SUN LIFE GLOBAL INVESTMENTS (CANADA) INC.

Transcription

1 SUN LIFE GLOBAL INVESTMENTS (CANADA) INC. ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE for the financial year ended December 31, Sun Life MFS Canadian Equity Fund

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3 This annual management report of fund performance contains financial highlights but does not contain the complete financial statements of the investment fund. You can request a free copy of the annual financial statements by calling , by sending an to us at info@sunlifeglobalinvestments.com or by writing to us at Sun Life Global Investments (Canada) Inc.,1 York Street, Toronto, Ontario, M5J 0B6. Our financial statements are available on our website at and on SEDAR at All of the financial information is calculated based on the pricing Net Asset Valuation for the investment fund, unless otherwise stated. Unitholders 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 FUND PERFORMANCE Investment Objectives and Strategies The fundamental investment objective of the Sun Life MFS Canadian Equity Fund (the Fund ) is to aim for long-term capital growth by investing primarily in a diversified portfolio of Canadian equities. The Fund s sub-advisor is MFS Investment Management Canada Limited ( MFSIM ) and the sub-advisor to MFSIM is MFS Institutional Advisors, Inc. ( MFS ). In pursuing the Fund s investment objective, MFSIM seeks to invest in equity securities of companies it believes to have above-average earnings growth potential compared to other companies or seeks to invest in equity securities of companies that it believes are undervalued compared to their perceived worth. The Fund may invest in companies of any size and the issuers will be located primarily in Canada. The Fund may invest up to 40% of the Fund s assets in non-canadian securities. Using a bottom-up investment approach investments are selected primarily based on fundamental analysis of issuers and their potential in light of their current financial condition and industry position, as well as market, economic, political and regulatory conditions. Other factors considered are earnings, cash flows, competitive position and management ability of issuers. Risk There were no changes in the Fund's investment objective or strategy during the period which materially impacted the overall level of risk in the Fund. The risks associated with investing in the Fund remain as outlined in the Fund s Simplified Prospectus. Results of Operations During the period, the net asset value of the Fund increased from $8.4 million to $9.8 million due to positive net sales, as well as positive performance during the period. During the period, the Fund returned 6.1% for Series A units. This result lagged the Fund s benchmark, the S&P/TSX Capped Composite Index, returned 9.1%. The performance returns for other series of this Fund are similar to those of Series A except for differences in expense structures. Please refer to the Past Performance section of this report for performance of each series. Stock selection in the Financials, Materials and Utilities sectors detracted from performance relative to the S&P/TSX Capped Composite Index. Within the Financials sector, not owning shares of alternative asset management companies - Brookfield Asset Management and Canadian Imperial Bank of Commerce, held back relative results. In addition, overweight positions in financial services firm Element Fleet Management and news and information publisher for professional markets Thomson Reuters (United States) detracted from returns. Within the Materials and Utilities sectors, there were no individual stocks that were among the Fund's largest relative detractors during the period. Other top detractors during the period included overweight positions in natural gas transmission and distributor Enbridge, independent energy exploration & production company Seven Generations Energy, and food retailer Loblaw Companies. In addition, the Fund's holdings of drilling company Trinidad Drilling, and not owning shares of diversified communications and media company Rogers Communications and premium medical marijuana producer Canopy Growth also dampened returns. Stock selection in the Energy sector contributed positively to overall performance. Within this sector, the Fund s ownership in shares of oil and natural gas companies Cenovus Energy and ARC Resources helped results. As well, not owning shares of energy company Peyto Exploration & Development and integrated oil company Imperial Oil also aided returns on a relative basis. An overweight position in the Industrials sector contributed to performance led by overweight positions in municipal solid waste services company Waste Connections and transcontinental railway operator Canadian Pacific Railway. Other top contributors during the period included overweight positions in entertainment and news media provider Quebecor, metal mining company Lundin Mining and banking services p 1

4 provider Royal Bank of Canada. Additionally, not owning gold mining company Eldorado Gold also supported results. Recent Developments For the first time in many years, the global economy experienced a period of synchronized economic growth over the reporting period. The rebound in emerging markets ("EM") economies was more pronounced (despite the slight deceleration in Chinese growth at the end of the period), helped by larger economies, such as Brazil and Russia, emerging from recessions. At the same time, developed markets ("DM") economies continued to grow at or above potential. Market confidence increased in the U.S. during the period fueled, in part, by a more lenient U.S. regulatory backdrop and hopes for a significant cut in corporate tax rates, which came to fruition at the end of the period. Globally, markets benefited from a reflation trade as commodity prices strengthened, activity and growth prospects improved, and inflation moved higher, though within moderate bounds. As a result, there were more tightening signals and actions by DM central banks. The U.S. Federal Reserve increased interest rates by 25 basis points three times during the period, bringing the total number of quarter-percent hikes in the federal funds rate to five, since December. The European Central Bank announced an extension of its quantitative easing program at the end of the period, but reduced the pace of its monthly asset purchases by half. In addition, the Bank of England hiked its base rate for the first time in a decade, late in the end of the period. Markets were comforted, along with central banks, by the decline in fears of a populist surge in Europe after establishment candidates won the Dutch and French elections, though a right-wing populist party gained seats in the German parliament for the first time in the post- World War II era. Additionally, European growth reflected a generally calmer political economic backdrop. In recent months, the U.S. Dollar reversed the sharp rise seen early in the period, easing what had been a substantial headwind to earnings for multinationals. The U.S. consumer spending held up well during the second half of the period amid a modest increase in real wages and relatively low gasoline prices. However, demand for autos cooled from the record level logged early in the period, while the housing market improved, albeit constrained by below-average inventory levels. Global trade, which was sluggish early in the period, showed signs of improvement in the period s second half, a positive indicator of global economic activity and prospects. Early in the period, there was a selloff in EM due to fears that President Trump would follow through on various campaign threats and promises that were judged to be detrimental to EM. While President Trump withdrew the U.S. from the Trans-Pacific Partnership and began the renegotiation of the North American Free Trade Agreement, significant additional policy action was lacking on economic issues involving EM. As a result, EM resumed their upward trajectory, powered by strong inflows throughout. On June 7,, Louise Tymocko resigned from the Independent Review Committee ( IRC ) effective June 8,. Also on this date, Nancy Church was appointed to service as IRC Chair for a term of three years, and Pierre-Yves Châtillon reappointed to service as a member of the IRC (no longer Chair) for a term of one year. The IRC is now composed of Nancy Church (Chair), Andrew Smith and Pierre-Yves Châtillon. Effective December 15,, Sun Life Global Investments (Canada) Inc. implemented the new Risk Classification Methodology for mutual funds recently mandated by the Canadian Securities Administrators. This methodology is used to determine the investment risk level of the Fund. There are no changes to the investment risk level of the Fund as a result of the implementation. Related Party Transactions Sun Life Global Investments (Canada) Inc. (the Manager ) is the manager, trustee and portfolio manager of the Fund. The Manager is responsible for the provision of all general management and administrative services required by the Fund in its day-to-day operations, including providing or arranging for the provision of investment advice, bookkeeping, recordkeeping and other administrative services for the Fund. As trustee, the Manager holds legal title to the Fund's investments in trust for unitholders. For its services, the Manager receives a management fee that is calculated as a percentage of the average net asset value of the Fund. This fee is calculated daily and payable monthly. As portfolio manager, the Manager is responsible for managing the investment portfolio of the Fund directly or through subadvisors. The Manager has retained MFS Investment Management Canada Limited ( MFSIM ), an affiliate, to act as a sub-advisor for the Fund. The Manager is an indirect wholly owned subsidiary of Sun Life Financial Inc.,which also has an indirect majority ownership interest in MFSIM. p 2

5 Fund Administrative Expenses The Manager pays certain operating expenses of each Fund (the Administration Expenses ) in return for a fixed administration fee paid to the Manager by each Fund ( Administration Fee ). The Administration Fee is based on the net asset value of each series of the Fund. The Administration Expenses include, but are not limited to, record keeper fees, accounting, audit and legal fees, bank and interest charges, safekeeping and custodial fees, taxes, administrative and systems costs, costs of reports to investors, prospectuses and other disclosure documents, regulatory filing fees (including those incurred by the Manager) and trustee fees for registered plans. The amount of this charge is disclosed as a Fund administrative expense in the Fund s Statement of Comprehensive Income found in the annual financial statements (audited). Each Fund also pays certain operating expenses directly (the Fund Costs ). Fund Costs include: borrowing costs incurred by the Fund from time to time; costs in connection with portfolio transactions; fees and expenses payable to or in connection with the Fund s Independent Review Committee ( IRC ); taxes payable by the Fund; and the costs of complying with any new regulatory or legal requirement imposed on the Fund. Each Fund allocates Fund Costs proportionately among its series of units. The Fund Costs that are specific to a series of units are allocated to that series. These amounts are paid out of the assets attributed to each series of units of the Fund, which reduces the return you may receive. 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 from the date of inception to December 31,. The Fund s Net Asset Value per Unit (1)(4) Sun Life MFS Canadian Equity Fund - Series A 2013 Net asset value, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.43) (0.40) (0.44) (0.44) (0.39) Realized gains (losses) for the period Unrealized gains (losses) for the period (2.07) (0.01) 0.57 Total increase (decrease) from operations (2) (1.21) Distributions: From income (excluding dividends) From dividends - (0.02) (0.02) (0.12) (0.19) From capital gains - - (0.80) (0.68) - Return of capital Total annual distributions (3) - (0.02) (0.82) (0.80) (0.19) Net asset value, end of period Sun Life MFS Canadian Equity Fund - Series D 2013 Net asset value, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.30) (0.27) (0.30) (0.29) (0.26) Realized gains (losses) for the period Unrealized gains (losses) for the period (1.83) Total increase (decrease) from operations (2) (0.79) Distributions: From income (excluding dividends) From dividends (0.03) (0.03) (0.11) (0.11) (0.17) From capital gains - - (0.83) (0.70) - Return of capital Total annual distributions (3) (0.03) (0.03) (0.94) (0.81) (0.17) Net asset value, end of period Sun Life MFS Canadian Equity Fund - Series F 2013 Net asset value, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.25) (0.23) (0.25) (0.24) (0.21) Realized gains (losses) for the period Unrealized gains (losses) for the period (1.89) Total increase (decrease) from operations (2) (0.83) Distributions: From income (excluding dividends) From dividends (0.07) (0.12) (0.19) - (0.22) From capital gains - - (0.81) (0.69) - Return of capital Total annual distributions (3) (0.07) (0.12) (1.00) (0.69) (0.22) Net asset value, end of period Sun Life MFS Canadian Equity Fund - Series I 2013 Net asset value, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.01) (0.01) (0.01) (0.01) (0.01) Realized gains (losses) for the period Unrealized gains (losses) for the period (2.13) 0.51 (0.47) Total increase (decrease) from operations (2) (0.77) Distributions: From income (excluding dividends) From dividends (0.21) (0.31) (0.44) (0.22) (0.41) From capital gains - - (0.85) (0.71) - Return of capital Total annual distributions (3) (0.21) (0.31) (1.29) (0.93) (0.41) Net asset value, end of period p 3

6 Sun Life MFS Canadian Equity Fund - Series O Net asset value, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.03) (0.02) (0.02) (0.02) Realized gains (losses) for the period Unrealized gains (losses) for the period (2.12) 0.23 Total increase (decrease) from operations (2) (1.28) 0.76 Distributions: From income (excluding dividends) From dividends (0.12) (0.17) (0.26) (0.13) From capital gains - - (0.50) (0.41) Return of capital Total annual distributions (3) (0.12) (0.17) (0.76) (0.54) Net asset value, end of period (1) 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 period. (3) Distributions were paid in cash, reinvested in additional units of the Fund, or both. (4) Comparatives prior to 2013 are prepared in accordance with Canadian Generally Accepted Accounting Principles ( Canadian GAAP ). Figures subsequent to 2013 are prepared in accordance with International Financial Reporting Standards ( IFRS ). Ratios and Supplemental Data (6) Sun Life MFS Canadian Equity Fund - Series A 2013 Total net asset value (1) 4,653,045 3,619,801 1,873,951 1,655, ,011 Number of units outstanding (1) 247, , ,659 94,414 42,099 Management expense ratio (%) (2) Management expense ratio before waivers or absorption (%) (2) Trading expense ratio (%) (3) Portfolio turnover rate (%) (4)(5) Net asset value per unit (1) Sun Life MFS Canadian Equity Fund - Series D 2013 Total net asset value (1) 2,306,164 2,318,956 2,354,611 3,028,328 3,313,729 Number of units outstanding (1) 117, , , , ,322 Management expense ratio (%) (2) Management expense ratio before waivers or absorption (%) (2) Trading expense ratio (%) (3) Portfolio turnover rate (%) (4)(5) Net asset value per unit (1) Sun Life MFS Canadian Equity Fund - Series F 2013 Total net asset value (1) 1,458,202 1,259, , ,905 1,746,065 Number of units outstanding (1) 76,164 70,253 55,403 55, ,093 Management expense ratio (%) (2) Management expense ratio before waivers or absorption (%) (2) Trading expense ratio (%) (3) Portfolio turnover rate (%) (4)(5) Net asset value per unit (1) Sun Life MFS Canadian Equity Fund - Series I 2013 Total net asset value (1) 931, , , , ,204 Number of units outstanding (1) 46,881 46,534 35,806 28,823 17,667 Management expense ratio (%) (2) Management expense ratio before waivers or absorption (%) (2) Trading expense ratio (%) (3) Portfolio turnover rate (%) (4)(5) Net asset value per unit (1) Sun Life MFS Canadian Equity Fund - Series O Total net asset value (1) 426, , ,255 35,253 Number of units outstanding (1) 36,834 28,496 16,932 3,313 Management expense ratio (%) (2) Management expense ratio before waivers or absorption (%) (2) Trading expense ratio (%) (3) Portfolio turnover rate (%) (4)(5) Net asset value per unit (1) (1) This information is provided as at December 31 of the period shown, as applicable. (2) Management expense ratio is based on total expenses (excluding broker commissions and other portfolio transaction costs) including the Fund s allocated percentage of Fund-on-Funds expenses for the stated period and is expressed as an annualized percentage of daily average Net Asset Value during the period. Prior to, the Manager of the Fund waived some of its management fees and/or absorbed some expenses that would normally be charged to the Fund. (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 ratio indicates how actively the Fund s portfolio manager manages its portfolio investments. A portfolio turnover ratio 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 ratio 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 portfolio turnover rate and the performance of the Fund. (5) Percentages are annualized. (6) Comparatives prior to 2013 are prepared in accordance with Canadian GAAP. Figures subsequent to 2013 are prepared in accordance with IFRS. Management Fees The annual maximum management fee paid by the Fund is a percentage of the average daily net asset value of each series exclusive of any applicable taxes and operating expenses, which is accrued daily and is paid to the Manager monthly in arrears. Management fees pay for portfolio and investment advisory services, oversight of any service providers, marketing and promotional activities, arranging for the distribution and sale of securities of the Fund, general administration of Fund operations and sales and trailing commissions paid to dealers. p 4

7 The percentages and major services paid for out of the management fees are set out below: Maximum Annual Management Fee Rate (%) As a Percentage of Management Fees Dealer Compensation (%) (1) General Administration, Investment Advice and Profit (%) Series A Units Series D Units Series F Units Series I Units Series O Units (2) (1) Includes sales and trailing commissions. (2) Series O management fees are not paid by the Fund. Series O investors pay management fees directly to the manager. Past Performance The performance information shown assumes that all distributions made by the Fund in the periods shown were reinvested in additional securities of the Fund. The performance information does not take into account sales, redemption, distribution, other optional charges or income tax payable by any unitholder that would have reduced returns or performance. How the Fund 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 Fund s annual performance for the period shown. The chart shows, in percentage terms, how much an investment made on the first day of each financial year would have grown or decreased by the last day of each financial year. Series A Units Annual return for the period ended December 31, 60% Series D Units Annual return for the period ended December 31, 60% 40% 33.4% 20% 6.7% 14.3% 9.1% 17.8% 12.1% 14.2% 0% -5.3% -20% -16.1% -40% -31.5% Series F Units Annual return for the period ended December 31, 60% 40% 35.2% 20% 14.7% 9.5% 18.1% 12.3% 14.5% 0% -5.1% -20% -15.9% -28.2% -40% 2008 (*) (*) for the period of February 15, 2008 to December 31, Series I Units Annual return for the period ended December 31, 60% 40% 35.1% 6.9% 7.2% 40% 20% 0% -20% -40% 37.5% 13.7% 8.4% -16.8% 2009 (*) % 11.1% % -6.0% 6.1% 20% 0% -20% -0.6% 2008 (*) % % ( ) 19.7% 14.4% % 16.0% (*) for the period of November 28, 2008 to December 31, 2008 ( ) Returns not available for this time period because there were no investors in this series for a continuous calendar year 8.6% (*) for the period of March 31, 2009 to December 31, p 5

8 Series O Units Annual return for the period ended December 31, 30% Sun Life MFS Canadian Equity Fund Series O S&P/TSX Capped Composite 8.4% 6.4% N/A N/A 7.1% 9.1% 6.6% 8.6% 4.6% 6.4% 20% 10% 7.5% 15.8% 8.4% (1) The performance start date for Series A units was March 31, (2) The performance start date for Series F units was February 15, (3) Annual Compound returns are calculated for the period(s) during which the Series I has units within the fund. Any period(s) during which there were no investors within the fund is not considered for the performance calculation. (4) The performance start date for Series O units was March 31,. 0% -10% (*) for the period of March 31, to December 31,. (*) -4.0% Annual Compound Returns The following table compares the historical annual compound total returns of Series A, D, F, I and O units of the Fund with the Fund's broad-based benchmark, the S&P/TSX Capped Composite Index. The S&P/TSX Capped Composite Index imposes capped weights of 10% on all of the constituents included in the S&P/TSX Composite. The S&P/TSX Composite covers approximately 95% of the Canadian equities market, and has been the primary gauge for Canadian-based, Toronto Stock Exchange-listed companies since The Series A units underperformed the benchmark since inception, over the past five years, over the past three years and over the past year. Sun Life MFS Canadian Equity Fund Series A S&P/TSX Capped Composite Sun Life MFS Canadian Equity Fund Series D S&P/TSX Capped Composite Sun Life MFS Canadian Equity Fund Series F S&P/TSX Capped Composite Sun Life MFS Canadian Equity Fund Series I S&P/TSX Capped Composite 1 Year 3 Year 5 Year 10 Year Performance Start Date (1)(2)(3)(4) 6.1% 4.2% 8.0% N/A 8.7% 9.1% 6.6% 8.6% 4.6% 10.5% 6.9% 5.0% 8.8% 3.8% 6.1% 9.1% 6.6% 8.6% 4.6% 7.6% 7.2% 5.2% 9.1% N/A 4.8% 9.1% 6.6% 8.6% 4.6% 5.2% 8.6% 6.6% 10.6% N/A 9.8% 9.1% 6.6% 8.6% 4.6% 8.0% Summary of Investment Portfolio * as at December 31, Top 25 Investments Percentage of Net Asset Value Holdings of the Fund (%) 1 The Toronto-Dominion Bank Royal Bank of Canada The Bank of Nova Scotia Suncor Energy Inc Enbridge Inc Manulife Financial Corp Canadian Natural Resources Ltd TransCanada Corp Canadian Pacific Railway Ltd Canadian National Railway Co Agrium Inc TELUS Corp CGI Group Inc Bank of Montreal Waste Connections Inc Thomson Reuters Corp Alimentation Couche-Tard Inc Agnico Eagle Mines Ltd Loblaw Companies Ltd Quebecor Inc CCL Industries Inc Intact Financial Corp SNC-Lavalin Group Inc TORC Oil & Gas Ltd Stantec Inc Total Net Asset Value ('000's) $ 9,775 p 6

9 Sector Allocation Percentage of Net Asset Value of the Fund % Financials 32.5 Energy 20.4 Industrials 14.6 Materials 11.5 Consumer Discretionary 5.9 Information Technology 4.4 Consumer Staples 4.2 Telecommunication Services 2.7 Real Estate 1.7 Cash and Cash Equivalents ** 0.9 Utilities 0.9 Health Care (*) All information is as at December 31,. The summary of investment portfolio may change due to ongoing portfolio transactions of the Fund. You may obtain quarterly updates to these holdings free of charge by calling us at , visiting our website at or by sending an to us at info@sunlifeglobalinvestments.com. (**) Cash and Cash Equivalents, for the purpose of this chart, includes other assets less liabilities. Forward-Looking Statements This management report of fund performance may contain forward-looking statements about the Fund, including its strategy, results of operations, performance and condition. Forward-looking statements include statements that are predictive in nature, or that depend upon or refer to future events or conditions. They are based on current beliefs, expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Fund and various economic factors. Many factors could cause the Fund s actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. These factors could include, among other things, general economic, political and market factors, including interest and foreign exchange rates, business competition, technological changes, changes in government regulations or in tax laws. Although the forward-looking statements contained in this report are based upon what management currently believes to be reasonable assumptions, the Manager cannot assure current or prospective investors that actual results, performance or achievements will be consistent with these forward-looking statements. The words may, could, would, should, believe, plan, anticipate, expect, intend, forecast, objective, and similar expressions are intended to identify forward-looking statements. p 7

10 ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE Sun Life MFS Canadian Equity Fund You can find more information about each Fund in our Annual Information Form, and each Fund s management report of fund performance and financial statements, once available. These documents are incorporated by reference into this document, which means that they legally form part of this document just as if they were printed as part of it. For a free copy of these documents, call us toll-free at or ask your advisor. These documents and other information about the Funds, such as information circulars and material contracts, are also available at or Sun Life Global Investments (Canada) Inc. 1 York Street, Toronto, Ontario, M5J 0B6 Telephone: Facsimile: info@sunlifeglobalinvestments.com Sun Life Global Investments (Canada) Inc.,. Sun Life Global Investments (Canada) Inc. is a member of the Sun Life Financial group of companies.