Mike Leslie, Faculty Pension Plan David Ayriss, Leith Wheeler

Transcription

1 Investment Market Update UBC Faculty Pension Plan Mike Leslie, Faculty Pension Plan David Ayriss, Leith Wheeler February 29, 2012

2 Agenda Introductions Investment Market Update New Fund Option & Fund Returns Question Period a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 2

3 Presenters Mike Leslie Executive Director Investments, Faculty Pension Plan David Ayriss Vice President Leith Wheeler a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 3

4 University of British Columbia Faculty Pension Plan Members February 29, 2012 Presented by: David Ayriss Vice President, Portfolio Manager UBC Faculty Pension Plan

5 Proposed Agenda Review of 2011 Outlook for 2012 Questions? UBC Faculty PP Feb-12 Pg 5

6 Review of 2011 UBC Faculty PP Feb-12 Pg 6

7 Return of a Balanced* Portfolio Annualized Returns December 31, Year 2 Years 3 Years Since June 30, 2007 Balanced* Portfolio -0.1% 4.6% 8.1% 1.6% * 5% Cash, 35% Bonds; 30% Canadian Equities, 15% U.S. Equities (C$), 15% International Equities (C$). Index Returns. UBC Faculty PP Feb-12 Pg 7

8 Individual Asset Class Returns for st Half nd Half Year Cash 0.5% 0.5% 1.0% Bonds 2.2% 7.3% 9.7% * Best Canadian Equity 0.2% -8.9% -8.7% U.S. Equity (C$) 2.8% 1.6% 4.4% International Equity (C$) 1.8% -11.7% -10.2% * Worst Balanced Portfolio 1.6% -1.7% -0.1% UBC Faculty PP Feb-12 Pg 8

9 Review of 2011 Optimism at the beginning of the year Stocks did well- Minimal bond returns Mid-Year, Investors focused on Europe's problems and fled all equities for Government Bonds (Canadian & U.S.) and $U.S. At year end confusion in Europe Gradual improvement in U.S. Who Will Win? UBC Faculty PP Feb-12 Pg 9

10 Canadian Equity Performance in 2012 UBC Faculty PP Feb-12 Pg 10

11 Mid Year there was a Flight to Safety U.S. dollar rose against the Euro Gold price rose Government Bonds Canada and the U.S., prices rose, yields fell UBC Faculty PP Feb-12 Pg 11

12 Flight to Safety U.S. dollar UBC Faculty PP Feb-12 Pg 12

13 Flight to Safety Gold Performance in 2011 UBC Faculty PP Feb-12 Pg 13

14 Bonds We Are in a Very Low Interest Rate Environment Government of Canada 30 Year Bond Yield From December 1961 to December % 3.5% UBC Faculty PP Feb-12 Pg 14

15 Long Bond Rates Over the Last Year Government of Canada 30 Year Bond Yield 3.5% UBC Faculty PP Feb-12 Pg 15

16 As we closed the year, equities rallied, gold declined, and interest rates remained low! UBC Faculty PP Feb-12 Pg 16

17 Outlook for 2012 UBC Faculty PP Feb-12 Pg 17

18 Overview History as our guide It will take more time to recover from the 2008 crisis A look at the current economic environment A deteriorating Europe (recession), improving U.S., and strength in China & Brazil (E) G % 1.3% 1.2% U.S. 3.0% 1.7% 2.2% China 10.4% 9.2% 8.5% Brazil 7.5% 3.0% 3.5% Market valuation Continued volatility Low interest rates Equities look attractive UBC Faculty PP Feb-12 Pg 18

19 Yields Bonds versus Stocks December 31, 2011 Bond Yields Canada Corporate 5 Year 1.30% 2.15% 10 Year 1.94% 3.15% 30 Year 2.49% 4.05% Dividend Yields TSX Composite 2.8% S&P % MSCI EAFE 3.9% UBC Faculty PP Feb-12 Pg 19

20 Profits Continue to Grow Source: Leith Wheeler, Bloomberg UBC Faculty PP Feb-12 Pg 20

21 Stocks Look Relatively Attractive 10 Year Canada Bond Yield TSX Dividend Yield UBC Faculty PP Feb-12 Pg 21

22 Potential Long Run Equity Returns 10 Year Returns Based on Starting Period P/E multiple P/E Multiple Range 10 Year Return 25x 50x 1.5% 16.6x 25x 8.1% 12.5x 16.6x 10.7% 10x 12.5x 13.3% 8x 10x 14.8% 7x 8x 16.5% UBC Faculty PP Feb-12 Pg 22

23 Good News Markets Recover Attack UBC Faculty PP Feb-12 Pg 23

24 Conclusion UBC Faculty PP Feb-12 Pg 24

25 Conclusion Potential Equity returns look attractive going forward, especially since Dividend yields are more than some Bond yields Potential Bond yields, and returns look very poor going forward Reasonable returns for Balanced Portfolios UBC Faculty PP Feb-12 Pg 25

26 Appendix UBC Faculty PP Feb-12 Pg 26

27 World Equity Indices (One Word Volatility!) UBC Faculty PP Feb-12 Pg 27

28 Currency Performance Long Term 15 Years 10 Years 5 Years UBC Faculty PP Feb-12 Pg 28

29 European 2 Year Bond Spreads UBC Faculty PP Feb-12 Pg 29

30 Long Term Expected Returns North American Bonds 3% to 5% North American Equities Earnings growth of 3% to 4% in line with nominal GDP growth Potential multiple expansion adds 0-2.5% Adding dividend yield of 2.0% gives 6% to 8.0% total returns Balanced Portfolio Around 6% UBC Faculty PP Feb-12 Pg 30

31 Canada Yield Curve Forecast Scenario Probability 25% 55% 20% Dec. 31 Yield Solid Recovery GDP 2-2.5% Slow Recovery GDP 0-2% Double Dip GDP <0% BOC Overnight Y Bond Y Bond Y Bond Y Bond UBC Faculty PP Feb-12 Pg 31

32 Balanced Fund Target Asset Allocation Canadian Real Return Bonds 8.0% Canadian Real Estate 10.0% Canadian Equities 20.0% Fixed Income 32.0% Hedge Fund 3.0% Global Equities* 21.0% US Equities 6.0% * Global Equities includes investments in both U.S. Equities and Non-North American Equities a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 32

33 Rates of Return* (to December 31, 2011) Fund 1 Yr. 5 Yrs. 10 Yrs. Balanced Fund 3.2% 2.8% 5.7% Bond Fund 10.5% 7.2% 6.7% Canadian Equity Fund -8.0% 1.9% 8.0% Foreign Equity Fund -2.1% -5.3% -0.3% Short Term Investment Fund 1.3% 2.0% 2.4% * Before fees a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 33

34 GICs New Fund Option Expected rollout date Second Quarter 2012 Terms Available: 1, 2, 3, 4 & 5 years Article in the Second Quarter 2011 Pension Newsletter Risk/Return positioned between STIF and the Bond Fund Useful for cashflow planning in retirement With Asset Allocation Choices article in the Third Quarter 2011 Pensions Newsletter GICs may be suitable for some members for Short term allocation Upcoming article in First Quarter 2012 Pension Newsletter a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 34

35 New this year FPP Pension Forum Wednesday, May 23, 2012 Arbutus Room at Ponderosa Centre 10:30am to 12:30pm RSVP by May 16 to or call a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 35

36 New this year FPP Pension Forum Information Tables & Guest Exhibitors 10:30am to 11:30am General Investments Retirement UBC Retirement & Survivor Benefits mypension & FPP Calculators Faculty Relations Service Canada Presentation 11:45am to 12:30pm Plan performance in 2011 Review 2011 and 2012 Initiatives Faculty Association (to be confirmed) a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 36

37 Thank You! Questions? a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 37