2016 Semi-Annual Management Report of Fund Performance

Transcription

1 2016 Semi-Annual Management Report of Fund Performance for the period ended June 30, 2016 Trident Performance Corp. II This semi-annual management report of fund performance contains financial highlights but does not contain the complete semi-annual or annual financial statements of the investment trust. You can get a copy of the semi-annual or 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 trust s proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure Y109

2 RESULTS OF OPERATIONS The Company s net assets decreased by $0.3 million to $3.8 million from December 31, 2015 to June 30, The portfolio s performance decreased net assets by $0.3 million. The Company s six-month return for Class A shares was -4.1%, as compared to the benchmark s return of -2.6% for the same period. The benchmark is the S&P 500 Total Return Index. The following commentary pertains to the results of operations of the Trident Performance Trust. We had believed strongly that global growth would disappoint in We had anticipated this even though the U.S. Federal Reserve s (Fed) token 0.25% rate hike in December 2015 has been more than offset by continued quantitative easing (QE) in both the Eurozone and Japan. We also expected that weak growth coupled with high levels of global debt and unemployment, especially in Europe, would mean increased political turmoil possibly forcing policymakers into more radical measures to placate the electorate. Finally, we had felt that the divergent monetary policies would lead to more market volatility resulting in investors abandoning speculative investments in a hunt for safe havens. Our fundamental views have largely been borne out in Global growth over the year has proved considerably weaker than most observers had expected with most regions of the world slowing down significantly. Much of the hard activity data such as industrial production, exports and commodity demand have weakened to levels that signal recession. The softer survey data have also weakened during the period though they suggest a slowing in growth rather than a contraction. The weakening data have prompted more aggressive monetary policy with the European Central Bank cutting interest rates to more negative levels and the Bank of Japan possibly readying itself for similar action. Worries about growth in turn have led to considerable market volatility with markets plunging in the first two months of the year, only to reverse sharply from March through June in anticipation of more policy action. Our portfolios suffered losses in 2016 through June and underperformed the benchmark, despite our largely correct assessment of the fundamentals. We were long gold and gold stocks (as well as other precious metals) and boosted our exposure over the course of the period. These positions were among the largest positive contributors to our performance. We were also long fixed income to profit from the weak growth that we had expected. These positions were also significant positive contributors to performance. Our significant losses, which more than wiped out our gains, came almost entirely from our relatively small long positions in Japanese equities and particularly in Japanese bank stocks. Despite QE and negative interest rates, the Japanese yen strengthened considerably this year and the equity market sold off dramatically, led by the banks. In fact, the Japanese banks, which we believe are among the safest in the world today, actually sold off more than their virtually bankrupt counterparts in the Eurozone. Our other portfolio positions did not materially affect our overall performance. RECENT DEVELOPMENTS We believe that global fundamentals have deteriorated significantly and are unlikely to improve much over the next several months. Radical monetary policies and a continued accumulation of global debt have made for buoyant markets but have generated anemic global growth. Moreover, the wealthiest have benefited disproportionately from these policies and in many cases directly at the expense of many of the poorer cohorts. As such, there is a sense of popular malaise that is increasingly being expressed at the polling booths. Witness thus that the British voted to exit the European Union in their late June Brexit vote, an outcome that caught the ruling and financial elites totally by surprise. Again, radical parties and candidates appear to be gaining in popularity in most of the developed world with most of the electorate supporting them doing so as a way to change the status quo. Markets have enjoyed a period of relative stability since 2009, but the policies that engendered the same have come at a crippling cost to the public and no longer enjoy the wide support needed for their continuation. We believe thus that we are entering a period of unprecedented global turmoil that is likely to be felt in the economic, political and financial market arenas. We believe policymakers have few alternatives today. The race to currency debasement is in full force and weaker growth is only going to make things worse. As such, we believe that gold is extremely attractive as a store of value and a hedge against even more radical monetary measures. We also believe that bonds in select developed and developing countries that have a combination of positive rates and relatively decent fiscal and economic fundamentals provide considerable upside as rates in other regions go more negative. We also believe that equities in Japan and both the equities and credit of certain developing countries are extremely undervalued and provide huge potential returns for the medium-term holder. On the short side, we see a huge opportunity in junk credits in both the U.S. and Eurozone. The rush for yield has compressed spreads for low grade companies to levels that simply ignore the rapidly rising default rates within this group. Credit conditions globally today are similar to those that prevailed in 2006 at the height of the credit bubble. However, we have much less policy flexibility than we did in 2007 to deal with a sovereign and/or corporate credit crisis that we believe is virtually inevitable over the next 18 months. On May 26, 2016, the Board of Directors of the Company approved a proposal to dissolve the Company following the liquidation and distribution of the assets of the Company. On August 10, 2016, at a special meeting of shareholders of the Company, shareholders approved the previously announced proposal to dissolve the Company.

3 The Company expects to distribute to shareholders, on a pro rata basis, the net proceeds from the liquidation of the assets of the Company, less all liabilities and expenses of the Company, in late August 2016 and to formally dissolve the Company in October In connection with the Terminations, the Class A shares of the Company are expected to be de-listed from the Toronto Stock Exchange, at the request of the Company, at the close of business on August 24, RELATED PARTY TRANSACTIONS Manager CI Investments Inc. is the Manager of the Company and in consideration of management fees of $0.004 million, provided management services required in the day-to-day operations of the Company for the period. Management Fees 100% of the management fees received, for the period were used to pay for investment management and other general administration. Independent Review Committee The Company received standing instructions from the Board of Governors ( BoG ) in its capacity as the Independent Review Committee ( IRC ) 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 (referred to as Inter-Fund Trades ); and c) mergers of funds with another fund that is subject to National Instrument ( Fund Mergers ). The applicable standing instructions require that Related Party Transactions be conducted in accordance with the Manager s policies and procedures. The Manager is required to advise the BoG of any material breach of a condition of the standing instructions. The standing instructions require, among other things, that the investment decision in respect to Related Party Transactions (a) are made by the Manager free from any influence by any entities related to the Manager and without taking into account any consideration to any affiliate of the Manager; (b) represent the business judgment of the Manager uninfluenced by considerations other than the best interests of the Company; and (c) are made in compliance with the Manager s policies and procedures. Transactions made by the Manager under the standing instructions are subsequently reviewed by the BoG on a quarterly basis to monitor compliance. The Company relied on the BoG s standing instructions regarding Related Party Transactions during this reporting period.

4 FINANCIAL HIGHLIGHTS The following table shows selected key financial information about the Company and is intended to help you understand the Company s financial performance for the past six periods, as applicable. NET ASSETS PER SHARE (1, 2, 8) Class A Commencement of operations February 27, 2009 Net assets at the beginning of period (1) Six Months Ended Year Ended Year Ended Year Ended Year Ended Year Ended Jun. 30, 2016 Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2012^ Dec. 31, 2011^ $ $ $ $ $ $ Increase (decrease) from operations: Total revenue Total expenses (excluding distributions) Realized gains (losses) for the period Unrealized gains (losses) for the period Total increase (decrease) from operations (2) (0.04) (0.08) (0.08) (0.08) (0.09) (0.07) (0.02) (2.67) (0.08) (1.17) (1.74) (3.69) (0.55) 2.78 (0.18) (0.61) 0.03 (0.34) (0.21) (0.16) 0.14 Dividends: From net investment income (excluding dividends) From dividends From capital gains Return of capital Total dividends (2,3) Net assets at the end of the period shown (2) (0.08) (0.08) Ratios and Supplemental Data Total net assets ($000 s) (8) Number of shares outstanding (000 s) (8) Portfolio turnover rate (%) (5) Trading expense ratio (%) (6) Management expense ratio before taxes (%) (4) Harmonized sales tax (%) (4) Management expense ratio after taxes (%) (4) Effective HST rate for the period (%) (4) Closing market price ($) 3,773 4,083 5,415 7,174 10,731 13, ,245 1, ^Historical figures are based on Canadian GAAP, for more details refer to footnote 7. (1) This information is derived from the Company s semi-annual and annual financial statements. (2) Net assets per share and dividends per share are based on the actual number of shares outstanding at the relevant time. The increase (decrease) from operations per share is based on the weighted average number of shares outstanding over the fiscal period. (3) Dividends were paid in cash or automatically reinvested in additional shares of the Company. (4) Management expense ratio is calculated based on expenses charged to the Company (excluding commissions and other portfolio transaction costs) and is expressed as an annualized percentage of daily average net assets for the period. As of July 1, 2010, Ontario combined the federal goods and services tax ( GST - 5%) with the provincial retail sales tax ( PST - 8%). The combination resulted in a Harmonized sales tax ( HST ) rate of 13%. The Effective HST tax rate is calculated using the attribution percentage for each province based on shareholder residency and can be different from 13%. (5) The Company s portfolio turnover rate indicates how actively the Company s portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Company buying and selling all of the securities in its portfolio once in the course of the fiscal period. The higher a Company s portfolio turnover rate in a period, the greater the trading costs payable by the Company 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 higher turnover rate and the performance of a Company. Portfolio turnover rate is calculated by dividing the lesser of the cost of purchases and the proceeds of sales of portfolio securities for the period, excluding cash and short-term investments maturing in less than one year, by the average of the monthly fair value of investments during the period. (6) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value of the Company during the period. (7) For financial periods beginning on or after January 1, 2013 the financial highlights are derived from the financial statements prepared in accordance with International Financial Reporting Standards ( IFRS ). IFRS allows net assets to be calculated based on the last traded market price for financial assets and financial liabilities where the last traded price falls within the day s bid-ask spread. There are no differences between the net assets calculated for purpose of processing shareholders transactions and the net assets attributable to holders of redeemable shares used for financial statement reporting purposes. For financial years before January 1, 2013, the financial highlights are derived from the financial statements prepared in accordance with Canadian GAAP. Under Canadian GAAP net assets for financial statement purposes were calculated based on bid/ask price while for purpose of processing shareholder transactions net assets were calculated based on the closing market price. (8) This information is provided for the period ended June 30, 2016 and the years ended December 31.

5 PAST PERFORMANCE This section describes how the Company has performed in the past. Remember, past returns do not indicate how the Company will perform in the future. The information shown assumes that distributions made by the Company in the periods shown were reinvested in additional shares of the Company. 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 chart shows the Company s semi-annual and annual performance for each of the periods shown, and illustrates how the Company s performance has changed from period to period. In percentage terms, the chart shows 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, except where noted. Class A Dec Dec Dec Dec Dec Dec Dec Jun This figure is for the period from February 27, 2009 to December 31, 2009.

6 SUMMARY OF INVESTMENT PORTFOLIO as at June 30, 2016 Portfolio Breakdown* Category Percentage of Net Assets (%) Portfolio Breakdown (cont d)* Category Percentage of Net Assets (%) Top Holdings* Security Name Percentage of Net Assets (%) Country allocation Long Positions: Cash & Equivalents 77.9 Other Net Assets (Liabilities) 19.8 British Virgin Islands 2.8 Japan 1.9 Options Contracts 0.2 Credit Default Swaps 0.1 Future Contracts (0.2) Foreign Currency Forward Contracts (1.2) Total Long Positions Short Positions: U.S.A. (1.3) Total Short Positions (1.3) Sector allocation Long Positions: Cash & Equivalents 77.9 Other Net Assets (Liabilities) 19.8 Corporate Bonds 2.8 Financials 0.9 Consumer Discretionary 0.5 Materials 0.3 Options Contracts 0.2 Industrials 0.1 Information Technology 0.1 Credit Default Swaps 0.1 Future Contracts (0.2) Foreign Currency Forward Contracts (1.2) Total Long Positions Short Positions: Exchange-Traded Funds (1.3) Total Short Positions (1.3) Cash & Equivalents 77.9 CNPC General Capital Ltd., 3.4% 04/16/ SPDR S&P 500 ETF Trust 1.3 Sumitomo Metal Mining Co., Ltd. 0.3 Mitsubishi UFJ Financial Group Inc. 0.3 Sumitomo Mitsui Financial Group Inc. 0.2 Toyota Motor Corp. 0.2 Mizuho Financial Group Inc. 0.1 Toyota Industries Corp. 0.1 Shizuoka Bank Ltd. 0.1 Sumitomo Mitsui Trust Holdings Inc. 0.1 Honda Motor Co., Ltd. 0.1 Tokyo Broadcasting System Holdings Inc. 0.1 Fukuoka Financial Group Inc. 0.1 JGC Corp. 0.1 Hitachi Ltd. 0.1 Total Net Assets (in $000 s) $3,773 *These are portfolio breakdowns and holdings of the Trident Performance Trust. Trident Performance Corp. II is exposed to these portfolio breakdowns and holdings as a result of a forward contract. The summary of investment portfolio may change due to ongoing portfolio transactions of the Company and updates will be available on a quarterly basis. A NOTE ON FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements about the Company, its future performance, strategies or prospects, and possible future Company 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. Forwardlooking statements involve inherent risks and uncertainties, both about the Company 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 Company. 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.