ANNUAL MANAGEMENT REPORT

Transcription

1 17 ANNUAL MANAGEMENT REPORT of Fund Performance for the year ended December 31, 2017 EQUITY FUNDS This Annual Management Report of Fund Performance contains financial highlights but does not contain the complete annual financial statements of the Funds that you hold. You can get a copy of the annual financial statements at your request, and at no cost, by calling Services d investissement FÉRIQUE s client services at (toll-free ), by writing at Gestion FÉRIQUE, Place du Canada, 1010 de La Gauchetière Street West, Suite 1400, Montréal, Québec H3B 2N2, or by visiting our Web site at ferique.com or SEDAR at sedar.com. You may also contact us using one of these methods to request a copy of the Fund s proxy voting policies and procedures, proxy voting disclosure record and quarterly portfolio disclosure.

2 There may be management fees and expenses associated with an investment in the Funds. Management expense ratios vary from one year to another. Please read the Prospectus before investing. Mutual funds are not guaranteed or covered by the Canada Deposit Insurance Corporation or another government deposit insurer. Their values fluctuate frequently and past performance may not be repeated. FÉRIQUE Funds are distributed by Services d investissement FÉRIQUE since July 1, 2013 and used to be by National Bank Securities Inc., until June 30, A Note on Forward looking Statements This report may contain forward looking statements about the Funds, their future performance, strategies or prospects, and possible future Fund actions. The words may, could, should, would, suspect, outlook, believe, plan, anticipate, estimate, expect, intend, forecast, objective and similar expressions are intended to identify forward looking statements. Forward looking statements are not guarantees of future performance. Forward looking statements involve inherent risks and uncertainties, both about the Funds and general economic factors, so it is possible that predictions, forecasts, projections and other forward looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward looking statement made in relation to the Funds. These factors include, but are not limited to, general economic, political and market factors in Canada, the United States and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological changes, changes in laws and regulations, judicial or regulatory judgments, legal proceedings and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. All opinions contained in forward looking statements are subject to change without notice and are provided in good faith but without legal responsibility. Some rates or returns presented in this report come from the PALTrak study as at December 31, 2017, owned by Morningstar Research Inc. Please read the following note: [2017] Morningstar Research Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Morningstar may not be held responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

3 Management Discussion of Fund Performance Investment Objective and Strategies The seeks to maximize the total return through capital appreciation rather than income maximization. The value of the capital thus varies and the investment horizon is long-term. Money is mainly invested in all classes of common shares of Canadian corporations listed on a stock exchange, as well as in convertible bonds, preferred shares, income trusts, rights, exchange-traded funds, warrants, short-term commercial paper of all Canadian corporations and financial institutions and Government of Canada Treasury bills. The is managed by two (three before September 18) portfolio managers who use different styles, namely Connor, Clark & Lunn Investment Management Ltd. (CC&L), which manages approximately 60% of the portfolio (35% before September 18); as well as Franklin Templeton Investments (Franklin Templeton) (September 18 to December 31), which manages approximately 40% of the portfolio; Montrusco Bolton Investments Inc. (Montrusco), which managed about 30% of the portfolio and MFS Investment Management Canada Limited (MFS), which managed 35% of the portfolio before September 18. CC&L s approach consists in identifying opportunities stemming from divergences between the results of its fundamental analyses 1 and current market expectations. It uses detailed macroeconomic and bottom-up analyses to adjust sector and capitalization allocations. The other portfolio manager, Franklin Templeton, aims to discover well-managed companies with long-term success derived from their solid and sustainable business model. The team believes that these companies will provide stable earnings and dividend growth thereby contributing to an increase in the stocks prices. The investment process is centered on research and focuses on superior return on equity and financial health, as well as steady and above-average income, earnings and cash flow growth throughout the cycle. Risk The risks of investing in the Fund remain the same as those described in the prospectus. This Fund is intended for investors with a medium risk tolerance who want to invest in the long term. It can also be used as the core equity component of a diversified investment portfolio. Results of Operations For the fiscal year ended December 31, 2017, the FÉRIQUE Equity Fund posted a net return of 5.6%, compared to 9.1% for its benchmark, the S&P/TSX Composite Index. Contrary to benchmark returns, which include no investment fees, Fund returns are expressed net of management and operating expenses payable by the Fund. On a relative basis, the Fund underperformed the industry median 2, which posted 6.7% for the fiscal year, net of management fees. FÉRIQUE FÉRIQUE Nom du Equity Fonds Fund CC&L Underperformance from security selection stemmed entirely from positioning within Energy, as the sector provided the eight largest detractors. The portfolio s underweight to integrated company Suncor Energy subtracted a significant amount of value, as did a number of overweights to Seven Generations Energy, Tourmaline Oil and Painted Pony Energy, among others. Conversely, stock positioning within Materials, Industrials and Consumer Staples added value. Specifically, the Materials sector provided the three largest contributors, thanks to the overweight to mining companies Teck Resources, First Quantum Minerals and Hudbay Minerals. In Industrials, the overweight to Air Canada and underweight to Canadian National Railway were beneficial, as were the overweights to Jamieson Wellness and Cott in Consumer Staples. MFS (January 1 to September 17) During the period, unfavourable stock selection in the Materials sector was a leading detractor. Specifically, the portfolio s overweight to mineral exploration and development firm Tahoe Resources impeded relative returns. Conversely, strong stock selection in the Energy sector generated the largest positive relative contribution. The underweight to Canadian oil and gas producer Cenovus Energy supported relative returns, as the stock underperformed the benchmark during the reporting period. Montrusco (January 1 to September 17) In terms of sector allocation, the overweight to Industrials and Information Technology, as well as the underweight to Energy, were the biggest contributors to the Fund s relative returns over the period. Meanwhile, with respect to stock selection, Home Capital Group detracted the most from performance over the year. In contrast, the portfolio s holdings in Shopify, Dollarama and New Flyer Industries, along with its lack of exposure to Cenovus, had the most positive impact on relative returns. Franklin Templeton (September 18 to December 31) Security selection and sector allocation had a negative impact on the portfolio during the period. At the security level, individual holdings in the Energy sector (including Crew Energy as a detractor) were partially offset by holdings in Information Technology (with Enghouse Systems as a contributor). Other notable contributors to performance included Canadian Imperial Bank of Commerce (Financials) and Dollarama (Consumer Discretionary), while Restaurant Brands International (Consumer Discretionary), Onex (Financials), Metro (Consumer Staples) and Toromont Industries (Industrials) were among the biggest detractors. From a sector allocation standpoint, the most notable detractor to performance was the underweight to the outperforming Health Care sector.

4 Recent Developments CC&L Economic data released during the period supported CC&L s theory that the global economy has shifted to a synchronized global growth environment. The world s major economies, including Canada, continued to experience robust economic readings and surprisingly stable leading economic indicators. Moreover, data releases, particularly strong labour market numbers, along with stronger oil prices supported by the extension of OPEC s production cuts, confirmed the sunny economic outlook for Canada. Meanwhile, the progress made towards achieving a comprehensive tax reform in the U.S., as well as its beneficial impact on corporations, drove investors optimism. The portfolio manager expects consumer and business spending to increase, as consumer and small business confidence in the U.S. remains high. CC&L plans to continue increasing the portfolio s exposure to companies that are expected to outperform in this environment by adding to base metals producers, as well as companies in Financials and Industrials. CC&L expects the continued improvement in economic growth to drive the outperformance of value stocks over growth stocks in the coming year. As the business and market cycle continues to mature, the portfolio manager believes many late-cycle sectors and companies will outperform their more defensive peers. To capitalize on this trend, CC&L continues to add companies that are attractively valued and exposed to higher economic growth. While the portfolio manager s growth outlook remains positive, it realizes that it is entering the later stages of this extended economic cycle and remains vigilant of the risks to its outlook. These risks include elevated geopolitical uncertainty and political risks (including NAFTA s potential dismantlement), a substantial increase in interest rates and indications the economic cycle may be rolling over. Franklin Templeton Exceptionally low volatility predominated in Financial markets benefitted from synchronized global economic growth, accommodative global central bank policies, as well as the passage of U.S. tax reform legislation, while shrugging off continued monetary policy tightening by the U.S. Federal Reserve (Fed) and uncertainty on many fronts, including NAFTA negotiations and geopolitical risks. Meanwhile, OPEC extended its production cuts to the end of 2018, driving oil prices sharply higher. The low-volatility backdrop was driven by solid earnings momentum, an improved global macro landscape and investor complacency across virtually all financial markets. The Fed increased its key interest rate three times and began reducing its balance sheet over the year. The Bank of Canada also changed direction, hiking its own rate twice. The Fund s benchmark posted positive total returns in seven of the past nine years. Given this strength, it set a new performance record on December 28, As such, the Canadian equity market remains well entrenched in the current bull market, which has spanned for almost the past nine years. While the Canadian equity market continues to present attractive investment opportunities in certain sectors and individual circumstances, Franklin Templeton remains prudent when it comes to go-forward absolute returns. Other Material Information In its capacity as Manager of the FÉRIQUE Funds, Gestion FÉRIQUE announced the appointment of Franklin Templeton as one of the portfolio managers of the. This change, which became effective as of September 18, 2017, resulted in the termination of Montrusco Bolton Investment Inc. s and MFS Investment Management s engagements. As a result of this change, Franklin Templeton manages approximately 40% of the portfolio, while current manager CC&L manages approximately 60%. The Fund s investment objective has remained unchanged. Related Party Transactions The Manager of the Fund is Gestion FÉRIQUE, a not for profit organization. Gestion FÉRIQUE receives management fees to cover its expenses with respect to the day to day business and operations of the Fund, as reported under the Management Fees section. These expenses include the portfolio manager s fees, the fees relating to the marketing and distribution of the Fund, as well as the administration fees of the Manager. Services d investissement FÉRIQUE (SIF) is a not for profit subsidiary of Gestion FÉRIQUE registered as a group savings plan brokerage and financial planning firm, and acts as distributor of units of the Fund. A percentage of the management fees paid by the Fund to Gestion FÉRIQUE is used to cover the expenses of SIF with respect to its day to day activities. For the fiscal year ended December 31, 2017, portfolio managers CC&L, MFS (January 1 to September 17), Montrusco (January 1 to September 17) and Franklin Templeton (September 18 to December 31) did not enter into any related party transactions as it pertains to the management of the ($0 as at December 31, 2016 for CC&L, MFS and Montrusco). 1 Fundamental analysis seeks to determine the fundamental or intrinsic value of a security as it is believed that the price of such security will eventually reach this value. The analysis considers elements such as the company s growth rate, financial solidity and the effectiveness of its management team, as well as the sector and the economic context in which the company operates. 2 Source: Median return of similar funds according to Fundata, as at December 31, 2017.

5 Financial Highlights The following tables show selected key financial information about the Fund and are intended to help the reader understand the Fund s financial performance for the accounting periods shown. (1) (5) Net Assets per Unit Years ended $ $ $ $ $ Net assets, beginning of accounting period (4) Increase (decrease) from operations Total revenues Total expenses (0.83) (0.73) (0.69) 0.74 (0.74) Realized gains (losses) 4.74 (0.51) Unrealized gains (losses) (1.75) 9.75 (6.84) (1.61) 2.17 Total increase (decrease) from operations (2) (5.53) Distributions From dividends From capital gains Total annual distributions (3) Net assets, end of accounting period (4) (1) This information is derived from the Fund s Annual Audited Financial Statements. The net assets per unit presented in the financial statements could differ from the net asset value calculated for fund pricing purposes. The differences are explained 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 or decrease from operations is based on the weighted average number of units outstanding during the accounting period. This table is not intended to show a reconciliation between net assets per unit at the beginning and at the end of the accounting period. (3) Distributions were paid in cash or reinvested in additional units of the Fund, or both. (4) The net assets are calculated in accordance with International Financial Reporting Standards (IFRS). (5) Issued and outstanding units of the Fund have been redesignated as Series A units effective on July 1, This change relates only to the designation of the units and the rights, privileges and other attributes of units redesignated into Series A units remain unchanged. In this document, the word units indicates Series A units. Ratios and Supplemental Data Years ended Net asset value (in thousands of $) (1) 537, , , , ,126 Number of units outstanding (1) 7,619,909 7,606,034 8,345,943 8,164,173 7,682,407 Management expense ratio (%) (2) Management expense ratio before waivers or absorptions by the Manager (%) Portfolio turnover rate (%) (3) Trading expense ratio (%) (4) Net asset value per unit ($) (1) This information is provided as at December 31 for the comparative accounting periods. (2) Management expense ratio is based on total expenses for the stated accounting period (excluding commissions, other portfolio transaction costs and withholding taxes on dividend income) and is expressed as an annualized percentage of the daily average net asset value during the accounting period. (3) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio manager 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 during the accounting period. The higher a Fund s portfolio turnover rate in the accounting period, the greater the trading costs payable by the Fund during the accounting period, and the greater the chance of an investor receiving taxable capital gains during the accounting period. There is not necessarily a relationship between a high turnover rate and the Fund s performance. (4) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of the daily average net asset value during the accounting period. Management Fees The fees and expenses payable by the Fund include management fees and operating expenses. The management fees include, among others, the portfolio manager s fees, the fees relating to the marketing and distribution of the Fund, and administration fees of the Manager. These fees are calculated and credited daily and paid monthly. Operating expenses include, among others, regulatory filing fees, registrar, custodian and fiduciary fees, expenses relating to accounting and valuation of the Fund, taxes and duties, auditors and legal advisors fees, and reporting fees to unitholders. For the year, annualized management fees charged to the Fund amounted to 1.05% and are detailed as follows: Management fees: 0.95% Operating expenses: 0.10%

6 Past Performance The performance information assumes that all distributions made by the Fund in the periods shown were reinvested in additional securities of the Fund. The information does not take into account purchase, redemption, investment or other optional charges that would have reduced returns or performance. The Fund s past performance is not necessarily indicative of how it will perform in the future. Annual Returns The bar chart shows the Fund s annual performance for each of the years shown, and illustrates how the Fund 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 year would have grown or decreased by December 31 of each financial year or on the last day of the year. % Portfolio Overview The Top 25 Holdings in the Portfolio % of net asset value Royal Bank of Canada 6.6 Toronto-Dominion Bank 6.3 Scotiabank 4.8 Canadian National Railway Co. 4.0 Brookfield Asset Management Inc., Class A 4.0 Bank of Montreal 3.5 Enbridge Inc. 3.0 Restaurant Brands International Inc. 2.7 Canadian Pacific Railway Co. 2.7 Canadian Imperial Bank of Commerce 2.4 Manulife Financial Corp. 2.3 Alimentation Couche-Tard Inc., Class B 2.2 Agrium Inc. 1.9 Franco-Nevada Corp. 1.9 TransCanada Corp. 1.9 Dollarama Inc. 1.7 TELUS Corp. 1.6 Rogers Communications Inc., Class B 1.5 Teck Resources Ltd., Class B 1.3 Onex Corp. 1.2 Power Corporation of Canada 1.2 Toromont Industries Ltd. 1.2 Sun Life Financial Inc. 1.2 Keyera Corp. 1.0 Cash, Money Market and Other Net Assets Annual Compound Returns (%) year 3 years 5 years 10 years FÉRIQUE Equity S&P/TSX Composite Index Median* * Median return of all investment funds of the same category according to Fundata. S&P/TSX Composite Index The S&P/TSX Composite Index is the benchmark index used for the entire medium and large capitalization Canadian market securities. This index is the most diversified in Canada, representing close to 90% of market capitalization of all Canadian corporations listed on the Toronto Stock Exchange. Weighting by Sector % of net asset value Financials 36.2 Energy 17.5 Industrials 12.5 Materials 10.1 Consumer Discretionary 6.1 Consumer Staples 5.8 Information Technology 4.1 Telecommunication Services 3.2 Utilities 2.6 Real Estate 0.9 Health Care 0.4 Cash, Money Market and Other Net Assets 0.6 Net Asset Value $537,581,098 The allocation of the portfolio may vary due to the transactions carried out by the Fund. A quarterly update is available. Comparison with the Index The Fund posted a net return of 5.6% for the fiscal year ended December 31, 2017, compared to 9.1% for its benchmark index. Please note that the Fund s return is presented net of management fees and operating expenses, while the Index s return is gross of fees.

7 Gestion FÉRIQUE Place du Canada 1010 de La Gauchetière Street West Suite 1400 Montréal, Québec H3B 2N2 ferique.com Additional information about the Funds is available in the Funds Prospectus, Annual Information Form, Fund Facts and Financial Statements. You may obtain a copy of these documents, free of charge and on demand: by contacting the Manager, Gestion FÉRIQUE, at (toll free at ); by contacting the Principal Distributor, Services d investissement FÉRIQUE at (toll free at ) or client@ferique.com; by visiting ferique.com or sedar.com.