INVESTMENT PERFORMANCE SURVEY OF CANADIAN INSTITUTIONAL POOLED FUNDS SUMMARY PERIOD ENDING 31 DECEMBER 214
COMMENTARY Lump of coal for pension plan sponsors 214 has turned out to be a disappointing year for pension plan sponsors. The year started with a lot of promise: many pension plans were at or close to a fully funded status due to buoyant stock markets and a sharp increase in interest rates. Most observers expected interest rates to increase further in 214 and the funded status of pension plans to improve even more. In reality, the reverse occurred with long-term interest rates in December again testing the 6-year lows hit in mid-212. The solvency funded status of the typical pension plan has deteriorated by about 1 per cent over the course of 214 due to the decline in interest rates and deteriorations in annuity pricing. This was partially offset by strong equity performance and the effect of the falling Canadian dollar on foreign asset returns. Pension plan sponsors can expect to make higher pension contributions in the coming years, and financial statements will also reveal significantly higher year-end 214 pension liabilities and 21 pension costs. With the improved funded positions at the beginning of the year, many plan sponsors began to consider reducing their risk exposure by increasing fixed income allocations or offloading portions of their liabilities through an annuity transaction. Some plan sponsors successfully reduced their risk exposure. However, as funded positions and interest rates began to slide, other plan sponsors became increasingly unable or unwilling to act. Some plan sponsors will consider 214 as yet another missed opportunity to reduce pension risk. A critical observation is that plan sponsors who had established a strategy in advance were rewarded because they were able to act decisively when conditions were particularly favourable. Mercer continues to encourage plan sponsors who are uncomfortable with their pension risk to establish a strategy so that they can take advantage when market opportunities present themselves again. 214: The Economy and the Markets Looking back, 214 was a year marked by slower growth for many global economies. This, combined with falling inflation, prompted several central banks to ease policy further, including the European Central Bank, the Bank of Japan and the People s Bank of China. In contrast, the US economy moved into a longawaited higher gear, driven by stronger consumer spending and a rapidly improving labor market. The Canadian economy was also relatively healthy for much of 214, underpinned by increased exports and higher business investment. However, that may change going forward, given one of the biggest stories of 214 - the sharp 4% drop in oil prices. On the surface, lower oil prices should be a net positive for the global economy in 21 and beyond, since consumers will have more spending money, but produce big winners (China, Japan, India) and losers (Middle East, Latin America, Russia). Russia s turmoil was the other big story of 214 and the risk of spillover to other markets, combined with the economic uncertainty after the Greek elections, may be a concern for 21. In the US, the positive impact on consumers pocketbooks should outweigh any negatives from falling energy investment and production. By extension, this should have a modest net benefit to the Canadian economy, although overall, the direct impact of an oil price drop on Canadian GDP growth is expected to be negative. A typical balanced pension portfolio returned 2.1 per cent in the fourth quarter and 1.6 per cent in 214. Other results: Long-term Government of Canada bond yields ended the fourth quarter at 2.3 per cent, down from 3.2 per cent at the beginning of the year. For the quarter, the best performing S&P/TSX sectors were Consumer Staples (+2.2 per cent), Information Technology (+1.6 per cent), and Health Care (+1.3 per cent). The worst performing sectors were Energy (-1.8 per cent), Materials (-7.1 per cent) and Industrials (-. per cent). Large cap stocks (S&P/TSX 6 Index) returned -.4 per cent, outperforming small cap stocks (S&P/TSX SmallCap Index) which returned -8.7 per cent during the quarter. Growth stocks outperformed value stocks as measured by the S&P Canada BMI Growth and Value indices, which returned -.6 per cent and -3.8 per cent in the fourth quarter. The S&P Index returned 8.8 per cent for the quarter in Canadian dollar terms. International equities, as measured by the MSCI EAFE (CAD) index, was flat for the quarter. Emerging markets, as measured by the MSCI Emerging Markets (CAD) index, returned -1. per cent in the fourth quarter. The FTSE TMX Canada Universe Bond Index returned 2.7 per cent in the fourth quarter, while the FTSE TMX Canada Long Term Overall Bond Index returned.3 per cent. At the end of the quarter, the yield on the FTSE TMX Canada Universe Index was 2.2 per cent as compared to 3.2 per cent for the Long Bond Index. The chart below compares the distribution of the estimated solvency ratios of Mercer clients (covering 6 plans) at January 1, 214 and January 1, 21: Proportion of plans % 4 % 4 % 3 % 3 % 2 % 2 % 1 % 1 % % % 1/1/214 1/1/21 Solvency Ratio While there are outliers on either side, the solvency funded status of about one-third of Canadian pension plans are between 9 and 1 per cent as of December 31, 214. 1
Period Ending December 31, 214 Balanced th Percentile 3.63 13.11 13.11 1.68 13.66 1.61 1.63 1st Quartile 3.9 12. 12. 14.42 12.87 9.61 9.7 MERCER Median 2.42 11.8 11.8 13.69 12.33 8.76 9.13 3rd Quartile 1.64 9.99 9.99 13.7 11.22 7.98 8.29 9th Percentile.84 8.43 8.43 11.49 1.37 7.29 7.61 Passive Portfolio 2.7 1. 1. 11.66 1.3 7.97 8.21 Number of Funds 43 42 42 41 41 4 4 Total Market Value (CAD billion) 29.1 Effective January 1, 22, the passive portfolio comprises: 42.% FTSE TMX Canada Universe Bond, 2% S&P/TSX Composite, 1% S&P (CAD), 1% MSCI EAFE (CAD), and 2.% FTSE TMX Canada 91 Day T-Bills. 16 12 8 4 Balanced (Diversified Income) th Percentile 4.66 16.2 16.2 16.6 1.29 12.66 13.83 1st Quartile 2.27 12.13 12.13 13.76 13.78 12.46 12.48 MERCER Median 1.1 1.74 1.74 12.19 12.4 1.12 11.82 3rd Quartile.6 9. 9. 1.7 9.98 7.8 9.6 9th Percentile -1.21 6.82 6.82 7.92 7.72 6.6 7.8 Passive Diversified Incomt Pf -2.9 6.38 6.38 8.46 7.8 7.44 9.18 Number of Funds 1 1 1 1 1 9 8 Total Market Value (CAD billion) 23.3 The passive portfolio comprises: 7% S&P/TSX Equity Income and 3% FTSE TMX Canada Universe Bond. 2 1 1 - Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 2
Period Ending December 31, 214 Target Date Retirement Portfolio th Percentile 3. 11.61 11.61 9.7 8.9 8.36 7.46 1st Quartile 2.49 9.8 9.8 9.31 8.4 7.6 7.34 MERCER Median 2.29 9.18 9.18 8.73 8.1 6.78 7.16 3rd Quartile 1.9 8.11 8.11 8.3 7.43 6.67 6.6 9th Percentile 1.44 7.77 7.77 7.48 7.2.99 6.2 Number of Funds 1 1 1 1 9 9 7 Total Market Value (CAD billion) 1.8 It is noted that the underlying funds may not be similar in nature with the exception that they are targeting retirees. 1 1 Target Retirement Date 21 th Percentile 3.1 11. 11. 11.2 1.83 8.1 8.3 1st Quartile 2.19 9.27 9.27 1.16 9.4 7.41 7.74 MERCER Median 1.93 8.77 8.77 9.13 8.9 7.11 7.63 3rd Quartile 1.8 8.1 8.1 8.32 8.3 6. 7.9 9th Percentile.8.3.3 4.29 4.42 3.64 4.2 Number of Funds 13 13 13 13 13 7 6 Total Market Value (CAD billion).9 1 1 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 3
Period Ending December 31, 214 Target Retirement Date 22 th Percentile 3.93 14.71 14.71 13.49 11.91 9.28 9.13 1st Quartile 2. 1.71 1.71 12.3 1.8 8.21 8.48 MERCER Median 2.2 9.36 9.36 1.96 1.13 7.6 8.24 3rd Quartile 1.62 8.93 8.93 1. 9.6 7.34 7.74 9th Percentile 1.38 8.61 8.61 7.1 6.8 6. 6.81 Number of Funds 22 22 22 22 19 18 17 Total Market Value (CAD billion) 3.6 2 1 1 These funds are grouped by the target retirement date set by the provider. It is noted that the underlying funds may not be similar in nature with the exception that they are targeting a common future retirement date. Target Retirement Date 22 th Percentile 4.14 14.33 14.33 1.2 13.24 9.7 1.3 1st Quartile 3.1 12.3 12.3 13.68 11.93 8.82 9.42 MERCER Median 2.27 1.38 1.38 12.43 11.61 8.46 9.11 3rd Quartile 1.63 9.1 9.1 1.93 1.38 8.3 8.73 9th Percentile 1.22 8.89 8.89 7.92 7.91 7.86 8.19 Number of Funds 16 16 16 16 1 9 8 Total Market Value (CAD billion) 3.3 2 1 1 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 4
Period Ending December 31, 214 Target Retirement Date 23 th Percentile.7 16.7 16.7 17.79 14.13 1.8 1.61 1st Quartile 3.9 13.4 13.4 1.34 13.2 9.37 9.61 MERCER Median 2.23 1.46 1.46 14.4 12.68 8.76 9.28 3rd Quartile 1.6 9.28 9.28 12.34 11. 8.24 8.96 9th Percentile 1.14 9.2 9.2 9.82 9.7 7.62 8.14 Number of Funds 22 22 22 22 19 18 17 Total Market Value (CAD billion) 3.4 2 1 1 These funds are grouped by the target retirement date set by the provider. It is noted that the underlying funds may not be similar in nature with the exception that they are targeting a common future retirement date. Target Retirement Date 23 th Percentile.1 16.6 16.6 18.16 1.81 11.1 11.61 1st Quartile 3.1 13.23 13.23 16.9 14.16 1.6 1.47 MERCER Median 2.17 11.61 11.61 14.79 13.17 9.63 9.98 3rd Quartile 1.47 9.3 9.3 12.8 11.76 9.17 9.67 9th Percentile 1.9 9.13 9.13 1.72 1.12 8.72 9.2 Number of Funds 16 16 16 16 1 9 9 Total Market Value (CAD billion) 2.2 2 1 1 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year.
Period Ending December 31, 214 Target Retirement Date 24 th Percentile 6. 18.88 18.88 19.72 16.38 12.8 11.6 1st Quartile 3.88 14.9 14.9 16.97 14.73 9.78 1.11 MERCER Median 2.14 11.74 11.74 16.3 13.97 9.33 9.84 3rd Quartile 1.1 9.47 9.47 14.2 12.79 8.61 9.23 9th Percentile.97 9.1 9.1 11.66 1.77 7.93 8.41 Number of Funds 22 22 22 22 19 18 17 Total Market Value (CAD billion) 2.1 2 1 1 These funds are grouped by the target retirement date set by the provider. It is noted that the underlying funds may not be similar in nature with the exception that they are targeting a common future retirement date. Target Retirement Date 24 th Percentile.48 16.3 16.3 19.36 16.87 11.69 11.89 1st Quartile 3.83 13.97 13.97 17.66 1.2 11.13 1.41 MERCER Median 2.1 11.76 11.76 16.9 14.67 9.82 1.32 3rd Quartile 1.39 9.6 9.6 14. 12.94 9.42 9.82 9th Percentile.81 9.9 9.9 11.61 1.83 9.3 9.24 Number of Funds 16 16 16 16 1 9 7 Total Market Value (CAD billion) 1.4 2 1 1 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 6
Period Ending December 31, 214 Target Retirement Date 2 th Percentile.13 16.18 16.18 19.39 1.93 12.73 1.37 1st Quartile 3.9 14.14 14.14 18.6 1.46 9.9 9.9 MERCER Median 2.16 11.7 11.7 17.37 14.62 9.2 9.6 3rd Quartile 1.39 9.9 9.9 1.41 13.24 8.8 9.21 9th Percentile.7 9. 9. 12.13 11.8 8.9 8.3 Number of Funds 17 1 1 1 11 1 9 Total Market Value (CAD billion).6 2 1 1 These funds are grouped by the target retirement date set by the provider. It is noted that the underlying funds may not be similar in nature with the exception that they are targeting a common future retirement date. Target Risk (Conservative Income) th Percentile 2.3 9.6 9.6 9.88 9.18 8.21 8.4 1st Quartile 2.43 9.4 9.4 8.7 7.44 7.22 7.2 MERCER Median 2.1 9.4 9.4 7.6 6.8 6.3 6.77 3rd Quartile 1.84 8.19 8.19 6.38 6.29 6.8 6.46 9th Percentile 1.76 7.42 7.42 4.97.1.33.73 Number of Funds 11 11 11 11 11 1 1 Total Market Value (CAD billion).6 These funds are grouped based on the equity ranges (including Real Estate if applicable) specified by the policy benchmark of the respective funds. Funds with equities ranging from % - < 27.% are grouped in this category. 1 8 6 4 2 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 7
Period Ending December 31, 214 Target Risk (Conservative Growth) th Percentile 3.6 11.11 11.11 12.1 11.39 8.77 8.9 1st Quartile 2.7 1.43 1.43 9.9 9.14 7.76 7.86 MERCER Median 2.32 9.69 9.69 9.36 8.7 7.22 7.9 3rd Quartile 2.1 9.32 9.32 8.83 8.43 7.3 7.33 9th Percentile 1.83 8.71 8.71 8.31 7.84 6.74 7.4 Number of Funds 14 14 14 14 14 14 14 Total Market Value (CAD billion).8 These funds are grouped based on the equity ranges (including Real Estate if applicable) specified by the policy benchmark of the respective funds. Funds with equities ranging from 27.% - < 47.% are grouped in this category. 1 1 Target Risk (Moderate Growth) th Percentile 3.29 12.19 12.19 1.2 13.8 9.91 1.1 1st Quartile 2.83 11.46 11.46 13.48 11.8 8.79 8.89 MERCER Median 2.24 1.2 1.2 12.74 11.3 8.3 8.73 3rd Quartile 1.77 9.86 9.86 11.99 11.8 8.2 8.36 9th Percentile 1. 9.29 9.29 11.13 1.18 7.4 7.98 Number of Funds 17 17 17 17 17 17 17 Total Market Value (CAD billion) 14.9 These funds are grouped based on the equity ranges (including Real Estate if applicable) specified by the policy benchmark of the respective funds. Funds with equities ranging from 47.% - < 67.% are grouped in this category. 2 1 1 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 8
Period Ending December 31, 214 Target Risk (Aggressive Growth) th Percentile 3.92 13.62 13.62 17.79 1.62 1.7 1.8 1st Quartile 3.1 12.42 12.42 16.68 14. 9.73 9.9 MERCER Median 2.42 11.23 11.23 1.94 14. 9.26 9.62 3rd Quartile 1.96 1.3 1.3 1.1 13.47 8.83 9.37 9th Percentile.73 9.43 9.43 14.23 12.7 8.4 9.4 Number of Funds 16 16 16 16 16 16 16 Total Market Value (CAD billion) 6.7 These funds are grouped based on the equity ranges (including Real Estate if applicable) specified by the policy benchmark of the respective funds. Funds with equities ranging from 67.% - < 87.% are grouped in this category. 2 1 1 Target Risk (Maximum Growth) th Percentile 3.3 12.82 12.82 2.81 18.4 11.37 11.48 1st Quartile 2.97 11.92 11.92 19.89 17.1 1.68 11.8 MERCER Median 1.86 11.17 11.17 18.89 16.38 1.39 1.78 3rd Quartile 1.3 1.48 1.48 17.69 1.94 9.19 1.17 9th Percentile.4 9.13 9.13 16.7 14.76 9.1 1.1 Number of Funds 9 9 9 9 9 9 9 Total Market Value (CAD billion) 2.6 These funds are grouped based on the equity ranges (including Real Estate if applicable) specified by the policy benchmark of the respective funds. Funds with equities ranging from 87.% - 1% are grouped in this category. 2 2 1 1 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 9
Period Ending December 31, 214 Canadian Equity th Percentile 1.93 14.41 14.41 18.69 16.4 1.69 12. 1st Quartile.76 12.7 12.7 16.69 14.67 8.37 1.4 MERCER Median -.11 1.98 1.98 1.17 12.86 6.9 8.8 3rd Quartile -1.6 8.6 8.6 13.4 11.67.3 7.6 9th Percentile -4.84.4.4 8.7 8.66 3.29 6.4 S&P/TSX Composite -1.47 1. 1. 11.77 1.22.1 7.3 Number of Funds 7 7 7 68 68 66 6 Total Market Value (CAD billion) 61. 2 1-1 Repeated strategies are excluded in this universe. Only the most representative product is included if several products of the same strategy are offered. Funds can reasonably be benchmarked to the S&P/TSX Capped Composite index or near equivalent and show a high correlation thereto. Funds must be classified by style as Core, Growth-biased or Value-biased. Funds must be 1% Canadian investments. Funds must be broadly diversified, in at least of the 1 industry sectors. Funds must be large to large/mid capitalization. Funds classified as Responsible Investment, Income-oriented or Extension are not included. Canadian Equity (Core) th Percentile 2.2 1.6 1.6 18.6 16.6 9.1 1.21 1st Quartile.8 12.87 12.87 16.8 14.21 7.1 9.19 MERCER Median -.8 11.44 11.44 14.4 12.19 6.28 8.26 3rd Quartile -1.43 9.38 9.38 13.41 1.98.44 7.61 9th Percentile -4.48 6.3 6.3 1.91 9.84 4.36 6.69 S&P/TSX Composite -1.47 1. 1. 11.77 1.22.1 7.3 Number of Funds 41 41 41 37 37 34 33 Total Market Value (CAD billion) 33.3 2 1-1 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 1
Period Ending December 31, 214 Canadian Equity (Growth Biased) th Percentile 1.4 14.1 14.1 17.83 14.86 8.8 11.18 1st Quartile.88 13.1 13.1 16.9 13.37 6.69 8.84 MERCER Median -.7 11.67 11.67 1.47 12.82 6. 8. 3rd Quartile -1.8 8.76 8.76 14.1 11.73 4.68 7.1 9th Percentile -8.79-2.97-2.97 3.86.1 -.22 4. S&P/TSX Composite -1.47 1. 1. 11.77 1.22.1 7.3 Number of Funds 16 16 16 1 1 1 1 Total Market Value (CAD billion) 7.3 2 1-1 Canadian Equity (Value Biased) th Percentile 3.4 16.3 16.3 21.23 18.76 14.21 14.42 1st Quartile.64 11. 11. 16.62 1.2 1.8 11.86 MERCER Median -1.66 8.9 8.9 1.28 14.2 8.1 9.92 3rd Quartile -2.92 7.4 7.4 13.8 11.64 6.67 8.49 9th Percentile -.1 3.66 3.66 8.61 8. 3.11.42 S&P/TSX Composite -1.47 1. 1. 11.77 1.22.1 7.3 Number of Funds 2 2 2 2 24 24 24 Total Market Value (CAD billion) 24.6 3 2 1-1 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 11
Period Ending December 31, 214 Canadian Equity (Responsible Investments) th Percentile.8 13.4 13.4 16.72 1.1 8.4 1.32 1st Quartile -.79 12. 12. 16.61 1.6 8.1 9.4 MERCER Median -1.6 1.32 1.32 16.8 13.89 7.3 8.9 3rd Quartile -3.4 7.22 7.22 12.71 11.83 6.49 7.91 9th Percentile -4.17.74.74 1.84 11.29.39 7.13 S&P/TSX Composite -1.47 1. 1. 11.77 1.22.1 7.3 Number of Funds 8 8 8 8 8 8 8 Total Market Value (CAD billion).8 2 1-1 Canadian Equity (Income Oriented) th Percentile 2.1 13. 13. 18.61 17.33 14.31 14.72 1st Quartile.33 11.92 11.92 1.99 14.2 11.18 13.3 MERCER Median -1.9 8.3 8.3 14.6 12.13 9.4 1.61 3rd Quartile -4.44 3.9 3.9 11.1 1.69 8.82 9.46 9th Percentile -7.27 -.38 -.38 7.46 7.7 4.46 8.22 S&P/TSX Composite -1.47 1. 1. 11.77 1.22.1 7.3 Number of Funds 18 18 18 17 1 13 12 Total Market Value (CAD billion) 4.7 2 1-1 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 12
Period Ending December 31, 214 Canadian Fixed Income (Universe) th Percentile 2.88 9.39 9.39 4.42 4.61.73 6.13 1st Quartile 2.66 8.97 8.97 4.7 4.3.47.93 MERCER Median 2.3 8.68 8.68 3.77 4.1.33.72 3rd Quartile 2.36 8.36 8.36 3.1 3.73.11.46 9th Percentile 2.3 7.69 7.69 3.29 3. 4.81.12 FTSE TMX Canada Universe 2.7 8.79 8.79 3.68 3.6.13.4 Number of Funds 4 4 4 44 44 44 44 Total Market Value (CAD billion) 47.1 1 8 6 4 2 Canadian Fixed Income (Credit) th Percentile 2.1 9.71 9.71.74 6.82 7.3 7.74 1st Quartile 2.12 8.84 8.84..7 6.63 7.19 MERCER Median 1.93 8.36 8.36 4.9.39 6.1 6.76 3rd Quartile 1.7 7.88 7.88 4.21.1.9 6.4 9th Percentile 1.18 7.2 7.2 3.37 3.7.1.1 FTSE TMX Canada Univ Corp 1.87 7.8 7.8 4.16 4.84.68 6.1 Number of Funds 17 13 13 12 12 1 9 Total Market Value (CAD billion) 6.1 1 8 6 4 2 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 13
Period Ending December 31, 214 Canadian Fixed Income (Long Term) th Percentile.41 17.97 17.97.67.79 8.69 9.3 1st Quartile.17 17.37 17.37.38.67 8.39 9.33 MERCER Median.1 17.3 17.3.4.31 8.22 9.4 3rd Quartile 4.92 16.76 16.76 4.8.2 8.1 8.89 9th Percentile 4.49 1.9 1.9 4.26 4.4 7.67 8.6 FTSE TMX Canada Long Term.2 17.48 17.48 4.99.6 8.19 9.4 Number of Funds 16 16 16 1 14 14 13 Total Market Value (CAD billion) 12.6 2 1 1 Canadian Fixed Income (Short Term) th Percentile 1. 3.87 3.87 3.17 3.19 3.74 4.13 1st Quartile 1. 3.7 3.7 2.86 2.81 3.32 3.44 MERCER Median.91 3.46 3.46 2.68 2.69 3.14 3.34 3rd Quartile.89 3.14 3.14 2.7 2.47 2.84 3. 9th Percentile.6 2.68 2.68 2.3 2.27 2.71 2.9 FTSE TMX Canada Short Term.92 3.6 3.6 2.4 2.27 2.86 3. Number of Funds 16 14 14 11 11 11 1 Total Market Value (CAD billion) 18.7 4 3 2 1 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 14
Period Ending December 31, 214 Canadian Fixed Income (Core Plus Universe) th Percentile 3.16 9.79 9.79 4.87 6.6 6.7 7.47 1st Quartile 2.67 9.47 9.47 4.6.11 6.3 6.7 MERCER Median 2.32 8.92 8.92 4.26 4.76.79 6.27 3rd Quartile 2. 7.98 7.98 3.87 4..49.98 9th Percentile.61.9.9 3.38 3.89.3.43 FTSE TMX Canada Universe 2.7 8.79 8.79 3.68 3.6.13.4 Number of Funds 18 18 18 17 17 16 1 Total Market Value (CAD billion) 8.9 1 8 6 4 2 US Equity th Percentile 11.9 26.42 26.42 3.9 28.74 22.4 19.7 1st Quartile 9.69 24.1 24.1 33.68 26.3 2. 18.8 MERCER Median 8.62 21.68 21.68 32.27 2.61 18.68 16.84 3rd Quartile 7.19 2.3 2.3 31.18 24.3 18.11 1.94 9th Percentile.44 16.3 16.3 29.4 22.3 16.1 14.62 S&P CAD 8.7 23.93 23.93 32.32 2.7 2.7 17.78 Number of Funds 37 37 37 3 34 34 32 Total Market Value (CAD billion) 1. 4 3 2 1 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 1
Period Ending December 31, 214 International Equity th Percentile 4.29 9.4 9.4 2.4 19.13 12.79 12.8 1st Quartile 1.61 6.39 6.39 18.2 17.77 1. 9.47 MERCER Median.78 4.22 4.22 16.37 16.81 9.2 8.37 3rd Quartile -.17 2.63 2.63 14.83 1.96 8.6 7.46 9th Percentile -2.4-2.43-2.43 11.86 13.8 6.21.8 MSCI EAFE CAD -.2 4.12 4.12 17.4 16.46 9.33 7.94 Number of Funds 48 48 48 46 46 46 Total Market Value (CAD billion) 2.8 2 2 1 1 - Global Equity th Percentile 7.7 17.43 17.43 27.1 23.46 17.2 1.27 1st Quartile.97 1.8 1.8 2.4 22.3 1.36 13.94 MERCER Median 4.87 13.99 13.99 23.8 21.28 14.4 13.13 3rd Quartile 3.16 11.83 11.83 22.11 19.6 13.1 11.68 9th Percentile.94 8.6 8.6 19.43 18.1 11.87 1.19 MSCI World CAD 4.8 1.1 1.1 2.2 21.22 14.7 13.4 Number of Funds 2 48 48 44 43 41 39 Total Market Value (CAD billion) 46.6 3 2 1 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 16
Period Ending December 31, 214 Total Equity th Percentile 2.62 14.63 14.63 21.11 18.94 13.96 13.78 1st Quartile 1.48 13.82 13.82 18.48 17.31 9.98 1.63 MERCER Median.29 12.34 12.34 16.94 14.41 7.4 8.1 3rd Quartile -2.2 8.97 8.97 11.74 11.27. 7.6 9th Percentile -7.82 -.77 -.77 1.67 9.28 3.94 6.24 S&P/TSX Composite -1.47 1. 1. 11.77 1.22.1 7.3 Number of Funds 17 17 17 17 17 17 17 Total Market Value (CAD billion) 11.6 3 2 1-1 Canadian Small/SMID Cap Equity th Percentile -.78 14.47 14.47 26.3 2. 19.6 2.3 1st Quartile -3.23 1.1 1.1 21.67 18.1 9.9 14.39 MERCER Median -4.2.63.63 1.6 12.61 6.84 11.3 3rd Quartile -.67 1. 1. 13.3 1.19 3.19 9.37 9th Percentile -8.61-2.74-2.74 7.79 7. 2.1 7.7 S&P/TSX SmallCap -8.72-2.34-2.34 2.1.91-3.74 3.1 Number of Funds 28 28 28 28 27 27 26 Total Market Value (CAD billion) 9.2 3 2 1-1 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 17
Period Ending December 31, 214 Emerging Markets th Percentile 3.22 16.3 16.3 12. 1.4 7.61 7.37 1st Quartile.11 1.13 1.13 8.73 1.82 3.1.22 MERCER Median -.68 7.11 7.11 6.16 1.2 2.66 4.4 3rd Quartile -2.2 4.26 4.26 4.63 7.73 1.61 3.7 9th Percentile -3.6 1.3 1.3 2.8 7.11. 2.81 MSCI EM CAD -.96 7.3 7.3.6 8.99 2.8 4.17 Number of Funds 22 2 2 2 18 1 13 Total Market Value (CAD billion) 14.1 2 1-1 Global Fixed Income th Percentile 3.29 14.4 14.4 8. 8.89 - - 1st Quartile 3.27 13.79 13.79 8.49 8.83 - - MERCER Median 3.27 13.78 13.78 8.17 8.8 - - 3rd Quartile 3.11 9.9 9.9 7.18 8.29 - - 9th Percentile -.11 6.27 6.27.7 7.7 - - Citigroup WBIG CAD 2.84 9.92 9.92 7.21.37 6.9 4.62 Number of Funds 4 4 - - Total Market Value (CAD billion) 4.6 1 1 - Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 18
Period Ending December 31, 214 Money Market th Percentile.33 1.31 1.31 1.31 1.29 1.32 1.24 1st Quartile.3 1.22 1.22 1.21 1.22 1.22 1.13 MERCER Median.29 1.17 1.17 1.18 1.19 1.18 1.9 3rd Quartile.26 1.6 1.6 1. 1.6 1.8.98 9th Percentile.2.9.9.97.98.98.89 FTSE TMX Canada 91 Day T-Bill.22.91.91.96.98.98.89 Number of Funds 3 28 28 27 27 27 27 Total Market Value (CAD billion) 8. 2 1 Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 19
MERCER PENSION HEALTH INDEX The Mercer Pension Health Index monitors the directional impact of the capital markets on the financial position of Canadian pension plans, not just pension funds. The Index represents the ratio of assets to liabilities for a model pension plan - the higher the ratio, the healthier the plan. The ratio has been arbitrarily set to 1% at the beginning of the period. The assets of the model plan are assumed to be invested in the passive balanced portfolio, while the liabilities are determined using the assumptions required for solvency valuations, which are based on the yield on long-term Government of Canada bonds. The Index also assumes deficit funding payments are made to fund deficits over five years. The starting point and the magnitude of the changes for any pension plan will depend on a range of factors: asset mix and the impact of active management, plan demographics and plan design. But the Index should help answer questions like: Why does my actuary say bad news when my bond manager says good news? Assets: Passive Portfolio (see page 2). Liabilities: % active members, % retired members. 6% of benefits for active members assumed to be settled through commuted values based on the Canadian Institute of Actuaries transfer value standards without the one-month lag, and the remaining 4 % assumed to be settled through an annuity purchase. Benefits for retired members assumed to be settled through an annuity purchase. Annuity prices determined based on the CIA guidance for the medium duration illustrative block. Results will vary by pension plan. 13% 12% 11% 1% 9% 8% 7% 6% % RATIO OF ASSETS TO LIABLITIES Dec 14 9% Although the information contained in this survey has been obtained from a source which Mercer Investment Consulting believes to be reliable, we do not guarantee its accuracy. You are invited to quote from this Survey with proper acknowledgement of the source. An expanded version of this survey including asset mix and investment management fee universes as well as each investment manager s returns is also available. For further information on a full range of investment consulting services please call one of our offices: CALGARY TORONTO MONTRÉAL Dave Makarchuk 43 476 3224 Mathieu Tanguay 416 868 2677 Diane Alalouf 14 841 783 Mercer is a leading global provider of investment consulting services, and offers customized guidance at every stage of the investment decision, risk management and investment monitoring process. We have been dedicated to meeting the needs of clients for more than 3 years, and we work with the fiduciaries of pension funds, foundations, endowments and other investors in some 3 countries. We assist with every aspect of institutional investing (and retail portfolios in some geographies), from strategy, structure and implementation to ongoing portfolio management. We create value through our commitment to thought leadership; world-class, independent research; and top-notch consultants with local expertise. www.mercer.ca 2
Important notices 21 Mercer LLC. All rights reserved This contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity, without Mercer s written permission. The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. Past performance does not guarantee future results. This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances. Information contained herein has been obtained from a range of third party sources. While the information is believed to be reliable, Mercer has not sought to verify it. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential or incidental damages), for any error, omission or inaccuracy in the data supplied by any third party. This does not constitute an offer or a solicitation of an offer to buy or sell securities, commodities and/or any other financial instruments or products. Universe notes Mercer manager universes are constructed using data and information provided to Mercer either directly or via third party providers. The universes are intended to provide collective samples of strategies that best allow for robust peer group comparisons to be conducted over a chosen timeframe. Mercer does not assert that the peer groups are wholly representative of and applicable to all strategies available to individual investors. Universe distributions are calculated based on the data that was in our database at the time that the universe was constructed, and may therefore change over time due to additional information supplied by an investment manager or revisions to data. Opinions not guarantees The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. Past performance does not guarantee future results. Not investment advice This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances. Information obtained from third parties Information contained herein has been obtained from a range of third party sources. While the information is believed to be reliable, Mercer has not sought to verify it. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential, or incidental damages), for any error, omission or inaccuracy in the data supplied by any third party. Risk warnings The value of stocks and shares, including unit trusts, can go down as well as up and you may not get back the amount you have invested. The value of bonds and other fixed income investments including unit trusts can go down as well as up and you may not get back the amount you have invested. Investments denominated in a foreign currency will fluctuate with the value of the currency. The value of investments in real property can go down as well as up, and you may not get back the amount you have invested. Valuation is generally a matter of a valuer s opinion, rather than fact. It may be difficult or impossible to realise an investment because the property concerned may not be readily saleable. Certain investments, such as illiquid, leveraged or high-yield instruments or funds and securities issued by small capitalization and emerging market issuers, carry additional risks that should be considered before choosing an investment manager or making an investment decision. 21
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