June 30, 2016 Pension Quarterly Investment Report

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Performance Review

University of Guelph Pension Plans
2nd Quarter 2016

 

Prepared by:

Pavilion Advisory Group Ltd.
1250 René-Lévesque Blvd. West, Suite 4030
Montreal, Quebec
H3B 4W8 Canada

Pension Plans Results Overview


(Gross returns for the 12 months ended June 30th, 2016)

The Total Plan gained 0.1% over the last 12 months, an underperformance of 1.4% vs. its hedged benchmark and 2.3% vs. its unhedged benchmark.

Canadian Equity U.S. Equity
  • The Canadian equity portfolio returned -3.0% over the past year, lagging the S&P/TSX index by 2.8%.
  • All plan’s large cap managers underperformed the TSX over the last year, lagging 3.9%, 0.8% and 1.5% for Burgundy, CC&L and Sionna respectively.
  • The plan’s Canadian small caps manager (Sionna) performed poorly, lagging the BMO Small Cap index by 15.1%.
  • U.S. large caps performed well in Canadian dollar terms, with a 1-year return of 8.2% for the S&P 500.
  • The plan’s U.S. equity investments (including U.S. small and mid caps) did not perform as well with a return of 2.1%, underperforming the S&P 500 by 6.1%.
  • The plan’s large cap manager (Barrow) lagged the Russell 1000 Value index by 5.1%. Some value was added (2.5%) versus its index by the small-cap portfolio managed by Wedge, although the firm’s mid-cap strategy lagged the Russell Mid Cap Index by 5.7%.
Global/Non-North American Equity Fixed Income
  • In Canadian dollars, Non-North American equities underperformed both Canada and the U.S., with the MSCI EAFE Index returning -6.1%.
  • Tweedy Browne beat the MSCI EAFE significantly by 8.1%, while LSV lagged by 1.4%. As a result, the plan’s Non-North American equity performance improved during the past year with an outperformance of 3.3%.
  • Global equities, as measured by the MSCI World ex- Canada index, returned 1.8% over the last year. Moreover, the pension plan’s only Global equity manager, Acadian, underperformed the index by 2.1%.
  • The Canadian fixed income portfolio is indexed to the FTSE TMX Universe and, as expected, closely matched its return of 5.2% over the past year.
  • The 1.3% QTD return and the 4.1% 1-year return for Cash are due to income distribution from private equities in June 2016 and December 2015.
  • The real estate portfolio managed by Greystone lagged its index by 1.5%.

 

 

Total Pension Portfolio Vs Composite Benchmark


As of June 30, 2016 (Gross of Fees, Annualized for Periods over 1 Year)

vertical bar graph illustrating total pension portfolio vs composite benchmark current quarter 2.6 vs 2.6 benchmark return vs 2.5 benchmark return (hedged) ; 1 year 0.1 vs 2.4 benchmark return vs 1.5 benchmark return (hedged) ; 3 years 9.0 vs 10.1 benchmark return vs 9.0 benchmark return hedged; 5 years 8.6 vs 8.3 benchmark return vs 7.7 benchmark return hedged; 10 years 7.4 vs. 5.9 benchmark return vs 5.6 benchmark return hedged

 

 

 

Returns are presented gross of fees in CAD.
Current Composite Benchmark: 25% S&P/TSX Comp Capped + 20% MSCI EAFE Net ($CAD) + 20% S&P 500 ($CAD) + 28% FTSE TMX Universe + 2% FTSE TMX 91 Day T-Bill + 5% IPD Canada Annual Property Index. The Hedged Benchmark has the same composition as the Composite Benchmark, but all foreign indices are 50% hedged back to Canadian dollars since December 2011.

 

Asset Class Performance


As of June 30, 2016 (Gross of Fees)

 

  Allocation Annualized Performance(%) Annual Performance(%)
  Market Value ($) % of portfolio Quarter to Date 1 Year 3 Years 5 Years 10 Years 2015 to 2016 2014 to 2015 2013 to 2014 2012 to 2013 2011 to 2012 2010 to 2011
Canadian Equity 292,383,684 22.4 3.8 -3.0 8.0 6.0 6.6 -3.0 -0.5 30.7 15.8 -8.4 20.6
S&P/TSX Composite Index     5.1 0.2 8.3 4.2 4.9 -0.2 -1.2 28.7 7.9 -10.3 20.9
Relative Performance     -1.3 -2.8 -0.3 1.8 1.7 -2.8 0.7 2.0 7.9 1.9 -0.3
US Equity 221,616,074 17.0 3.7 2.1 18.0 18.1 9.2 2.1 28.2 25.5 30.9 6.7 21.6
S&P 500 Index (CAD)     2.9 8.2 19.7 19.0 9.1 8.2 25.9 25.8 24.8 11.4 18.7
Relative Performance     0.8 -6.1 -1.7 -0.9 0.1 -6.1 2.3 -0.3 6.1 -4.7 2.9
Non-North American Equity 207,381,977 15.9 0.3 -2.8 10.9 10.4 6.1 -2.8 10.4 27.2 24.7 -3.4 20.9
MSCI EAFE Composite     -0.8 -6.1 9.9 8.4 3.6 -6.1 12.7 25.3 23.3 -8.5 18.9
Relative Performance     1.1 3.3 1.0 2.0 2.5 3.3 -2.3 1.9 1.4 5.1 2.0
Global Equity 104,897,271 8.0 1.7 -0.3 15.3 14.7 6.1 -0.3 20.8 27.2 25.3 3.5 24.3
MSCI World Ex Canada     1.5 1.8 15.5 14.2 6.7 1.8 20.4 25.8 24.2 1.7 19.2
Relative Performance     0.2 -2.1 -0.2 0.5 -0.6 -2.1 0.4 1.4 1.1 1.8 5.1
Canadian Fixed Income 397,130,661 30.5 2.7 5.3 5.6 5.2 5.7 5.3 6.3 5.3 0.0 9.5 4.8
FTSE TMX Canada Universe Bond Index     2.6 5.2 5.6 5.2 5.6 5.2 6.3 5.3 -0.2 9.5 4.7
Relative Performance     0.1 0.1 0.0 0.0 0.1 0.1 0.0 0.0 0.2 0.0 0.1
Real Estate 61,714,777 4.7 1.7 6.2 7.0 N/A N/A 6.2 5.7 9.1 N/A N/A N/A
IPD Canadian Property Index     1.4 7.7 8.0 10.4 9.8 7.7 6.8 9.6 13.4 14.8 13.3
Relative Performance     0.3 -1.5 -1.0 N/A N/A -1.5 -1.1 -0.5 N/A N/A N/A
Internal Cash (STIF)* 9,410,792 0.7 1.3 4.1 3.6 1.0 14.8 4.1 1.0 5.6 0.0 -5.3 0.2
FTSE TMX Canada 91 Day T-Bill     0.1 0.5 0.8 0.9 1.6 0.5 0.9 1.0 1.0 1.0 0.9
Relative Performance     1.2 3.6 2.8 0.1 13.2 3.6 0.1 4.6 -1.0 -6.3 -0.7
Total Pension Gross of Fees 1,303,241,368 100.0 2.6 0.1 9.0 8.6 7.4 0.1 7.6 20.1 15.2 1.6 15.9
Net of Fees     2.5 -0.3 8.5 8.2 7.0 -0.3 7.2 19.6 14.7 1.1 15.4
Relative Performance     0.1 0.4 0.5 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.5
Composite Benchmark (Hedged)     2.5 1.5 9.0 7.7 5.6 1.5 7.6 18.7 11.5 0.2 15.1
Relative Performance     0.1 -1.4 0.0 0.9 1.8 -1.4 0.0 1.4 3.7 1.4 0.8
Total Pension (Gross of Fees) 1,303,241,368 100.0 2.6 0.1 9.0 8.6 7.4 0.1 7.6 20.1 15.2 1.6 15.9
Total Pension ex. FX overlay     2.6 1.0 10.2 9.4 N/A 1.0 9.5 20.8 15.5 1.4 15.9
Relative Performance     0.0 -0.9 -1.2 -0.8 N/A -0.9 -1.9 -0.7 -0.3 0.2 0.0

 

 


Current Composite Benchmark (Hedged): 25% S&P/TSX Comp Capped + 20% MSCI EAFE Net ($CAD) + 20% S&P 500 ($CAD) + 28% FTSE TMX Universe + 2% FTSE TMX 91 Day T-Bill + 5% IPD Canada Annual Property Index. All foreign indices are 50% hedged back to Canadian dollars since December 2011.

 

 

 

*Cash amounts and percentages presented exclude residual manager cash balances and FX overlay (currency hedging). However, they include the proceeds of the former Banyan Private Equity position, which explains its high 2-year return. All returns are reported gross of fees in CAD except for the Total Pension Plan where returns are displayed both net and gross of fees.
EAFE Stands for Europe, Australasia and Far East. The IPD Canadian Property Index is published quarterly with a 2-month lag, it is approximated by taking the previous quarter's return and converting it to a monthly basis (Index data from CIBC Mellon).

Performance Attribution

Total Pension Plans Vs Attribution Benchmark
1 Year Ending June 30, 2016

asset allocation -0.08; manager value added -1.32; FX hedge and other -0.91 part 3 average active weight, contribution to total asset allocation value added (-0.08) and contribution to total manager value added (-1.32) by canadian equity are -2.74, 0.00 and -0.64; us equity 1.63, 0.08 and -1.09; non-north american equity 1.10, -0.14 and 0.61; global equity 0.51, -0.03 and -0.20; canadian fixed income 1.58, 0.01 and 0.04; real estate -0.37, -0.03 and -0.06; internal cash (STIF) -1.44, 0.03 and 0.03

 

 

 

Returns are presented gross of fees in CAD.
The Attribution Benchmark was created to account for small variations of asset allocation between the Total Pension Plans and their Composite Benchmark. Its composition is as follows: 25% S&P/TSX Comp Capped
+ 16% S&P 500 ($CAD) + 16% MSCI EAFE Net ($CAD) + 8% MSCI World + 28% FTSE TMX Universe + 5% IPD Canada Annual Property Index + 2% FTSE TMX 91 Day T-Bill. The Benchmarks do not assume currency hedging.
“Other” includes the effects of all other factors on the Total Pensions Plans' relative return, including rebalancing and residual trading returns.

 

Pension Plans Asset Mix

Actual Allocation vs. Investment Policy Allocation
As of June 30, 2016

bar graph illustrating pension plans asset mix total value $1,303,241,368 market value, target allocation, actual allocation and allocation difference for canadian equities are $288,151,100, 25.0%, 22.1% and -2.9%; us equities $269,669,147, 20.0%, 20.7% and 0.7%; non-north american equities $242,240,537, 20.0%, 18.6% and -1.4%; canadian fixed income $395,925,423, 28.0%, 30.4% and 2.4%; real estate $67,930,694, 5.0%, 5.2% and 0.2%; cash $39,324,469, 2.0%, 3.0% and 1.0%


 

Note: This actual allocation displays the aggregate managers' holdings regardless of their mandate. Cash presented includes internal cash (STIF) and manager residual cash balances (data from CIBC Mellon).

 


 
Growth of Pension Assets

 

June Market Values and Net 1-year Returns to June 30th of Each Year

combined bar and line graph illustrating year over year comparison of the quarter-end market values and net 1-year returns to quarter-end of each year. $M pension fund market value for total plan (professional, non-professional and retirement plan) for 2007 906.4 2008 876.2 2009 777.5 2010 811.5 2011 931.0 2012 927.7 2013 1,047.1 2014 1,239.2 2015 1,325.4 2016 1,303.2 percentage Cad$ return net for 2007 23.7% 2008 -5.1% 2009 -8.4 2010 6.7% 2011 15.4% 2012 1.1% 2013 14.7% 2014 19.6% 2015 7.2% 2016 -0.3%


 


Over the last 12 months the Total Pension portfolio decreased $ 22.2 M to $1,303.2 M consisting of:
–    Total contributions of $ 63.8 M and disbursements of $ 78.6 M
–    1-year return (net of investment management fees) of -0.3% compared to 7.2% one year ago.