 $ 0.45 Distributions: From income (excluding dividends) $ - $ (0.32) $ (0.26) $ (0.24) $ (0.09) From dividends $ - $ - $ - $ - $ - From capital gains $ - $ (0.60) $ (0.06) $ (0.14) $ (0.06) Return of capital $ - $ - $ - $ - $ - Total annual distributions 3 $ - $ (0.92) $ (0.32) $ (0.38) $ (0.15) Net assets end of the period $ $ $ $ $ This information is derived from the Fund s audited annual financial statements and unaudited interim financial statements. 2 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 year. This table is not intended to be a reconciliation of beginning to ending net assets per unit. 3 Distributions were paid in cash or reinvested in additional units of the Fund, or both. 4 The results shown are for the period June 20, December 31, The results shown are for the period June 25, June 30, The results shown are for the period October 13, December 31, The results shown are for the period February 13, December 31, MD Family of Funds Interim MRFP

7 Financial Highlights (continued) RATIOS AND SUPPLEMENTAL DATA Six months ended Year ended December 31 SERIES A June 30, Total net assets, end of the period 1 $ 15,279,435 $ 19,406,186 $ 13,947,383 $ 9,984,877 $ 3,935,694 Number of units outstanding 1,229,843 1,638,689 1,230, , ,491 Management expense ratio % 1.71% 1.75% 1.85% 1.83% Management expense ratio before tax 1.48% 1.57% 1.62% 1.71% 1.72% Management expense ratio before waivers 1.61% 1.71% 1.75% 1.85% 1.83% or absorptions Trading expense ratio % 0.03% 0.03% 0.02% 0.06% Portfolio turnover rate % 39.20% 34.66% 21.15% 32.05% Net assets per unit $ $ $ $ $ 9.95 SERIES D For the period June 25, to June 30, Total net assets, end of the period 1 $ 9,905 Number of units outstanding 1,000 Management expense ratio % Management expense ratio before tax 0.53% Management expense ratio before waivers 0.54% or absorptions Trading expense ratio % Portfolio turnover rate % Net assets per unit $ 9.91 Year ended Six months ended December 31 SERIES F June 30, Total net assets, end of the period 1 $ 5,848,459 $ 34,301 Number of units outstanding 548,911 3,394 Management expense ratio % 0.63% Management expense ratio before tax 0.53% 0.62% Management expense ratio before waivers 0.54% 0.63% or absorptions Trading expense ratio % 0.03% Portfolio turnover rate % 39.20% Net assets per unit $ $ MD Family of Funds Interim MRFP 2018

8 Financial Highlights (continued) RATIOS AND SUPPLEMENTAL DATA Six months ended Year ended December 31 SERIES I June 30, Total net assets, end of the period 1 $ 184,892,244 $ 176,212,908 $ 149,752,817 $ 127,572,120 $ 107,320,865 Number of units outstanding 14,677,104 14,764,637 12,950,088 11,770,652 10,405,157 Management expense ratio % 0.47% 0.52% 0.61% 0.65% Management expense ratio before tax 0.38% 0.47% 0.52% 0.61% 0.65% Management expense ratio before waivers 0.38% 0.47% 0.52% 0.61% 0.65% or absorptions Trading expense ratio % 0.03% 0.03% 0.02% 0.06% Portfolio turnover rate % 39.20% 34.66% 21.15% 32.05% Net assets per unit $ $ $ $ $ This information is provided as at June 30 or December 31 of the year shown. 2 The management expense ratio ("MER") is based on total expenses for the stated period (excluding commissions, withholding taxes and other portfolio transaction costs) and the Fund's proportionate share of the MER, if applicable, of exchange traded funds ("ETFs") in which the Fund has invested, 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 assets during the period. 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 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. 5 The results shown are for the period June 20, December 31, The results shown are for the period June 25, June 30, The results shown are for the period October 13, December 31, The results shown are for the period February 13, December 31, MD Family of Funds Interim MRFP

9 Summary of Investment Portfolio, June 30, 2018 NET ASSETS: $206.0 MILLION PORTFOLIO ALLOCATION 93.7% Exchange Traded Funds - Equity 5.0% Exchange Traded Funds - Other 1.3% Cash and Other Net Assets EXCHANGE TRADED FUNDS - EQUITY 93.7% EXCHANGE TRADED FUNDS - OTHER 5.0% CASH AND SHORT-TERM INVESTMENTS 1.2% OTHER NET ASSETS 0.1% TOTAL NET ASSETS 100.0% The Cash and Short-Term Investments and Other Net Assets may appear negative due to the timing of cash flows between the trade date and settlement date for transactions on underlying securities. TOP 25 HOLDINGS (PERCENTAGE OF NET ASSETS) Vanguard Small-Cap ETF 13.2% Vanguard FTSE All World ex-us Small-Cap ETF 9.6% FlexShares Morningstar Global Upstream Natural Resources Index Fund 9.5% ishares Global Infrastructure ETF 8.3% VanEck Vectors Agribusiness ETF 7.9% ishares Microcap ETF 7.4% SPDR Dow Jones International Real Estate ETF 7.4% Vanguard REIT ETF 5.9% VanEck Vector Gold Miners ETF 5.9% ishares Edge MSCI Min Vol Global ETF 4.8% SPDR S&P Global Natural Resources ETF 4.2% Global X Silver Miners ETF 3.2% Invesco Water Resources ETF 2.5% Invesco DB Commodity Index Tracking Fund 2.0% ishares Global Timber & Forestry ETF 2.0% Invesco DB Base Metals Fund 1.6% ishares Silver Trust 1.4% Invesco S&P Global Water Index ETF 1.2% Cash and short-term investments 1.2% Invesco Global Water ETF 0.7% Note: Summary of Investment Portfolio may change due to ongoing portfolio transactions of the investment fund. A quarterly update is available. The Net Assets, Portfolio Allocation and Top 25 Holdings in the tables are based on the net assets as at June 30, Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. To obtain a copy of the prospectus, please call your MD Advisor, or the MD Trade Centre at MD Family of Funds Interim MRFP 2018

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