2018 Annual Management Report of Fund Performance

Transcription

1 MD Family of Funds 2018 Annual Management Report of Fund Performance DISCLOSURE This annual management report of fund performance contains financial highlights but does not contain the complete annual financial statements of the investment fund. You can obtain a copy of the annual 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.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 Annual Management Report of Fund Performance (MRFP). If you also opted to receive the fund s financial statements, they are included in this package. The annual MRFP is a regulatory document that supplements the annual financial statements. The document includes a brief discussion and analysis of the fund s 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 December 31, 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.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 Investment Objectives and Strategies The MD Precision Maximum Growth Portfolio (the Fund ) is a strategic asset allocation fund with the objective to provide growth of capital. The Fund will invest primarily in units of funds managed by MD Financial Management Inc., with an emphasis on equity funds for potential capital appreciation and only a minor exposure to fixed income funds for income generation and capital preservation. The Fund may also invest in other non affiliated mutual funds and directly in fixed income securities, cash or cash equivalents. The Fund s principal investment strategy is strategic asset allocation. The Fund assets will be invested according to the target weightings for the Fund, which may change at our discretion, but are generally expected to follow an approximate allocation of 18% fixed income, 30% Canadian equity 16% U.S. equity, 16% international equity, 5% emerging market equity and 15% alternatives. The Fund may not invest in companies that manufacture tobacco or tobacco related products or cannabis or cannabis related products. Risk The investment risks associated with this Fund are detailed in the Simplified Prospectus. The Fund is designed for an investor seeking a single decision investment fund who is willing to accept a low to medium level of investment risk with exposure to all major asset classes. The Fund is suitable for an investment time horizon of 20 or more years. Results of Operations For the year ended December 31st, 2018, the Fund had total return of 5.0% (Series A), 4.0% (Series F2), and 4.0% (Series F). Supported by Canada's strong economic growth, an improved domestic labour market, and continued global economic expansion, the Bank of Canada increased their overnight lending rate three times in The rise of Canada's key interest rate contributed to an increase for short and medium term Government of Canada bond yields; however, growing uncertainty for future economic expansion helped to reduce the year over year yield increase as investors sought protection from market volatility during the fourth quarter. Despite the rise of bond yields, the Fund's allocation to conservatively positioned fixed income exposure contributed positively to one year performance. Canadian equities (measured by the S&P/TSX Composite Index) held within the MD Equity Fund, the MD Select Fund, and the MDPIM S&P/TSX Capped Composite Index made a negative contribution to the Fund's absolute return as the asset class experienced a material decline, falling 8.89%. The most heavily weighted sectors, Financials and Energy, declined 9.8% and 18.4% respectively, more than offsetting positive contributions from Canada's Consumer Staples and Information Technology stocks. Held at a lower exposure, the Fund's allocation to International and Emerging Market equities also made contributions to the Fund's negative performance; however, this was offset by a positive return from exposure to US equities. In American dollar terms, US equities posted their first negative return since 2008; however, Canadian investors received a benefit from the Canadian dollar's decline versus its American counterpart and, in Canadian dollar terms, the asset class had a 4.23% return. Despite a rise for global bond yields, the MD Strategic Yield Fund realized a positive return, contributing to the Fund's overall appreciation in 2018; however, exposure to MD Strategic Opportunities Fund provided an offsetting negative contribution to realized results. At the end of the year, the Fund held an benchmark relative overweight exposure to equities with a corresponding underweight position in fixed income. Within equities, an underweight to Canadian and Emerging Market equity was more than offset by overweight positions in US and International equities. The Fund's active allocation to fixed income resulted in lower than benchmark duration exposure and an overweight position in spread products. As at December 31, 2018, the total net asset value of the Fund was $313 increase of 7% since the beginning of the year. The increase is due to net contributions to the Fund offset by net investment losses. Recent Developments STRATEGIC CHANGES On October 3rd, 2018, The Bank of Nova Scotia (Scotiabank) announced that they had completed the acquisition of MD Financial Management (MD) from the Canadian Medical Association. 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. In May 2018, the portfolio transitioned its emerging markets fulfillment from the Mackenzie Emerging Markets Fund to the MDPIM Emerging Markets Pool. 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. The Manager, on behalf of the Fund, may enter into transactions or arrangements with other members of Scotiabank or certain other companies that are related or connected to the Manager (each a related party ). All transactions between the Fund and the related parties are in the normal course of business and are carried out at arm s length terms. As Registrar, MD Financial Management Inc. keeps track of the owners of units of the MD Fund, processes purchase, transfer and redemptions 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 a wholly owned subsidiary of MD Financial Management Inc. 1 MD Family of Funds Annual MRFP 2018

4 INDEPENDENT REVIEW COMMITTEE As a result of the acquisition by Scotiabank of the control of MD Financial Management, the then members of the Independent Review Committee ( IRC ) for the MD Funds as of that date ceased to be IRC members, and five new members were appointed to act as members of the IRC. As of October 3, 2018, the following individuals are members of the IRC: Carol S. Perry (Chair), Simon Hitzig, Heather Hunter, Stephen Griggs and Jennifer Witterick. The IRC considered several new conflict of interest matters that arise for the Manager in respect of its management of the MD Funds and the MDPIM Pools as a result of its new relationship as a subsidiary of Scotiabank. The IRC gave certain related party approvals to the Manager in respect of these matters and gave positive recommendations to proceed in respect of others. These approvals and recommendations are described in the IRC s Annual Report to Unitholders which is available on MD s website. 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 51.7% Investment Management and Other 48.3% Series F and F2 unitholders pay a separate managed account fee directly to MD Management Limited. 100% of the management fee on Series F, Series F2 and Series D is for investment management and other 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 F Series F2 7.4% 21.2% 7.3% * % 8.4% 8.3% 5.0% 4.0% 4.0% * Series F2 units were not reported in 2017 as they had been in existence for less than 12 months. 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. ANNUAL COMPOUND RETURNS The following table shows the portfolio s historical annual compound return for the past one, three and five year periods ended on December 31 and since inception as compared to the return of a Blended Composite Index. 25% FTSE Universe Bond Index, which measures the returns on Canadian bonds with greater than one year to maturity, 30% S&P/TSX Capped Composite Index, which measures the aggregate common share returns of Canada s largest companies, 45% MSCI World Index, which measures the aggregate common share returns of the world s largest companies. The weightings of these indices within the Blended Composite Index represent the general weightings in the portfolio. The individual indices that make up the Blended Composite Index are shown independently. They serve as a frame of reference only, as opposed to a benchmark, as they do not, independently, reflect performance of a fund MD Precision Maximum Growth Portfolio Series A MD Precision Maximum Growth Portfolio Series F2 MD Precision Maximum Growth Portfolio Series F 1 year 3 years 5 years Since Inception 4.98% 3.69% 4.07% 5.46% 3.97% 3.95% 0.85% 0.10% Blended Composite Index 2.26% 5.24% 6.66% 7.80% FTSE Canada Universe Bond Index S&P/TSX Capped Composite Index 1.41% 1.86% 3.54% 4.02% 8.89% 6.37% 4.06% 5.26% MSCI World Index 0.06% 6.31% 10.56% 11.44% *The Fund started series F2 units on June 7, The Fund started series F units on October 3, The Fund started series D units on June 25, MD Family of Funds Annual MRFP

5 Management uses the Blended Composite Index as the benchmark for this portfolio because it best represents the nature of the overall fund. Although index returns are hypothetical as they do not reflect the true cost of owning or managing the underlying securities they are one of several useful indicators. By comparing the Fund s performance to the movements of the benchmark, we are able to assess how the Fund is doing. For example, some short term deviations can signal the need for change while others confirm the expectations of a longer term strategy. If management were to ascertain that a fund s over or underperformance was the result of excessive risk taking or deviation from the investment mandate, we would, on behalf of all our unitholders, address these issues with the Investment Advisors, and make changes if necessary. As the table above indicates, the Fund underperformed the Blended Composite Index for the most recent one year period. The Fund's fixed income allocation was conservatively positioned to preserve capital amid rising bond yields and, while providing a positive contribution to performance, the MD Bond Fund did not fully participate in its benchmark appreciation. The Fund's allocation to foreign equity growth investments, MD American Growth Fund and MD International Growth Fund, contributed to positive excess return; however, this was offset by an overweight tactical allocation to poorly performing equities, underperformance for Canadian equities within the MD Equity Fund and MD Select Fund, and a modest negative excess return for foreign equity value and Emerging Market investments. 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. 3 MD Family of Funds Annual MRFP 2018

6 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. THE FUND'S NET ASSETS PER UNIT 1 Year ended December 31 SERIES A Net assets beginning of the year $ $ $ $ $ Increase (decrease) from operations: Total revenue $ 0.33 $ 0.35 $ 0.52 $ 0.49 $ 0.30 Total expenses $ (0.25) $ (0.24) $ (0.22) $ (0.23) $ (0.24) Net realized gains (losses) for the year $ 0.39 $ 0.39 $ 0.08 $ 0.29 $ 1.69 Net unrealized gains (losses) for the year $ (0.99) $ 0.61 $ 0.70 $ (0.35) $ (0.82) Total increase (decrease) from operations 2 $ (0.52) $ 1.11 $ 1.08 $ 0.20 $ 0.93 Distributions: From income (excluding dividends) $ $ $ (0.03) $ $ From dividends $ (0.07) $ (0.09) $ (0.10) $ (0.07) $ From capital gains $ (0.50) $ (0.11) $ (0.08) $ (0.34) $ (0.14) Return of capital $ $ $ $ $ Total annual distributions 3 $ (0.57) $ (0.20) $ (0.21) $ (0.41) $ (0.14) Net assets end of the year $ $ $ $ $ SERIES D For the period June 25, to December 31, Net assets beginning of the year $ Increase (decrease) from operations: Total revenue $ 0.18 Total expenses $ (0.06) Net realized gains (losses) for the year $ 0.34 Net unrealized gains (losses) for the year $ (1.45) Total increase (decrease) from operations 2 $ (0.99) Distributions: From income (excluding dividends) $ From dividends $ (0.01) From capital gains $ (0.08) Return of capital $ Total annual distributions 3 $ (0.09) Net assets end of the year $ 9.19 MD Family of Funds Annual MRFP

7 Financial Highlights (continued) THE FUND'S NET ASSETS PER UNIT 1 Year ended December 31 SERIES F Net assets beginning of the year $ $ Increase (decrease) from operations: Total revenue $ 0.31 $ 0.18 Total expenses $ (0.07) $ (0.02) Net realized gains (losses) for the year $ 0.42 $ 0.12 Net unrealized gains (losses) for the year $ (1.54) $ (0.14) Total increase (decrease) from operations 2 $ (0.88) $ 0.14 Distributions: From income (excluding dividends) $ (0.05) $ From dividends $ (0.05) $ From capital gains $ (0.15) $ (0.01) Return of capital $ $ Total annual distributions 3 $ (0.25) $ (0.01) Net assets end of the year $ 9.72 $ Year ended December 31 SERIES F Net assets beginning of the year $ $ Increase (decrease) from operations: Total revenue $ 0.32 $ 0.42 Total expenses $ (0.07) $ (0.05) Net realized gains (losses) for the year $ 0.46 $ 0.28 Net unrealized gains (losses) for the year $ (1.65) $ 0.19 Total increase (decrease) from operations 2 $ (0.94) $ 0.84 Distributions: From income (excluding dividends) $ (0.04) $ From dividends $ (0.04) $ (0.01) From capital gains $ (0.12) $ Return of capital $ $ Total annual distributions 3 $ (0.20) $ (0.01) Net assets end of the year $ 9.94 $ This information is derived from the Fund s audited annual 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 25, December 31, The results shown are for the period October 3, December 31, The results shown are for the period June 7, December 31, MD Family of Funds Annual MRFP 2018

8 Financial Highlights (continued) RATIOS AND SUPPLEMENTAL DATA Year ended December 31 SERIES A Total net assets, end of the year 1 $ 173,119,412 $ 288,867,050 $ 238,367,075 $ 199,958,664 $ 169,348,065 Number of units outstanding 13,221,747 20,083,496 17,713,287 15,857,568 13,273,304 Management expense ratio % 1.80% 1.80% 1.73% 1.73% Management expense ratio before tax 1.67% 1.65% 1.65% 1.58% 1.58% Management expense ratio before waivers 1.82% 1.80% 1.80% 1.73% 1.73% or absorptions Trading expense ratio % 0.05% 0.08% 0.07% 0.11% Portfolio turnover rate % 39.92% 34.89% 36.16% 83.13% Net assets per unit $ $ $ $ $ SERIES D For the period June 25, to December 31, Total net assets, end of the year 1 $ 2,284,609 Number of units outstanding 248,683 Management expense ratio % Management expense ratio before tax 1.12% Management expense ratio before waivers 1.22% or absorptions Trading expense ratio % Portfolio turnover rate % Net assets per unit $ 9.19 Year ended December 31 SERIES F Total net assets, end of the year 1 $ 127,793,095 $ 3,588,892 Number of units outstanding 13,141, ,341 Management expense ratio % 0.77% Management expense ratio before tax 0.72% 0.70% Management expense ratio before waivers 0.76% 0.77% or absorptions Trading expense ratio % 0.05% Portfolio turnover rate % 39.92% Net assets per unit $ 9.72 $ MD Family of Funds Annual MRFP

9 Financial Highlights (continued) RATIOS AND SUPPLEMENTAL DATA Year ended December 31 SERIES F Total net assets, end of the year 1 $ 10,035,305 $ 840,151 Number of units outstanding 1,009,479 79,490 Management expense ratio % 0.78% Management expense ratio before tax 0.72% 0.70% Management expense ratio before waivers 0.79% 0.78% or absorptions Trading expense ratio % 0.05% Portfolio turnover rate % 39.92% Net assets per unit $ 9.94 $ This information is provided as at 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. For fund of funds, the TER includes proportionate share of any TER in the underlying funds. 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 25, December 31, The results shown are for the period October 3, December 31, The results shown are for the period June 7, December 31, MD Family of Funds Annual MRFP 2018

10 Summary of Investment Portfolio, December 31, 2018 NET ASSETS: $313.2 MILLION PORTFOLIO ALLOCATION 45.8% Foreign Equity Funds 35.1% Domestic Equity Funds 19.0% Fixed Income Funds 0.1% Cash and Other Net Assets DOMESTIC EQUITY FUNDS 35.1% FOREIGN EQUITY FUNDS 45.8% FIXED INCOME FUNDS 19.0% CASH AND SHORT TERM INVESTMENTS 0.1% OTHER NET ASSETS 0.0% TOTAL NET ASSETS 100.0% TOP 25 HOLDINGS (PERCENTAGE OF NET ASSETS) MD Equity Fund Series I 18.0% MD Bond Fund Series I 13.8% MD Select Fund Series I 12.5% MD Strategic Opportunities Fund Series I 10.0% MD International Growth Fund Series I 6.4% MD American Growth Fund Series I 6.2% MD American Value Fund Series I 6.1% MD International Value Fund Series I 5.8% MD Strategic Yield Fund Series I 5.1% MDPIM S&P 500 Index Pool Series A 5.0% MDPIM Emerging Markets Equity Pool Series I 4.6% MDPIM S&P TSX Capped Composite Index Pool Series A 4.6% MDPIM International Equity Index Pool Series A 1.7% Cash and short term investments 0.1% 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. The Prospectus and other information about the underlying investment funds held in this MD Fund are available online at 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 December 31, 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 Annual MRFP

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