SEMI-ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE EXCEL CHINDIA FUND

Transcription

1 SEMI-ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE For the six months ended March 31, 2018 and 2017

2 Important information about the Fund is contained in the Simplified Prospectus. Read the prospectus carefully before investing. Past performance is no assurance or indicator of future returns. Fund unit values and investment returns will fluctuate.

3 This Interim Management Report of Fund Performance contains financial highlights but does not contain the annual financial statements of the investment fund. This report should be read in conjunction with the investment fund s complete interim financial statements for the period. The interim financial statements have not been reviewed by the investment fund s external auditors. Unitholders may contact us by calling , by writing to us at Excel Funds, 2810 Matheson Boulevard East, Suite 800, Mississauga, ON, L4W 4X7, or by visiting our website at to request a copy of the investment fund s interim or annual financial statements, proxy voting policies and procedures, proxy voting disclosure record, quarterly portfolio disclosure and annual activity report prepared by the Independent Review Committee. MANAGEMENT DISCUSSION OF FUND PERFORMANCE Results of Operations During the six-month period ended March 31, 2018, the Excel Chindia Fund's (the "Fund") Series A and F units increased by 6.7% and 7.2%, respectively. This compares to return of 11.2%, for the Blended Index comprised of 50% Morgan Stanley Capital International (MSCI) China Index and 50% Bombay Stock Exchange ( BSE ) Sensex Index (the Blended Index ). The MSCI Emerging Market Free ( EMF) Index returned 11.8%. The Fund s return is after the deduction of fees and expenses paid by the Fund. The Fund holds Series I Units of the Excel India Fund and Excel China Fund (collectively the Underlying Funds ). Net assets of the Fund increased from $40.3 million as at September 30, 2017, to $42.4 million as at March 31, 2018 primarily due to positive performance, partially offset by net redemptions during the period. The Fund s under performance against the Blended Index is attributable to the overweight of India and the under performance of the Excel China Fund and the Excel India Fund, relative to their respective benchmarks. The majority of the Excel India Fund s underperformance relative to the BSE Sensex Index is attributable to security selection, and to a lesser extent, sector allocation. Security selection within the consumer discretionary, health care, consumer staples, materials, technology and industrials sectors contributed positively to performance; while security selection within the financials, energy, utilities, and telecom sectors detracted from performance. From a sector perspective, the Excel India Fund s overweight in industrials, real estate and underweight in utilities, consumer staples were positive contributors to performance, while its overweight in materials, telecom, healthcare, and consumer discretionary and underweight in information technology, energy, and financials detracted from performance. The Excel China Fund s under performance relative to the MSCI China Index is primary attributed to security selection, and to a lesser extent, sector allocation. The Excel China Fund s overweight in the consumer discretionary and materials sectors and underweight in the consumer staples, financials, and information technology sectors contributed negatively to performance. This was partially offset by being overweight in the health care sector and underweight in the telecom, industrials, and utilities sectors. Cash allocation contributed negatively to the Fund s relative performance. Security selection in health care, information technology, real estate, consumer staples, and telecom sectors contributed positively to performance, but it was more than offset by security selection within the consumer discretionary, financials, materials, industrials, and energy sectors. At March 31, 2018, the Fund had an asset mix of 51.0% Excel India Fund and 39.5% Excel China Fund, with the remainder in cash and cash equivalents. The allocation of the portfolio remained relatively consistent during the year. Excel Investment Counsel Inc. (the Portfolio Adviser ) believes in the long-term growth potential in India, and hence the Fund s allocation towards India remained largely unchanged. Recent Developments On January 2, 2018, Sun Life Global Investments (Canada) Inc. ( Sun Life Global Investments ) completed the purchase of all outstanding shares of Excel Funds Management Inc. and Excel Investment Counsel Inc. (collectively, Excel Funds ). As a result of the change in control of Excel Funds, all members of the Independent Review Committee ( IRC ) automatically ceased to be members of the IRC. Effective January 2, 2018, a new IRC was formed composed of Nancy Church (Chair), Andrew Smith and Pierre-Yves Chatillon. As announced on February 28, 2018, the Fund will be merging into the Sun Life Schroder Emerging Markets Fund on or about June 15, 2018, subject to receiving the relevant securityholder and regulatory approval. The Fund was closed to new investors as of March 7, Additionally, as was also announced on February 28, 2018, the Fund will move to a fixed-rate annual administration fee, effective on or about June 18, 2018, subject to receiving securityholder approval. Indian companies had a record year in raising equity. The amount raised broke the previous record achieved in The six-month period was marked with favourable events such as the successful implementation of the Goods and Services Tax ( GST ) and strong performance of the ruling Bharatiya Janata Party ( BJP ) in multiple state elections. The improvement in India s ranking in Ease of Doing Business and Moody s credit rating upgrade also helped improve investment sentiment. Birla Sun Life AMC Limited ( Birla ), the portfolio adviser for the underlying Excel India Fund, believes that the execution of key economic reforms like the GST, public sector bank ( PSB ) recapitalisation and infrastructure investments will address key issues that impacted the Indian economy over the past few years. Reforms come with near-term associated costs like government budget deficit, however Birla expects these

4 reforms would allow India to pursue accelerated growth trajectory over the medium-term. Birla also expects earnings growth to pick-up after remaining soft for the last couple of years. The 19 th National Party Congress that took place in late October 2017 was a significant event that provided clarity and confidence to China s future of policy making. The Chinese government will focus on reducing the potential for systemic financial risk, comprehensive deepening of reforms, and a focus on environmental protection. The 2018 National People's Congress held a vote to amend the Constitution of China and remove the two-term limit on the presidency. This will allow President Xi Jinping to continue his pursuit of economic and social reforms. In addition, a charter revision also elevated Xi s contribution on par with Mao Zedong and Deng Xiaoping. The Chinese government forecasted GDP growth for 2018 to be 6.5%, continuing its gradual economic deceleration to a more stable pace of growth. Progress has been made in deleveraging the country s debt and the financial regulatory structure was reformed to provide the government with more transparency and oversight over the economy. During the period, a trade disagreement between China and the United States of America (the U.S. ) emerged. The U.S. has proposed to impose USD 50 billion in tariffs on a wide variety of Chinese goods as China retaliated with their own measures. As of the end of period, negotiations continue. China Asset Management Company, the sub-adviser for the underlying Excel China Fund, expects Chinese corporate earnings to maintain double digit growth in Chinese companies remain attractively valued compared to the developed markets as they are supported by strong fundamentals. However, compared to prior periods, the market will have lower risk preferences and individual stocks performance will differ significantly. As a result, within the China allocation of the Fund, volatile stocks allocation has been reduced. Revival in economic and corporate earnings growth, government s fiscal prudence and policy reforms, global tightening of interest rates, potential U.S-China trade war are some key events that China Asset Management Company is monitoring. The Portfolio Adviser remains positive on both the prospect of Indian and Chinese equities over the medium and long-term horizon. The Fund is currently overweight India relative to China. Related Party Transactions Excel Fund Management Inc. (the Manager or "Excel") is the manager of the Fund. Excel has created an IRC to review and provide impartial judgment on, among other things, conflict of interest matters. The IRC reviews potential conflicts of interest referred to it by Excel and makes recommendations on whether a course of action achieves a fair and reasonable result for the Funds. In addition, the IRC regularly reviews Excel s policies and procedures relating to conflicts of interest. The IRC prepares, at least annually, a report of its activities for investors, which is available at and Excel has retained Excel Investment Counsel Inc. ( EICI or the Portfolio Adviser ) to act as the portfolio adviser of the Fund. Both Excel and EICI are wholly owned subsidiaries of Sun life Global Investments Inc. 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 indicated periods. For financial years beginning before October 1, 2013, Net Assets Attributable to Holders of Redeemable Units are calculated in accordance with Canadian General Accepted Accounting Principles ( GAAP ) For financial years beginning on or after October 1, 2013, Net Assets Attributable to Holders of Redeemable Units are calculated in accordance with IFRS. Net Asset Value is calculated in accordance with section 14.2 of National Instrument Investment Fund Continuous Disclosure ( NI ) and is used for transactional pricing purposes. Ratios and Supplemental Data are derived from the Fund s Net Asset Value. The Fund's Net Assets Attributable to Holders of Redeemable Units Per Unit ($) (1) Series A Mar- 18 (3) Net Assets Attributable to Holders of Redeemable Units, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.17) (0.31) (0.27) (0.26) (0.20) (0.17) Realized gains (losses) for the period Unrealized gains (losses) for the period Total increase (decrease) from operations (2) Net Assets Attributable to Holders of Redeemable Units, end of period

5 Series F Mar- 18 (3) Net Assets Attributable to Holders of Redeemable Units, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.18) (0.33) (0.27) (0.24) (0.18) (0.13) Realized gains (losses) for the period Unrealized gains (losses) for the period (0.14) Total increase (decrease) from operations (2) Net Assets Attributable to Holders of Redeemable Units, end of period (1) This information is derived from the Fund s audited annual financial statements and unaudited interim financial report, with the exception of 2014 information, which was restated in accordance with IFRS requirements. The Net Assets Attributable to Holders of Redeemable Units per unit presented in the financial statements may differ from the Net Asset Value calculated for fund pricing purposes. An explanation of these differences can be found in the notes to the financial statements. This table is not intended to be a reconciliation of opening and closing Net Assets Attributable to Holders of Redeemable Units per unit. (2) Net Assets Attributable to Holders of Redeemable Units 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. (3) For the six-month period ended March 31, Ratios and Supplemental Data Series A Mar-18 (5) Net Assets Value ($) (000's) (1) 37,535 36,218 37,727 41,689 43,266 44,753 Net Assets Value per unit (1) Number of units outstanding (000's) (1) 3,319 3,418 4,145 4,996 6,094 8,535 Management expense ratio (%) (2) Management expense ratio before waivers or absorptions (%) (2) Portfolio turnover rate (%) (3) Trading expense ratio (%) (4) Series F Mar-18 (5) Net Assets Value ($) (000's) (1) 4,832 4,092 4,026 2,495 1,900 1,980 Net Assets Value per unit (1) Number of units outstanding (000's) (1) Management expense ratio (%) (2) Management expense ratio before waivers or absorptions (%) (2) Portfolio turnover rate (%) (3) Trading expense ratio (%) (4) (1) This information is provided at March 31 or September 30, as applicable. (2) Management expense ratio is based on total expenses (including those of the Underlying Fund and Exchange Traded Funds that the Fund may have invested in) for the stated period and is expressed as an annualized percentage of daily average Net Asset Value during the year. In the year a Fund is established or reinstated, the management expense ratio is annualized from the date of inception or reinstatement. (3) The Fund's portfolio turnover rate indicates how actively the Fund's portfolio adviser 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. (4) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average Net Asset Value during the period. (5) For the six-month period ended March 31, 2018 Management Fees For the six-month period ended March 31, 2017, The Manager received $522,110 (2017: $473,603) in management fees for dayto-day management and administration services. The management fee for each series is calculated as a percentage of its Net Asset Value, as of the close of business on each business day. The Fund s management fees were used to pay the portfolio advisers for managing the investment portfolio, providing investment analysis and recommendations, making investment decisions, making brokerage arrangements for the purchase and sale of the investment portfolio. The Manager also used the management fees to fund commission payments and other dealer compensation (collectively distributionrelated costs ) to registered dealers and brokers for units of the Fund bought and held by investors. Other services provided by Excel also include, but are not limited to, the preparation and filing of the prospectus and related documents, maintaining the accounting records, executing securities trades, monitoring compliance with regulatory requirements and the preparation of all written and printed materials for distribution to investors. For the six-month period ended March 31, 2018, Excel received administration fees of $6,234 (2017: $21,115) relating to the operation of the Fund.

6 The percentages and major services paid for out of the management fees are set out below: Maximum Annual Management Fee Rate (%) As a Percentage of Management Fees Dealer Compensation (%) (1) General Administration, Investment Advice and Profit (%) Series A Units Series F Units (1) Includes sales and trailing commissions. Past Performance Sales commissions, trailing commissions, management fees and expenses all maybe associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemptions,distributions,optional charges or income taxes payable by any investor that would have reduced returns. It should be noted that mutual funds are not guaranteed as their value changes frequently and past performance may not be repeated. The Fund s performance numbers assume that all distributions are reinvested in additional units of the Fund. If you hold this Fund outside of a registered plan, income and capital gains distributions that are paid to you increase your income for tax purposes whether paid to you in cash or reinvested in additional units. The amount of the reinvested taxable distributions is added to the adjusted cost base of the units that you own. This would decrease your capital gains or increase your capital loss when you later redeem from the Fund, thereby ensuring that you are not taxed on this amount again. Please consult your tax adviser regarding your personal tax situation. The past performance of the Fund is set out in the following charts. All returns are calculated in Canadian Dollars, and unit values are expressed in Canadian Dollars. Year-by-Year Returns The following bar charts show the performance of each series of units of the Fund for the six-month period ended March 31, 2018 and for each of the previous years ended September 30. The charts show in percentage terms how an investment held on October 1 or on inception would have increased or decreased by September 30 of the fiscal year. The past performance of the Fund is not necessarily an indication of how it will perform in the future. Series A Units Annual Returns for the periods ended September 30 and the six-month period ended March 31, % 25% 0% -25% 28.4% -50% -43.3% % % % -0.3% % % % % % Series F Units Annual Returns for the periods ended September 30 and the six-month period ended March 31, % 25% 0% -25% -42.5% -50% % 20.2% % % 1.1% % 2014 Summary of Investment Portfolio * as at March 31, % 17.6% 10.4% 7.2% 2018 Top 25 Investments % of Net Asset Issuer Value 1 Excel India Fund "I" Series Excel China Fund "I" Series Cash & Cash Equivalents 6.1

7 Asset Allocation % of Net Asset Asset Class Value Financials 24.5 Information Technology 18.9 Consumer Discretionary 14.2 Other Assets (Liabilities) 9.5 Health Care 7.1 Industrials 6.7 Materials 5.3 Consumer Staples 3.9 Energy 3.1 Real Estate 3.0 Utilities 1.4 Exchange Traded Funds 1.2 Telecommunication Services 1.0 Mutual Funds 0.2 Total Portfolio Region Allocation % of Net Asset Value India 52.3 China 36.7 Other Assets (Liabilities) 9.5 South Africa 1.2 Canada 0.3 Total (*) The investments and percentages may have changed by the time you purchase units of this Fund. The top 25 holdings are made available quarterly. The Quarterly Portfolio Disclosure is posted on the Excel Funds website - ( ) The Fund has only 3 holdings. ( ) The portfolio region allocation and asset allocation percentages are based on the Fund s holdings of the two Underlying Funds. Forward-Looking Statements This management report of fund performance may contain forward-looking statements about the Fund, including its strategy, results of operations, performance and condition. Forward-looking statements include statements that are predictive in nature, or that depend upon or refer to future events or conditions. They are based on current beliefs, expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Fund and various economic factors. Many factors could cause the Fund s actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. These factors could include, among other things, general economic, political and market factors, including interest and foreign exchange rates, business competition, technological changes, changes in government regulations or in tax laws. Although the forward-looking statements contained in this report are based upon what management currently believes to be reasonable assumptions, the Manager cannot assure current or prospective investors that actual results, performance or achievements will be consistent with these forward-looking statements. The words may, could, would, should, believe, plan, anticipate, expect, intend, forecast, objective, and similar expressions are intended to identify forward-looking statements.

8 At Excel Funds we believe we have a responsibility to minimize our impact on the environment. We have also chosen as our print partner Informco, one of the most environmentally progressive printers in Canada and an ISO Environment and Forest Stewardship Council (FSC ) certified company. This paper comes from responsible sources.