Redwood Global Total Return Bond Portfolio Annual Management Report of Fund Performance

Transcription

1 Redwood Global Total Return Bond Portfolio Annual Management Report of Fund Performance December 31, 2015

2 Caution Regarding Forward-looking Statements Certain portions of this report, including, but not limited to, Results of Operations and Recent Developments, may contain forward-looking statements about Redwood Total Return Bond Portfolio (the Fund ), including its strategy, risks, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as expects, anticipates, intends, plans, believes, estimates and similar forward-looking expressions. These statements reflect management s current beliefs and are based on information currently available to management. Forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements including, but not limited to, changes in general economic and market conditions and other risk factors. Although the forward-looking statements contained herein are based on what management believes to be reasonable assumptions, we cannot assure that actual results will be consistent with these forward-looking statements. Investors should not place undue reliance on forward-looking statements. These forward-looking statements are made as of the date hereof and we assume no obligation to update or revise them to reflect new events or circumstances. 2

3 Annual Management Report of Fund Performance as at December 31, 2015 Redwood Total Return Bond Portfolio This annual management report of fund performance contains financial highlights but does not contain either the annual financial report or annual financial statements of the investment fund. You can get a copy of the financial statements at your request, and at no cost, by calling , by visiting our website at or SEDAR at or by writing to us at: Redwood Asset Management Inc., 120 Adelaide Street West, Suite 2400, P.O. Box 23, Toronto, Ontario M5H 1T1. Securityholders 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 record or quarterly portfolio disclosure. Management Discussion of Fund Performance Investment Objective and Strategies The fundamental investment objective of Redwood Global Total Return Bond Portfolio (the Fund ) is to provide interest income and capital appreciation and to maximize total return. To achieve its objective, the Fund invests in global fixed income securities through individual securities and through investments in other funds, which may include other funds managed by the Manager. Risk The risks associated with investing in the Fund are as described in the simplified prospectus. There were no material changes to the Fund over the last completed financial year that affected the overall level or risk of the Fund. Results of Operations Fixed income investors spent much of the year in anticipation of Fed liftoff, an event that occurred in December Corporate credit also performed poorly in the second half of the year, as investors looked ahead to a less accommodative Federal Reserve. The Redwood Global Total Return Bond Portfolio was launched in 2015 with a mandate to allocate to a limited number of unconstrained fixed income mandates. With the anticipated move by the Federal Reserve to boost rates in 2015, the fund allocated to some of the best available fixed income managers in Canada. The portfolio was constructed with components that had low correlation to one another. The Fund s main positions in 2015 included the PIMCO Unconstrained Bond Fund, the PIMCO Monthly Income Fund, Redwood Unconstrained Bond Class. Near the end of 2015, the Fund added some high yield bond exposure through the Fidelity American High Yield Fund. Despite these allocations, a poor fixed income market particularly in high yield, led to marginal losses in the fund over the course of the year. 3

4 Recent Developments The fund remains heavily weighted in cash with the view to allocating to a technically focused fixed income manager in Q Related- Party Transactions The Manager pays for expenses on behalf of the Fund and recharges the Fund for those expenses in the form of administrative fees. Standing Instructions from the Independent Review Committee The Manager relied on standing instructions from the IRC with respect to the allocation of any operating expenses. The standing instructions require the Manager to comply with the policies and procedures presented to the IRC with respect to the above matter and to provide periodic reports to the IRC in accordance with NI Management Fee The Fund pays management fees at an annual rate of up to 2.5% of average net assets of Series A and Series A USD and up to 1.5% of Series F and Series F USD and up to 1.25% on Series PHP. This fee relates to the portfolio advisory services the Fund received during the year. The management fee is calculated and accrued daily based on the average net asset value of that Series of units of the Fund and is paid on the last day of each month. Included in accrued expenses at December 31, 2015 is $2,597 (December 31, 2014: $nil) of management fees payable to the Manager. The breakdown of the services received in consideration of the management fee, as a percentage of the management fee is: Series A Series F Series A US Series F US Series PHP Management of Fund 60% 100% 60% 100% 100% Trailers to Broker 40% 0% 40% 0% 0% The fund invested 13.56% of its net assets as of December 31, 2015 in Redwood Unconstrained Bond Class, which is a separate fund under the same manager, Redwood Asset Management Inc. Absorbed Expenses Certain administration and custodian fees have been absorbed by the Manager. These expenses total $53,045 for the period ended December 31, Such absorption can be terminated by the manager at any time without notice. 4

5 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 periods indicated. The information on the following tables is based on prescribed regulations and as a result, is not expected to add down due to the increase (decrease) in net assets from operations being based on average shares outstanding during the period and all other numbers being based on actual shares outstanding at the relevant point in time. Footnotes for the tables are found at the end of the Financial Highlights section. 5

6 The Fund's Net Assets per Share ($) (1) Dec SERIES A 2015 (4) Net Assets, beginning of year $ Increase (decrease) from operations: Total revenue 0.16 Total expenses (0.12) Realized gains/losses for the year (0.15) Unrealized gain/losses for the year (0.10) Total increase (decrease) from operations (2) $ (0.21) Distributions: From income (excluding dividends) 0.00 From dividends (0.28) From capital gains 0.00 Return of capital 0.00 Total Annual Distributions (3) (0.28) Net Assets, end of year $ 9.52 Dec SERIES A USD 2015 (4) Net Assets, beginning of year $ Increase (decrease) from operations: Total revenue 0.23 Total expenses (0.17) Realized gains/losses for the year (0.06) Unrealized gain/losses for the year (0.26) Total increase (decrease) from operations (2) $ (0.26) Distributions: From income (excluding dividends) - From dividends (0.28) From capital gains - Return of capital - Total Annual Distributions (3) (0.28) Net Assets, end of year $

7 Dec SERIES F 2015 Net Assets, beginning of year $ Increase (decrease) from operations: Total revenue 0.06 Total expenses (0.05) Realized gains/losses for the year (0.06) Unrealized gain/losses for the year (0.10) Total increase (decrease) from operations (2) $ (0.15) Distributions: From income (excluding dividends) - From dividends (0.28) From capital gains - Return of capital - Total Annual Distributions (3) (0.28) Net Assets, end of year $ 9.59 Dec SERIES PHP 2015 (4) Net Assets, beginning of year $ Increase (decrease) from operations: Total revenue 0.17 Total expenses (0.12) Realized gains/losses for the year (0.01) Unrealized gain/losses for the year (0.22) Total increase (decrease) from operations (2) $ (0.18) Distributions: From income (excluding dividends) - From dividends (0.28) From capital gains - Return of capital - Total Annual Distributions (3) (0.28) Net Assets, end of year $ 9.53 (1) This information is derived from the Fund s audited annual financial statements. The net assets per share presented in the financial statements differs 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. (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 paid in cash/reinvested in additional units of the Fund, or both. (4) Fund inception date is December 3,

8 Ratios and Supplemental Data Dec SERIES A 2015 (6) Total net asset value ($) (1) 510,368 Number of units outstanding (1) 53,589 Management expense ratio (2) 1.92% Management expense ratio before waivers or absorption 3.11% Trading expense ratio (3) 0.01% Portfolio turnover rate (4) % Net asset value per unit ($) 9.52 Dec SERIES A US 2015 Total net asset value ($) (1) 63,524 (6) Number of units outstanding (1) 4,844 Management expense ratio (2) 1.64% Management expense ratio before waivers or absorption 2.79% Trading expense ratio (3) 0.01% Portfolio turnover rate (4) % Net asset value per unit ($) Dec SERIES F 2015 Total net asset value ($) (1) 483,360 Number of units outstanding (1) 50,427 Management expense ratio (2) 1.25% Management expense ratio before waivers or absorption 2.46% Trading expense ratio (3) 0.01% (6) Portfolio turnover rate (4) % Net asset value per unit ($)

9 Dec SERIES PHP 2015 Total net asset value ($) (1) 759,833 Number of units outstanding (1) 79,763 Management expense ratio (2) 1.93% Management expense ratio before waivers or absorption 3.13% Trading expense ratio (3) 0.01% Portfolio turnover rate (4) % Net asset value per unit ($) 9.53 (6) (1) This information is derived from the Fund s audited annual financial statements. The net assets per share presented in the financial statements differs 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. (2) Management expense ratio is based on total expenses (excluding broker commission 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 Management Expense Ratio for the stated period is artificially high due to the initial low level of assets and the lag in time between the establishment of the Fund and the marketing of the Fund. Fund MERs are expected to be in line with industry peers both on a run rate basis and for the full year. (3) 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. (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 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 the Fund. Percentages are annualized. (6) Fund inception date is December 3,

10 Rerturn (%) Past Performance The indicated rates of return are the historical total returns including changes in unit values and assume reinvestment of all distributions in additional units of the relevant Series of the Fund. These returns do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that may reduce returns. Please note that past performance is not indicative of future performance. Year-by-Year Returns The following chart indicates the performance of each Series of the Fund as of the inception date of December 3, The chart shows how much an investment made at the Fund s inception would have increased/decreased, in percentage terms, by the last day of each financial year Annual Returns 2015* Series A -0.7 Series F -3.1 Series PHP -2.2 Series A USD 34.7 Series A Series F Series PHP Series A USD *Return from March 12, 2015 (commencement of operations) to December 31, 2015 for Series A, Series F, Series PHP, and Series A USD (not annualized). Compound Returns Annual compound returns information is not available as the Fund has not completed a full calendar year. 10

11 Summary of Investment Portfolio Top 25 Holdings % of NAV Cash and Cash Equivalents 36.1 PIMCO Monthly Income Fund (Canada) Class M 27.3 Fidelity American High Yield Fund Series F 13.9 Redwood Unconstrained Bond Class Y 13.6 Manulife Strategic Income Fund Series F 5.5 Total 96.4 % of Sector Mix NAV Mutual and Pooled Funds 60.3 Cash and Cash Equivalents 36.1 Other Assets Less Other Liabilities 3.6 Total % of Geographic Mix NAV Canada 60.3 Cash and Cash Equivalents 36.1 Other Assets Less Other Liabilities 3.6 Total As at December 31, 2015, the Fund's investments are long only. 11

12 Total Net Asset Value Total Net Asset Value of the Fund as at December 31, 2015 was $1,817,085. The Net Asset Value for each of Series A, A US, F, and PHP were $510,368, $63,524, $483,360, and $759,833, respectively. Corporate Information Corporate Address Redwood Asset Management Inc. 120 Adelaide West, Suite 2400, P.O Box 23 Toronto, Ontario M5H 1T1 T Toll-Free F E invest@redwoodasset.com For additional information visit our website: Auditors PricewaterhouseCoopers LLP 18 York Street, Suite 2600 Toronto, ON M5J 0B2 Legal Counsel Fasken Martineau DuMoulin LLP 333 Bay Street, Suite 2400 Bay Adelaide Centre, Box 20 Toronto, Ontario M5H 2T6 12