OceanRock Income Portfolio (the Portfolio )

Transcription

1 (the Portfolio ) Interim Period ended June 30, 2018 This contains financial highlights but does not contain either interim or annual financial statements of the Portfolio. You can obtain a copy of the interim or annual financial statements from the manager of the Portfolio, OceanRock Investments Inc. (the Manager or OceanRock ), at your request, and at no cost, by calling toll-free , by writing to us at OceanRock Investments Inc., Suite 1920, 505 Burrard St., Box 85, Vancouver, BC, V7X 1M6, or by visiting our website at or SEDAR at Unitholders may also contact us using one of these methods to request a copy of the Portfolio s proxy voting policies and procedures, proxy voting disclosure record or quarterly portfolio disclosure.

2 Management Discussion of Fund Performance Results of Operations For the six-month period ended June 30, 2018, Series A units of the returned 0.01% versus its blended benchmark index which returned 1.00%. All index and Portfolio returns are calculated on a total return basis in Canadian dollars terms. The Portfolio s return is net of fees and expenses. Investors cannot invest in an index without incurring fees, expenses and commissions, which are not reflected in the index returns. The Meritas Canadian Bond Fund provided modest contribution to Portfolio performance for the first half of The Core Component added to overall Fund performance, benefitting from successful duration management. The Credit Component also contributed, driven by the Industrials sub-sector which continued to outperform the overall Corporate sector, enhancing the return of the Component. Meritas Strategic Income Fund contributed to Portfolio performance over the period. The Short-Term Fixed Income Component outperformed the FTSE TMX Short Overall Bond Index, as BBB rated credit outperformed the index and other rating categories. The Component s overweight position in BBB rated securities enhanced performance. The Equity Income Component detracted from Portfolio performance, as dividend stocks as a group lagged during the first half of Softness was seen in rate-sensitive sectors such as Utilities, Telecommunications, and Staples, as the well telegraphed path of monetary tightening continued. The OceanRock Canadian Equity Fund contributed to Portfolio performance. The Fund s relative performance benefitted from strong stock selection in the Consumer Staples sector, while positioning in Financials detracted from relative returns. The OceanRock U.S. Equity Fund was additive to Portfolio performance. Key contributors to performance included stock selection and an underweight allocation in Industrials, and stock selection in Consumer Staples. A stronger U.S. dollar during the reporting period benefited the Fund. OceanRock International Equity Fund contributed to Portfolio performance. Some of the Fund s core holdings in the Health Care sector materially outperformed, while stock selection in the Materials sector was also beneficial to relative returns. A Selloff in emerging market equities detracted. For information about the underlying funds held in the Portfolio, please see the individual Management Report of Fund Performance for the applicable fund. This Portfolio has an overall target mix of 80% fixed income and 20% equity. The weights of the Portfolio s underlying funds may be changed within these targets from time to time. Recent Developments Canadian bond investors focused on inflation data, as job creation remained very vigorous. As a result, the Bank of Canada ( BoC ) and the U.S. Federal Reserve continued to normalize their monetary policies; the U.S. Federal Reserve increased its key rate twice, while the BoC chose the status quo in June after increasing its rate in the first quarter. Moreover, turbulent U.S. politics took center stage with President Trump adopting sweeping protectionist measures that were received poorly by investors. This situation contributed to the market volatility, and in this context, bond yields were up in the first half of the year. Volatility returned to global equity markets during the first half of Despite rebounding strongly in the second quarter, Canadian markets were overall muted, continuing the trend from last year. Canada continued to be the target of specific investor concerns with headlines around energy egress, trade, and a slowing housing market impacting domestic equity returns that have once again lagged global benchmarks in Page 2 of 12

3 After the spike in volatility in the first quarter, volatility largely declined during the second quarter, and most indices were able to finish in positive territory. However, a strong U.S. dollar and slowing economic growth overseas have weighed heavily on U.S. firms with high non-u.s. revenue exposure. In addition, concerns about a trade war have also likely impacted the performance of U.S. stocks with high foreign exposure. The strength of the U.S. dollar also had a significant negative impact on non-u.s. equity returns in the second quarter. The consolidation of growth relative to the United States, trade tensions, and political uncertainty have lowered expectations for international equities going forward. However, the fundamental trends of the previous 12 months remain intact and could reassert themselves in the second half of 2018, potentially providing an interesting opportunity for investors. Proposed Change of Manager In December 2017, Desjardins Financial Holding Inc. ( Desjardins ), the indirect controlling shareholder of OceanRock, entered into an agreement with Canada s five provincial credit union centrals (the Centrals ) and The CUMIS Group Limited ( CUMIS ), pursuant to which the business of Qtrade Canada Inc., the parent company of OceanRock, would be combined with the businesses of Credential Financial Inc. and Northwest & Ethical Investments L.P. ( NEI ). The transaction closed on April 1, 2018 and resulted in an indirect change of control of OceanRock. The new entity, Aviso Wealth Inc. ( Aviso ), is indirectly jointly owned by Desjardins and a limited partnership comprised of the Centrals and CUMIS, with each holding a 50% stake. As a result of the above noted transaction, OceanRock and NEI are now affiliates and this has resulted in some overlap and duplication of offerings. As a result, it has been proposed that certain funds managed by OceanRock be merged into funds managed by NEI and that the management agreements with respect to certain other funds currently managed by OceanRock be transferred to NEI, which will result in NEI becoming the new manager of those funds. OceanRock proposes to change the manager of this Portfolio to NEI effective on or about October 26, A meeting to obtain approval from Portfolio investors in respect of the change of manager will be held on or about August 31, If the change is approved, NEI will become the trustee and registrar of the Portfolio and Desjardins Trust Inc. (an affiliate of NEI) will become the custodian of the Portfolio. Proposed Change of Investment Objective In connection with the above, OceanRock is also proposing a change to the fundamental investment objective of the Portfolio effective on or about October 26, A meeting to obtain approval from Portfolio investors in respect of the change of investment objective will be held on or about August 31, If the change is approved, the Portfolio will be renamed NEI Select Income Portfolio, its investment strategies will be updated and its distribution policy will change from an annual variable to a monthly fixed amount. Proposed Fixed Administration Fees In connection with the above, OceanRock is also a proposing the adoption of a fixed administration fee to replace certain operating expenses attributable to the series of the Portfolio effective on or about October 26, A meeting to obtain approval from Portfolio investors in respect of this change will be held on or about August 31, Page 3 of 12

4 Financial Highlights The following tables show selected key financial information about the Portfolio and are intended to help you understand the Portfolio s financial performance for the past five years. The Portfolio s Net Assets per Unit 1 Series A Units June 30, Net assets per unit, beginning of periods $11.58 $11.32 $11.19 $11.07 $10.63 $10.47 Increase (decrease) from operations: Total revenue (0.01) Total expenses (0.12) (0.24) (0.24) (0.24) (0.24) (0.23) Realized gains (losses) for the periods Unrealized gains (losses) for the periods (0.03) (0.01) Total increase (decrease) from operations 2 (0.01) Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions Net assets per unit, end of periods $11.58 $11.58 $11.32 $11.19 $11.07 $10.63 Ratios and Supplemental Data Total net asset value (000 s) 4 $19,889 $22,695 $27,743 $30,441 $28,336 $24,777 Number of units outstanding (000 s) 4 1,717 1,9660 2,450 2,719 2,559 2,330 Management expense ratio % 2.13% 2.14% 2.16% 2.23% 2.26% Management expense ratio before waivers or 2.23% 2.18% 2.19% 2.17% 2.31% 2.33% absorptions Portfolio turnover rate % 2.48% 3.76% 4.74% 21.89% 8.27% Trading expense ratio % % Net asset value per unit $11.58 $11.58 $11.32 $11.19 $11.07 $ The Fund adopted International Financial Reporting Standards ("IFRS") on January 1, Previously, the Fund prepared its financial statements in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). Furthermore, the Fund has adopted IFRS 9 Financial Instruments commencing with the period beginning January 1, IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. The adoption of IFRS 9 did not impact classification and measurement of the Fund. A restatement of prior periods is not required. 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 period. 3 Distributions were reinvested in additional units of the Portfolio and paid in cash. 4 The information is provided as at December 31 st of the year shown, except as otherwise indicated. 5 Management expense ratio is based on total expenses (excluding commissions and other portfolio transaction costs) for the stated period and is expressed as an annualized percentage of daily average net asset value during the period. The Manager may absorb some operating expenses payable by the Portfolio and may discontinue doing so at any time in its discretion. 6 The portfolio turnover rate indicates how actively the portfolio adviser manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Portfolio buying and selling all of the securities in its portfolio once in the course of the year. The higher the portfolio turnover rate in a year, the greater the trading costs payable by the Portfolio 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. 7 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. Page 4 of 12

5 The Portfolio s Net Assets per Unit 1 Series F Units June 30, Net assets per unit, beginning of periods $11.86 $11.49 $11.30 $11.28 $10.73 $11.45 Increase (decrease) from operations: Total revenue (0.01) (0.38) Total expenses (0.08) (0.16) (0.16) (0.16) (0.15) (0.15) Realized gains (losses) for the periods Unrealized gains (losses) for the periods (0.02) (0.47) (0.03) 0.10 Total increase (decrease) from operations (0.40) Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions Net assets per unit, end of periods $11.90 $11.86 $11.49 $11.30 $11.28 $10.73 Ratios and Supplemental Data Total net asset value (000 s) 4 $108 $172 $802 $1,212 $8 $1 Number of units outstanding (000 s) Management expense ratio % 1.38% 1.41% 1.45% 1.40% 1.43% Management expense ratio before waivers or 8.69% 4.12% 2.22% 2.42% % % absorptions Portfolio turnover rate % 3.76% 4.74% 21.89% 8.27% Trading expense ratio % Net asset value per unit $11.90 $11.86 $11.49 $11.30 $11.28 $ The Fund adopted International Financial Reporting Standards ("IFRS") on January 1, Previously, the Fund prepared its financial statements in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). Furthermore, the Fund has adopted IFRS 9 Financial Instruments commencing with the period beginning January 1, IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. The adoption of IFRS 9 did not impact classification and measurement of the Fund. A restatement of prior periods is not required. 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 period. 3 Distributions were reinvested in additional units of the Portfolio and paid in cash. 4 The information is provided as at December 31 st of the year shown, except as otherwise indicated. 5 Management expense ratio is based on total expenses (excluding commissions and other portfolio transaction costs) for the stated period and is expressed as an annualized percentage of daily average net asset value during the period. The Manager may absorb some operating expenses payable by the Portfolio and may discontinue doing so at any time in its discretion. 6 The portfolio turnover rate indicates how actively the portfolio adviser manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Portfolio buying and selling all of the securities in its portfolio once in the course of the year. The higher the portfolio turnover rate in a year, the greater the trading costs payable by the Portfolio 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. 7 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. Page 5 of 12

6 The Portfolio s Net Assets per Unit 1 Monthly Income Series (Series T) Units June 30, Net assets per unit, beginning of periods $9.16 $9.32 $9.56 $9.80 $9.73 $9.96 Increase (decrease) from operations: Total revenue (0.01) Total expenses (0.10) (0.20) (0.21) (0.21) (0.22) (0.22) Realized gains (losses) for the periods Unrealized gains (losses) for the periods (0.08) (0.07) Total increase (decrease) from operations Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions Net assets per unit, end of periods $8.97 $9.16 $9.32 $9.56 $9.80 $9.73 Ratios and Supplemental Data Total net asset value (000 s) 4 $2,368 $3,023 $3,781 $3,806 $3,021 $2,847 Number of units outstanding (000 s) Management expense ratio % 2.24% 2.23% 2.24% 2.24% 2.28% Management expense ratio before waivers or 2.43% 2.37% 2.36% 2.33% 2.51% 2.55% absorptions Portfolio turnover rate % 3.76% 4.74% 21.89% 8.27% Trading expense ratio % Net asset value per unit $8.97 $9.16 $9.32 $9.56 $9.80 $ The Fund adopted International Financial Reporting Standards ("IFRS") on January 1, Previously, the Fund prepared its financial statements in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). Furthermore, the Fund has adopted IFRS 9 Financial Instruments commencing with the period beginning January 1, IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. The adoption of IFRS 9 did not impact classification and measurement of the Fund. A restatement of prior periods is not required. 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 period. 3 Distributions were reinvested in additional units of the Portfolio and paid in cash. 4 The information is provided as at December 31st of the year shown, except as otherwise indicated. 5 Management expense ratio is based on total expenses (excluding commissions and other portfolio transaction costs) for the stated period and is expressed as an annualized percentage of daily average net asset value during the period. The Manager may absorb some operating expenses payable by the Portfolio and may discontinue doing so at any time in its discretion. 6 The portfolio turnover rate indicates how actively the portfolio adviser manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Portfolio buying and selling all of the securities in its portfolio once in the course of the year. The higher the portfolio turnover rate in a year, the greater the trading costs payable by the Portfolio 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. 7 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. Page 6 of 12

7 Management Fees Management fees payable to the Manager by the Portfolio are calculated daily on the net asset value of the Portfolio at an annual rate of: Series A 1.65% Series F 0.80% Monthly Income Series (Series T) 1.65% The Portfolio paid the Manager management fees of $197,716 during the interim period. 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 fees are paid monthly. The Portfolio s management fees were used by the Manager to pay costs related to managing the investment portfolio, providing investment analysis and recommendations, making investment decisions, making brokerage arrangements for the purchase and sale of the investment portfolio and providing other services. For the six months ended June 30, 2018, approximately 25.5% of the total management fees from all OceanRock managed funds was used to fund these costs. Where total costs exceeded the current period s management fees paid by the Portfolio, the balance was paid out of the Manager s other resources. The Manager also used the management fees to fund commission payments and other dealer compensation (collectively, distribution-related costs) to registered dealers for units of the Portfolio bought and held by investors. For the six months ended June 30, 2018, approximately 54.4% of the total management fee revenues received from all OceanRock managed funds was used to fund distribution-related costs paid to registered dealers. This may vary by series depending on the assets invested in each series. Page 7 of 12

8 Past Performance The performance information shown below assumes that all distributions made by the Portfolio in the periods shown were reinvested in additional units of the Portfolio. It does not take into account sales, redemption, distribution or other optional charges that would have reduced returns or performance. How the Portfolio has performed in the past does not necessarily indicate how it will perform in the future. Year-by-Year Returns The following bar chart shows the Portfolio s annual performance for each of the periods shown and illustrates how the Portfolio s performance has changed from year to year. The bar chart shows, in percentage terms, 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 shown. The differences in performance between series are the result of the timing of cash flows into and out of each series and the different management fees charged to the applicable series. 8% 5.72% 6.63% 5.70% Series A Series F Monthly Income Series (Series T) 2.98% 3.67% 1.60% 2.44% 1.57% 3.19% 2.49% 2.52% 2.43% 2.32% 1.72% 1.64% 1.77% 1.68% 0.39% 0.01% -0.05% -3% Jun-18 Note: Series A inception date: April 6, Series F inception date: April 6, Monthly Income Series (Series T) inception date: April 30, Page 8 of 12

9 Summary of Investment Portfolio The following tables show a summary of the Portfolio s holdings as at June 30, The Portfolio invests in other investment funds. The prospectus and other information about the underlying investment funds are available on the Internet at or The summary of investment portfolio may change due to ongoing portfolio transactions of the Portfolio. Updates are available quarterly. Underlying Funds and Assets Security Name Series % of NAV Asset Mix Asset Class MERITAS CANADIAN BOND FUND O 63.4 Fixed Income 83.2 MERITAS STRATEGIC INCOME FUND O 19.8 Equities 16.4 OCEANROCK CANADIAN EQUITY FUND O 6.2 Cash & Equivalents 0.4 OCEANROCK INTERNATIONAL EQUITY FUND O 5.1 Total OCEANROCK US EQUITY FUND O 5.1 CASH 0.4 Total % of NAV Page 9 of 12

10 The Portfolio is a fund-of-fund structure and invests in other investment funds. The following table represents an aggregated "look-through" of the Portfolio s holdings. Actual consolidated security holdings are only identifiable by including the holdings of the underlying investment funds. Top 25 Holdings Security Name Coupon % Maturity % of NAV Investment / Sector Mix Investment Type ONTARIO (PROVINCE OF) Jun 02, Corporate Bonds 47.4 PROVINCE OF ONTARIO Jun 02, Provincial Bonds 13.6 PROVINCE OF ONTARIO Jun 02, Federal Bonds 11.3 CANADA HOUSING TRUST Sep 15, Municipal Bonds 5.0 CANADIAN GOVERNMENT Sep 01, Financials 4.0 GOVERNMENT OF CANADA Dec 01, Energy 2.8 ONTARIO (PROVINCE OF) Dec 02, Industrials 2.8 MASTER CREDIT CARD TR II Jul 21, Information Technology 2.6 TORONTO DOMINION BANK Jul 25, Consumer Staples 1.9 MET LIFE GLOB FUNDING I Apr 16, Consumer Discretionary 1.9 PROVINCE OF QUEBEC Dec 01, Cash & Equivalents 1.8 CANADIAN GOVERNMENT Jun 01, Materials 1.2 GOVERNMENT OF CANADA Jun 01, Health Care 1.1 GOVERNMENT OF CANADA Jun 01, Impact Investments 0.8 NISSAN CANADA FIN SERVIC Mar 05, Real Estate 0.7 CITY OF MONTREAL Sep 01, Utilities 0.7 BANK OF MONTREAL Jun 01, Telecommunication Services 0.4 CANADA HOUSING TRUST Dec 15, Total CASH 0.8 CANADA HOUSING TRUST Jun 15, TORONTO DOMINION BANK Sep 30, FORD CREDIT CANADA CO May 08, ROYAL BANK OF CANADA Jan 20, IVANHOE CAMBRIDGE II Jun 27, TORONTO DOMINION BANK May 30, Total 30.9 Note: Rounding to one decimal place may result in the individual figures totalling to more or less than 100%. % of NAV Page 10 of 12

11 Forward-Looking Statements This report may contain forward-looking statements about the Portfolio, including its strategy, expected performance and condition. Forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made by the Portfolio. Any number of important factors could contribute to these differences, including, but not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. This list of factors is not exhaustive. Consider these and other factors carefully before making any investment decisions and avoid placing any undue reliance on forward-looking statements. Page 11 of 12

12 OceanRock Mutual Funds Suite 1920, 505 Burrard Street Box 85, Vancouver, BC, V7X 1M