NEI Ethical Global Dividend Fund

Transcription

1 Annual Management Report of Fund Performance As at September 30, 2017 This annual Management Report of Fund Performance contains financial highlights but does not contain either interim or annual financial statements of the investment fund. You can obtain a copy of the interim or annual financial statements at your request, and at no cost, by calling , by writing us at NEI Investments L.P., 151 Yonge Street Suite 1200, Toronto, ON M5C 2W7 or by visiting our website at or SEDAR at 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. Management Discussion of Performance Investment Objective and Strategies The Fund seeks long-term capital appreciation and income by investing primarily in equity securities of companies anywhere in the world that pay, or may be expected to pay, dividends as well as in other types of securities that may be expected to distribute income. The Fund follows a socially responsible approach to investing as described in Part A of the prospectus. Risk The Fund s assets will be invested in equity securities of global issuers. The Fund will therefore be subject to the risk of investments in foreign securities and since the Fund makes its investments in other currencies, investors are subject to foreign exchange fluctuations. The Fund is suitable for investors with a medium tolerance for risk, and a long term investment horizon. Any changes in the Fund have not affected the overall level of risk of the Fund. Results of Operations The NEI Ethical Global Dividend Fund s Series A units returned 4.59% for the twelve months ended September 30, 2017 compared with a return of 12.45% for the benchmark explained below. Unlike the benchmark return, the Fund s returns are after the deduction of fees and expenses paid by the Fund. Performance differences between series of units are mainly attributable to management fees charged to each series. Refer to the Past Performance section for the details of returns by series. The benchmark index for this fund is the MSCI World Index. A n n u a l M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e 1

2 Yearly Comparison of Holdings Comparison Period September 30, 2016 to September 30, 2017 The following tables summarize material changes, new and exited positions of individual securities within the Fund during the period whereby materiality of changes is defined as 1% of the current year NAV. Name Material Changes Change in NAV Ownership (%) T. Rowe Price Group Kimberly-Clark AstraZeneca AbbVie ABB Name New Positions % of Current Year NAV Wolseley 0.76 British Pound Sterling 0.01 Compagnie de Saint-Gobain 0.64 Takeda Pharmaceutical Company 0.77 Singapore Dollar 0.00 Conagara Brands 0.64 Swedish Krona 0.00 Teleflex 0.81 International Business Machines 0.99 Atlas Copco, A Shares 0.89 JM Smucker Company 0.50 Merck & Co Comcast Corporation, Class A 0.92 Nordea Bank 0.71 Coca-Cola Amatil 0.49 Nippon Express Co Ingersoll-Rand Company, Class A 0.78 KLA-Tencor 0.29 Henkel 0.79 Emerson Electric Co Toronto-Dominion Bank 0.46 Eaton 0.50 Danish Krone 0.00 Avery Dennison 0.32 Persimmon 0.71 Canadian Dollar 1.07 General Electric Company 1.28 Jack Henry & Associates A n n u a l M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e

3 Exited Positions NEI Ethical Global Dividend Fund Eversource Energy Ono Pharmaceutical Sky D.R. Horton Tokyo Electron Fuji Heavy Industries Boral Broadridge Financial Solutions Toyota Industries Sumitomo Electric Industries Gap Danone Travelers Companies HeidelbergCement Starbucks McCormick & Co., Non-Voting Honda Motor Co. United Parcel Service, Class B Johnson & Johnson BCE Cash and Equivalents Nomura Research Institute Intel Paychex Genuine Parts Company J.P. Morgan Chase & Co. Bank of Montreal Kao Daimler UnitedHealth Group Campbell Soup Hong Kong Electric Holdings Kakaku.com TELUS Corporation TE Connectivity Kuehne & Nagel International Facebook, Class A Ashtead Group Foot Locker Swiss National Grid CVS Health Volvo Treasury, B Shares A n n u a l M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e 3

4 Factors That Have Affected Performance The equity markets trended positively over the past 12 months (from 30th of September 2016 to 29th of September 2017) with the MSCI World rising by +13.1% (CAD), including dividends. The CAD remained virtually stable against the euro (-0.1%) but appreciated 5.1% against the US dollar. This solid equity market performance is tied to the improvement in the global economy and abundant liquidity. For the first time in many long years, global growth was revised upwards as the months went by. The recovery became more widespread, both in geographic terms (developed and emerging markets) and in terms of GDP components (consumption, investment, foreign trade). This growth came on the back of a favorable market context for a few reasons. First, the unexpected US elections outcome in November 2016 triggered a massive style and sector rotation across developed markets. The resurgent risk appetite has led procyclical sectors (Materials, Energy) and bullish risk factors (Value, Small Caps) to take over more defensive ones in driving the market performance. It also resulted in a resynchronization of market cycles in the US and in Europe with a lower dispersion across market drivers both in style and sector terms, while the 1 year volatility has kept on decreasing down to the 10% level in the second half year, despite some peaking reactions during political events. Political uncertainties that weighed on the equity markets so far have started to fade with the outcome of Italian referendum in early December 2016, the outcome of Dutch elections in March and more decisively after the election of a pro-european French President that pushed the Frexit risk away. The receding political risk along with surprising macro outcomes in Southern Europe (Italy, Portugal) has resulted in decreasing equity risk premia and tightening credit spreads over the Eurozone, which positively impacted equity markets. Finally, during Q3 2017, global equities continued their growing trend despite new political issues from escalating tensions between North Korea and the US to rising doubts about the US Administration ability to push through reforms (Health Care, Tax) that could have paved the way for market downward correction. Country allocation detracted from relative performance due to an underweight to Italy and overweight to Canada and Australia. Currencies on the other hand contributed positively due to an overweight to EUR and DKK while USD was underweight. Sector allocation contributed negatively mainly due to the underweight Financials that dominated other sectors over the period. Stock selection contributed negatively as large benchmark holdings performed well. Over the year the allocation to countries exposure changed as follows: an increase in Japan and Australia s overweight, a slight increase in Eurozone countries overweight (France, Spain, Belgium) and Denmark s overweight. As a result, the portfolio s exposure to USA, Canada and Switzerland has been reduced. An increase in the overweight on Industrials, Consumer Staples and Health Care to compensate the increase in the underweight on Information Technology and Financials were the major sector changes. 4 A n n u a l M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e

5 Recent Developments From a macroeconomic view, the global economic backdrop remains encouraging. The foreseen scenario of gentle reflation is playing out even if downward pressure on implied inflation both in Europe and the US raise some doubts about the exit schedule of the accommodative monetary policies from the FED and the ECB. Global growth accelerated in 2017 and the sub-advisor believes it will remain robust in Growth momentum remains strong in the euro zone where economic data continue to surprise to the upside. As long as the euro appreciation remains gradual and is driven by fundamentals, it should not have any significant impact on the growth outlook. The resynchronisation of the global cycle is feeding through to a recovery in world trade. Talk of normalisation of central bank balance sheets is gaining ground, but the process will be very gradual. Despite a slight acceleration due to an improving job market, the sub-advisor believes core inflation should remain moderate by historical standards in most advanced economies. Equity markets have been supported recently by the resynchronization of global growth, combined with no inflationary tensions. Volatility is at its lowest level since In principle, volatility follows Fed hikes with a lag of about 2 years (Fed rates started to increase in December 2015). More fluctuations are to be expected in the coming months, especially as the US equity market valuation is at record levels. For example, the cyclically adjusted PE ratio, as calculated by Robert Shiller, is now already just 1 point below its level of October 1929, at 31x the EPS level of the last 10 years. On the short term, the retracement in favor of the US dollar should especially benefit the Eurozone, which also benefits from rising bond yields and an improvement of companies margins. Europe remains the sub-advisors preferred market in view of robust macro momentum, improved corporate fundamentals and moderate valuations. Even though conditions in H2 will be less supportive (a more difficult basis of comparison, currency effect), the sub-advisor believes earnings growth of around 10% in 2017 looks feasible. Japan is in a similar situation. After its sharp rebound this year, emerging markets could be subject of some profit taking, but the differential of GDP growth still plays in favor of a good run on the longer term. Financial Notes HST Following the introduction of a single harmonized tax HST levy and collection system on July 1st, 2010 Investment Funds had to change the way in which government taxes are charged to the Funds. The new rules require HST to be calculated and charged based on a blended tax rate derived from the residency of the unitholders and the current value of their units. This blended rate is required to be calculated and updated periodically and the table below indicates the current rate being charged until the Fund s next year end as well as the most recent completed period s rate for comparison. NEI Ethical Global Dividend Fund For the Period Ending September 30, 2016 September 30, 2017 Series A 9.82% 9.59% Series F 9.72% 9.75% Series P 10.51% 10.06% Series PF 10.92% 11.48% Effective April 1st, 2013, British Columbia replaced the 12% HST with separate PST and GST. A 5% GST rate is applicable going forward. Prince Edward Island introduced a new HST rate of 14%. A n n u a l M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e 5

6 On January 1st, 2013, Quebec increased the combined tax rate charged on the QST portion of taxable services from 14.95% to %. Accounting Standards The Fund's financial statements have been prepared in compliance with International Financial Reporting Standards ("IFRS"), applicable to the preparation of financial statements. The Funds adopted this basis of accounting in 2015, as required by the Canadian Securities Administrators and the Canadian Accounting Standards Board. Related Party Transactions Northwest and Ethical Investments L.P NEILP is the Manager, the Trustee, the Fund Manager and the Registrar of the Fund. NEILP is 50% indirectly owned by the Federation des Caisses Desjardins du Quebec (Federation) and 50% owned by five Provincial Credit Union Centrals. NEILP charges the Funds a fixed administration fee in place of certain variable expenses. NEILP in turn, pays all operating expenses of the Fund, other than specified fund costs (e.g. the fees and expense of the Independent Review Committee, taxes, and brokerage commissions) which include payments to related parties of which the Federation is a significant owner. These services are in the normal course of operations and are measured at an exchange amount that is consistent with other independent parties. At the end of the period, the accrued expenses payable to related third parties are listed below. Where applicable the amounts received from underlying funds during the period are also presented. September 2016 September 2017 Accrued Expenses Payable to Related Parties 470, ,436 The Fund s sub advisors may place a portion of their fund transactions with brokerage firms which are affiliates of NEILP; provided that the affiliates trade execution abilities and costs are comparable to those of non-affiliated qualified brokerage firms. The Fund is distributed through Credential Asset Management Inc., Credential Securities Inc., Desjardins Securities Inc., Desjardins Financial Services Firm Inc., Desjardins Financial Securities Investments Inc., and Gestions SFL Inc., and other nonrelated parties by way of shared ownership. NEILP pays to these parties distribution and servicing fees based on a percentage of the daily values of the units of each held by the dealer s clients and additionally, in some cases, on the amount of initial purchase. 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 by us. Actual results may differ materially from the results anticipated in these forwardlooking statements. We do not undertake, and specifically disclaim, any obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise. 6 A n n u a l M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e

7 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 each of the past five years, as applicable. Net Assets per Unit (1) Series Period Net Assets, Beginning of Period Total Revenue Increase (Decrease) from Operations: Total Expenses Realized Gains (Losses) Unrealized Gains (Losses) Commissions and Other Portfolio Transaction Costs (2) Total Increase (Decrease) from Operations (3) From Income (Excluding Dividends) Distributions: From From Underlying Dividends Funds (6) A Sept N/A From Capital Gains Return of Capital Total Distributions (4,5) Sept N.A N/A Sept N/A N/A Sept N/A Sept N/A Sept N/A F Sept N/A Sept N.A N/A Sept N/A N/A Sept N/A Sept N/A Sept N/A I Sept N/A Sept N.A N/A Sept N/A N/A Sept N/A Sept N/A Sept N/A P Sept N/A Sept N.A N/A Sept N/A N/A Sept N/A PF Sept N/A Sept N.A N/A Sept N/A N/A Sept N/A (1) All per unit figures presented in 2017, are referenced to net assets determined in accordance with IFRS and are derived from the Fund's audited annual financial report for the period ended September 30, The beginning of period net assets per unit of 2015 and net assets per unit for prior periods were derived from the Fund's audited annual financial statements that were prepared in accordance with Canadian GAAP as defined in Part V of the CPA Handbook for prior periods. (2) From March 31, 2015, Commissions and other portfolio transaction costs are included in Expenses. (3) 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. (4) Distributions were paid in cash or reinvested in additional units of the Fund. (5) Distributions (if any) that may have been made that included return of capital in excess of short term earnings were made to minimize disruption and provide stability to investors who have elected to take their distributions in the form of cash, and as disclosed in the Simplified Prospectus. These amounts are reviewed at each calendar yearend and management engages in discussions with the sub-advisor to determine the most applicable strategy on a go forward basis and will take any action(s) as needed for the long term stability of the Fund. (6) From September 30, 2016, distributions from underlying funds are presented separately. Previously, those amounts were split between the different type of revenues. Income and Realized gains (losses) have been revised accordingly, if applicable. Net Assets, End of Period A n n u a l M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e 7

8 Ratios and Supplemental Data Series Period Total Net Asset Value (000 s of $) Number of Units Outstanding (000 s) Management Expense Ratio (%) (1) Management Expense Ratio before Waivers and Absorptions (%) Trading Expense Ratio (%) (2) Portfolio Turnover Rate (%) (3) Net Asset Value per Unit ($) A Sept , , Sept , , Sept , , Sept , , Sept , , Sept , , F Sept , , Sept , , Sept , , Sept , , Sept , , Sept , I Sept , , N/A N/A Sept , , N/A N/A Sept , , N/A N/A Sept , , N/A N/A Sept , , N/A N/A Sept , , N/A N/A P Sept , Sept , Sept , Sept , PF Sept , Sept , Sept , Sept , (1) Management expense ratio is based on total expenses (excluding commissions and other portfolio transaction costs, as well as withholding taxes) for the stated period and is expressed as an annualized percentage of daily average net asset value during the period. (2) The trading expense ratio represents total commissions and other Fund transaction costs expressed as an annualized percentage of daily average net asset value during the period. (3) The portfolio turnover rate indicates how actively the Fund's subadvisor manages its investment holdings. 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 period. The higher a fund s portfolio turnover rate in a period, the greater the trading costs payable by the Fund 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 high turnover rate and the performance of a fund. Certain turnover rates for September 2011 were restated due to a formula inconsistency. 8 A n n u a l M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e

9 Management Fees The Manager is responsible for the management, supervision and administration of the Fund. The Manager receives from the Fund management fees, before HST, calculated daily on the net asset value of the Fund at an annual rate shown below. The management fee covers the cost of investment advisory fees, sales, marketing, and distribution expenses of the Fund. In addition, the Manager may pay a trailer fee to dealers out of this management fee. The trailer fee is a percentage of the average daily value of the units of the Fund held by the dealer s clients. The following table shows the major services paid for out of management fees as a percentage of the management fee for all series of the Fund: Management Fee Investment Advisory and Other Fees Trailer Fee Series A 2.00% 79.2% 20.8% Series F 1.00% 100.0% N/A (1) Series P 1.75% 71.5% 28.5% Series PF 0.75% 100.0% N/A (1) (1) No trailer fees are paid in respect of any Series F or PF units of the Fund Past Performance The following charts and tables show the past performance for each series of units of the Fund and will not necessarily indicate how the Fund will perform in the future. The information shown assumes that distributions made by the Fund in the periods shown were reinvested in additional units of the relevant series of the Fund. 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 charts show the annual performance for each series of units of the Fund for each period shown and illustrate how the Fund s performance has varied from period to period. The charts indicate 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. Series A Series F N/A 0 N/A Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 A n n u a l M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e 9

10 Series I Series P N/A Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 0 N/A N/A N/A N/A N/A N/A N/A Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Series PF N/A N/A N/A N/A N/A N/A N/A Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep A n n u a l M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e

11 Annualized Compound Returns NEI Ethical Global Dividend Fund The following table shows the annual compound returns for all series of the Fund. All returns are in Canadian dollars, on a total return basis, net of all fees. For comparison, the returns for the benchmark are included. The benchmark index for this fund is the MSCI World Index. The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance. While the Fund uses this benchmark for long-term performance comparisons, it is not managed relative to the composition of the Index. As a result, the Fund may experience periods when its performance is not aligned with the Index, either positively or negatively. Please see the "Results of Operations" section of this report for a discussion of recent performance results. Group/Investment 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception MSCI World NR USD NEI Ethical Global Dividend Series A NEI Ethical Global Dividend Series F NEI Ethical Global Dividend Series P NEI Ethical Global Dividend Series PF NEI Ethical Global Dividend Series I A n n u a l M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e 1 1

12 Summary of Investment Fund as at September 30, 2017 Total Net Asset Value: $306,197,405 Top 25 Positions (Long Positions) % 1 Procter & Gamble Company M Company PepsiCo AGL Energy Cisco Systems ATMOS ENERGY CORP Coca-Cola Company American Express Company AT&T Microsoft Corporation Automatic Data Processing General Electric Company Verizon Communications Unilever Compagnie GAnArale Michelin Prudential Financial Accenture, Class A Bunzl Colgate-Palmolive Company Repsol YPF Cash and Equivalents Dr Pepper Snapple Group Cummins Nippon Telegraph and Telephone Corporati Merck & Co. 1.0 Total 32.7 There is no short position in this Fund. "Others" geographic category includes all countries representing less than 5% of the Fund s net asset value The Summary of Investment Fund may change due to ongoing Fund transactions of the investment fund. 1 2 A n n u a l M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e

13 Drill Down Total Net Asset Value Mix % Equities-Foreign 42.9 Equities-U.S Cash and Equivalents 1.6 Equities-Canadian 1.8 Total Drill Down Sector Allocation % Industrials 18.9 Telecommunication Services 4.9 Financials 10.2 Information Technology 11.8 Consumer Staples 15.5 Cash and Equivalents 1.6 Consumer Discretionary 13.3 Materials 3.6 Health Care 15.3 Energy 1.1 Utilities 3.8 Total Drill Down Geographic Distribution % Other 42.9 United States 53.7 Cash and Equivalents 0.5 Canada 2.9 Total A n n u a l M a n a g e m e n t R e p o r t o f F u n d P e r f o r m a n c e 1 3