Investment Market Update UBC Faculty Pension Plan Mike Leslie, Faculty Pension Plan David Ayriss, Leith Wheeler February 6, 2013
Agenda Introductions Investment Market Update Balanced Fund Equity Exposure Fund Returns Question Period a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 2
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
Proposed Agenda Review of 2012 Outlook for 2013 Questions? UBC Faculty Pension Plan Feb-13 Pg 4
Review of 2012 UBC Faculty Pension Plan Feb-13 Pg 5
Return of a Balanced* Portfolio Annualized Returns December 31, 2012 1 Year 4 Years Since Jun. 30/07 10 Years Balanced* Portfolio 7.8% 8.0% 2.3% 6.3% * 5% Cash, 35% Bonds; 30% Canadian Equities, 15% U.S. Equities (C$), 15% International Equities (C$). Index Returns. UBC Faculty Pension Plan Feb-13 Pg 6
Review of 2012 Returns Q1 Q2 Q3 Q4 1 Year Optimism Strong U.S. and global markets Concern Slow U.S. and global growth Europe confusion Concern Fiscal cliff Eurozone breakup Washington gridlock Fiscal cliff Europe sovereign debt crisis Slowing Chinese economy Canadian Equities 4.4% -5.7% 7.0% 1.7% 7.2% U.S. Equities (C$) 10.6% 0.8% 2.7% 0.8% 13.5% International Equities (C$) 8.9% -5.3% 3.2% 7.8% 14.8% Bonds -0.2% 2.3% 1.2% 0.3% 3.6% UBC Faculty Pension Plan Feb-13 Pg 7
Canadian Equity Performance in 2012 Resource stock weakness obscured healthy stock performance UBC Faculty Pension Plan Feb-13 Pg 8
The Canadian Dollar went Sideways Last Year 15 Years 10 Years 5 Years UBC Faculty Pension Plan Feb-13 Pg 9
Slight Drop in Rates in Canada: Even Lower Yield Environment Canada Bond Yield 2011 2012 5 Year 1.27% 1.38% 10 Year 1.94% 1.80% 30 Year 2.42% 2.36% UBC Faculty Pension Plan Feb-13 Pg 10
Review of 2011 Optimism at beginning of the year Stocks did well - Minimal bond returns Mid-Year, Investors focused on Europe s problems and fled equities for Government Bonds (Canadian & U.S.) and $ U.S. At year end confusion in Europe U.S. debt levels Gradual economic improvement in U.S. Review of 2012 Optimism at beginning of the year Stocks did well - Minimal bond returns Mid-Year, Investors focused on Europe s problems and fled equities for Government Bonds (Canadian & U.S.) and $ U.S. At year end confusion in U.S. over its debt & deficit Slowdown in China? Who Will Win? 2011 Portfolio Return -0.1% 2012 +7.2% UBC Faculty Pension Plan Feb-13 Pg 11
Our Outlook for the Next 3-5 Years UBC Faculty Pension Plan Feb-13 Pg 12
Considerations Inflation We expect inflation to remain around 2% p.a. Consumer and Government Debt Will impact the U.S. consumer so growth will be muted, but okay! High levels of Canadian consumer debt Strength & Recovery We expect real GDP growth of 2-3% Return Potential Bond returns look like they will be 2.5-3% p.a. Equity returns in Canada & the U.S. around 8% p.a. UBC Faculty Pension Plan Feb-13 Pg 13
Long Term: Rates too Low! Bank of Canada Minus Core CPI is Zero UBC Faculty Pension Plan Feb-13 Pg 14
Bonds versus Stocks: Which has a Better Yield? December 31, 2012 Bond Yields Canada Corporate 5 Year 1.38% 2.14% 10 Year 1.80% 3.13% 30 Year 2.36% 4.22% Dividend Yields TSX Composite 3.0% S&P 500 2.2% MSCI EAFE 3.5% UBC Faculty Pension Plan Feb-13 Pg 15
Profits Continue to Grow: Underpinnings Still Look Good! UBC Faculty Pension Plan Feb-13 Source: Leith Wheeler, Bloomberg Pg 16
Investing Outside Canada Offers Access to More Types of Companies Diversification Top 3 Sector Weights As of December 31, 2012 TSX S&P 500 MSCI EAFE Financials 32% Information Technology 19% Financials 25% Energy 25% Financials 16% Industrials 13% Materials 19% Health Care 12% Consumer Staples 12% Total 76% Total 47% Total 50% UBC Faculty Pension Plan Feb-13 Pg 17
Don t Forget Market Timing Is Very Hard To Do! 10 Year Annualized Returns As of December 31 1980 1990 2000 2010 Last 2 Years TSX Composite 9.1% 3.7% 10.6% 4.2% -1.1% S&P 500 (C$) 5.6% 9.0% 17.9% -4.5% 8.9% MSCI EAFE (C$) 11.1% 13.9% 9.4% -3.0% 1.5% Best Performer UBC Faculty Pension Plan Feb-13 Pg 18
Conclusion UBC Faculty Pension Plan Feb-13 Pg 19
Stocks Climbing a Wall of Worry Slowdown in China Europe s Financial Mess S&P/TSX Index 2012 +7.2% Unsolved U.S. Fiscal Problems Unrest in Middle East UBC Faculty Pension Plan Feb-13 Pg 20
The Wall of Worry: Why Up and Over Not Down and Out? Over the past 16 months, globally there have been 331 initiatives to stimulate growth Globally, purchasing managers have turned positive from their 2 nd half 2012 sentiment bottom U.S. auto and house sales have been strong and rising Weaker crude prices Lower inflation helps consumers Lower input costs better margins helps producers Recovery in developing countries UBC Faculty Pension Plan Feb-13 Pg 21
Balanced Fund Asset Mix 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 22
Equity Exposure for the Balanced Fund as at December 31, 2012 Europe 12.6% UK 5.3% Pacific - EX Japan 0.7% Emerging Markets 1.9% Others 0.4% Japan 2.2% Canada 42.9% US 33.9% a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 23
Rates of Return* (to December 31, 2012) Fund 1 Yr. 5 Yrs. 10 Yrs. Balanced Fund 10.1% 4.1% 7.1% Bond Fund 4.4% 7.3% 6.3% Canadian Equity Fund 11.5% 1.9% 10.3% Foreign Equity Fund 16.5% -0.3% 3.1% Short Term Investment Fund 1.3% 1.3% 2.3% * Before fees a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 24
FPP Pension Forum Wednesday, May 22, 2013 Liu Institute of Global Issues Multipurpose Room 11:00 a.m. to 1:00 p.m. E-mail RSVP by April 30 to pensions@hr.ubc.ca or call 604.822.8100 a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 25
FPP Pension Forum Presentation 11:15 a.m. to 12:00 p.m. Information Tables & Guest Exhibitors 12:00 p.m. to 1:00 p.m. Plan performance in 2012 Review 2012 and 2013 Initiatives General Information Investments Retirement UBC Retirement & Survivor Benefits mypension & FPP Calculators Faculty Relations (to be confirmed) Service Canada (to be confirmed) Faculty Association (to be confirmed) a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 26
Thank You! Questions? a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 27
Appendix UBC Faculty Pension Plan Feb-13 Pg 28
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% Source: Bloomberg UBC Faculty Pension Plan Feb-13 Pg 29
Government Bond Market Return Expectations 10 Year Returns Based on Starting Period Yield to Maturity Starting Yield 10 Year Average Return 2-4% 2.5% 4-6% 5.6% 6-8% 6.9% 8-10% 11.1% Source: Long US rates, 1856-2009 UBC Faculty Pension Plan Feb-13 Pg 30
Long Term Asset Class Returns Investment Results (Growth of $100 from December 1960 to December 2010) Value of $100 (Annual Rate of Return) US Equities in $C: $13,019 (9.6%) Canada Equities: $11,976 (9.5%) Bonds: $9,299 (8.9%) T-Bills: $2,538 (6.3%) Inflation $805 (4.0%) : UBC Faculty Pension Plan Feb-13 Pg 31
Long Term Asset Class Returns Investment Results (Growth of $100 from December 2000 to December 2010) Value of $100 (Annual Rate of Return) Bonds: $248 (8.6%) Canada Equities: $211 (7.0%) T-Bills: $128 (2.3%) Inflation: $128 (2.3%) Int l Equities in $C: $116 (1.3%) (5.8% local) US Equities in $C: $97 (-0.3%) (4.1% local) : UBC Faculty Pension Plan Feb-13 Pg 32
Despite Global Turmoil, Gold has done Little! Gold Spot Price 2011 to 2012 UBC Faculty Pension Plan Feb-13 Pg 33
Bonds We Are in a Very Low Interest Rate Environment Government of Canada 30 Year Bond Yield From December 1961 to December 2012 17.7% UBC Faculty Pension Plan Feb-13 Pg 34
Index Weights Domicile vs Revenue Regional weights, domicile vs. revenue method MSCI AC WI Domicile (%) Revenue (%) Difference (ppts) North America 51.8 41.8 Europe 23.0 19.5 Asia/Pacific ex Japan 4.9 3.7 Japan 7.8 7.3 Emerging markets 12.5 27.6 Sources: Citigroup, FactSet, MSCI and MFS research. Data as at 30 June 2012. a place of mind THE UNIVERSITY OF BRITISH COLUMBIA faculty pension plan 35