March 31, 2017 Endowment Quarterly Investment Report

Printer-friendly versionPDF version

Performance Review

University of Guelph Endowment Funds
1st Quarter 2017

Prepared by:

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

Endowment Funds Results Overview

(Net of fees returns for the 12 months ended March 31st, 2017)

The Total Endowment Funds gained 14.8% over the last 12 months, outperforming the unhedged benchmark by 2.2% and the hedged benchmark by 2.5%.

results overview
Endowment Funds Results Overview

Canadian Equity

  • The Canadian equity portfolio gained 21.2% over the past year, 2.6% above the return of the S&P/TSX index.
  • Both Burgundy and Sionna contributed to the strong performance with 21.1% and 20.9% returns respectively.
  • The S&P/TSX index posted an 18.6% return over the past year while Burgundy and Sionna outperformed this benchmark by 2.5% and 2.3% respectively.

U.S. Equity

  • U.S. equity markets performed well in Canadian dollar terms with a 1-year return of 20.8% for the S&P500.
  • The Endowment’s U.S. equity investments gained 22.8% over the last year, outperforming the S&P500 index by 2.0%.
  • The U.S. large cap manager (Fiduciary) lagged the S&P 500 index by 0.5%. The mid cap mandate managed by Wedge beat its benchmark by 0.3%, while Wedge’s small cap strategy underperformed its benchmark, Russell 2000 Value Index, by 7.0% over the past year.

Non-North American Equity

  • In Canadian dollars, non-North American equities in developed markets underperformed both Canada (18.6%) and the U.S. (20.8%) with a return of 15.7%, while emerging markets equities gained 21.3% over the past year.
  • Tweedy Browne and LSV outperformed the MSCI EAFE index by 0.3% and 2.5% respectively.
  • The emerging markets manager (LSV) outperformed the MSCI Emerging Markets index by 7.7% over the past year.

Fixed Income

  • The Canadian fixed income portfolio is indexed to the FTSE TMX Universe and, as expected, closely matched its return of 1.5%.
  • The infrastructure portfolio managed by Brookfield outperformed its index by 11.0% over the past year. Short- term returns should be interpreted with caution due to the long term nature and illiquidity of the investment.

 

Total Endowment Portfolio Vs Endowment Policy Benchmark

As of March 31, 2017 (Gross of Fees, Annualized for Periods over 1 Year)

vertical bar graph illustrating total endowment portfolio vs endowment policy benchmark: current quarter 3.4 vs 3.9 benchmark return vs 3.7 benchmark return (hedged); 1 year 15.5 vs 12.6 benchmark return vs 12.3 benchmark return (hedged); 3 years 8.1 vs 8.6 benchmark return vs 7.7 benchmark return (hedged); 5 years 10.7 vs 10.4 benchmark return vs 9.4 benchmark return (hedged); 10 years 5.9 vs 5.2 benchmark return vs 4.8 benchmark return (hedged)

Returns are presented gross of fees in CAD.
Endowment Policy Benchmark: 30% FTSE TMX Bond Universe + 7.5% Infrastructure (CPI+5%) + 17.5% S&P/TSX Composite + 20% S&P 500 ($CAD) + 20% MSCI EAFE Net ($CAD) + 5% MSCI Emerging Markets Index. The Hedged Endowment Policy Benchmark has the same composition as the Endowment Policy Benchmark, but all foreign indices are 50% hedged back to Canadian dollars since November 2010.
 

Asset Class Performance


As of March 31, 2017 (Gross of Fees)

Asset Class Performance
  Allocation Annualized Performance (%) Annual Performance (%)
  Market Value % of portfolio Quarter to Date 1 year 3 years 5 years 10 years 2016 to 2017 2015 to 2016 2014 to 2015 2013 to 2014 2012 to 2013 2011 to 2012
Canadian Equity 76,360,392 18.2 -0.2 21.7 4.9 9.6 5.9 21.7 -8.5 3.6 20.2 14.2 -6.7
S&P/TSX Composite Index     2.4 18.6 5.8 7.8 4.7 18.6 -6.6 6.9 16.0 6.1 -9.8
Relative Performance     -2.6 3.1 -0.9 1.8 1.2 3.1 -1.9 -3.3 4.2 8.1 3.1
US Equity 99,420,786 23.7 4.0 23.7 17.2 20.8 10.3 23.7 -0.2 30.6 31.4 21.6 7.2
S&P 500 Index (CAD)     5.5 20.8 17.6 20.0 9.1 20.8 3.9 29.4 32.4 15.8 11.5
Relative Performance     -1.5 2.9 -0.4 0.8 1.2 2.9 -4.1 1.2 -1.0 5.8 -4.3
Non-North American Equity 87,160,872 20.8 7.3 18.2 8.5 14.1 5.1 18.2 -3.6 12.0 29.6 17.0 2.9
MSCI EAFE Composite     6.8 15.7 7.5 12.6 3.0 15.7 -5.9 14.2 28.3 13.6 -2.7
Relative Performance     0.5 2.5 1.0 1.5 2.1 2.5 2.3 -2.2 1.3 3.4 5.6
Emerging Markets Equity 20,624,042 4.9 12.5 30.2 9.9 8.9 N/A 30.2 -12.1 16.1 7.6 6.9 -5.1
MSCI Emerging Markets Index     10.9 21.3 8.2 7.2 4.6 21.3 -9.8 15.7 7.5 4.0 -6.0
Relative Performance     1.6 8.9 1.7 1.7 N/A 8.9 -2.3 0.4 0.1 2.9 0.9
Canadian Fixed Income 109,935,463 26.2 1.3 1.8 4.3 3.7 5.0 1.8 0.8 10.4 1.0 4.9 10.0
FTSE TMX Canada Universe Bond Index     1.2 1.5 4.1 3.5 4.8 1.5 0.8 10.3 0.8 4.5 9.7
Relative Performance     0.1 0.3 0.2 0.2 0.2 0.3 0.0 0.1 0.2 0.4 0.3
Infrastructure 25,098,339 6.0 2.0 19.3 18.1 N/A N/A 19.3 9.1 26.5 N/A N/A N/A
CPI + 5%     2.4 6.6 6.3 6.4 6.6 6.6 6.3 6.2 6.7 6.2 7.0
Relative Performance     -0.4 12.7 11.8 N/A N/A 12.7 2.8 20.3 N/A N/A N/A
Internal Cash 640,405 0.2 0.0 0.0 -1.0 -1.1 N/A 0.0 -0.2 -2.6 -2.7 -0.1 6.9
FTSE TMX Canada 91 Day T-Bill     0.1 0.5 0.6 0.8 1.3 0.5 0.5 0.9 1.0 1.0 0.9
Relative Performance     -0.1 -0.5 -1.6 -1.9 N/A -0.5 -0.7 -3.5 -3.7 -1.1 6.0
Total Endowment Gross of Fees 419,078,866 100.0 3.4 15.5 8.1 10.7 5.9 15.5 -3.3 13.1 15.9 13.6 3.4
Net of Fees     3.2 14.8 7.4 10.1 5.3 14.8 -3.9 12.3 15.4 13.0 2.9
Relative Performance     0.2 0.7 0.7 0.6 0.6 0.7 0.6 0.8 0.5 0.6 0.5
Endowment Policy Benchmark (Hedged)      3.7 12.3 7.7 9.4 4.8 12.3 -2.0 13.6 14.5 9.7 2.4
Relative Performance     -0.3 3.2 0.4 1.3 1.1 3.2 -1.3 -0.5 1.4 3.9 1.0
Total Endowment (Gross of Fees) 419,078,866 100.0 3.4 15.5 8.1 10.7 5.9 15.5 -3.3 13.1 15.9 13.6 3.4
Total Endowment ex. FX Overlay     3.4 15.9 9.3 12.0 6.4 15.9 -2.4 15.5 18.7 13.4 3.8
Relative Performance     0.0 -0.4 -1.2 -1.3 -0.5 -0.4 -0.9 -2.4 -2.8 0.2 -0.4

Endowment Policy Benchmark (Hedged): 30% FTSE TMX Bond Universe + 7.5% Infrastructure (CPI+5%) + 17.5% S&P/TSX Composite + 20% S&P 500 ($CAD) + 20% MSCI EAFE Net ($CAD) + 5% MSCI Emerging Markets Index.. All foreign indices are 50% hedged back to Canadian dollars since November 2010.

All returns are reported gross of fees in CAD except for the Total Endowment where returns are displayed both net and gross of fees. EAFE stands for Europe, Australasia and Far East. Cash amounts and percentages presented exclude residual manager cash balances and currency overlay (currency hedging).

 

Performance Attribution

Total Endowment Funds Vs Endowment Policy Benchmark
1 Year Ending March 31, 2017
 

a grouping of bar graphs illustrating performance attribution numbers in percentages part 1 performance: total fund 15.49 vs endowment policy benchmark 12.63, total value added 2.86 part 2 attribution of total value added: asset allocation 0.48; manager value added 2.87; FX hedge and other -0.48 part 3 average active weight, contribution to total asset allocation value added (0.48) and contribution to total manager value added (2.87) by canadian equity are 0.40, -0.04 and 0.56; us equity 2.92, 0.18 and 0.60; non-north american equity 0.59, 0.00 and 0.48; emerging markets -0.30, -0.04 and 0.38; canadian fixed income -3.22, 0.34 and 0.10; infrastructure -1.36, 0.09 and 0.75; internal cash 0.75, -0.06 and 0.00

Returns are presented gross of fees in CAD.
Endowment Policy Benchmark: 30% FTSE TMX Bond Universe + 7.5% Infrastructure (CPI+5%) + 17.5% S&P/TSX Composite + 20% S&P 500 ($CAD) + 20% MSCI EAFE Net ($CAD) + 5% MSCI Emerging Markets Index.
The Benchmarks do not assume currency hedging.
“Other” includes the effects of all other factors on the Total Endowment's relative returns, including rebalancing and residual trading activity.

 

Endowment Asset Mix


Actual Allocation vs. Investment Policy Allocation
As of March 31, 2017

 
bar graph illustrating endowment asset mix. total value $419,078,866 market value, target allocation, actual allocation and allocation difference for canadian equities are $75,392,502, 17.5%, 18.0% and 0.5%; us equities $89,060,832, 20.0%, 21.3% and 1.3%; non-north american equities $84,539,785, 20.0%, 20.2% and 0.2%; emerging markets $20,624,262, 5.0%, 4.9% and -0.1%; Canadian fixed income $109,935,463, 30.0%, 26.2% and -3.8%; infrastructure $24,394,035, 7.5%, 5.8% and -1.7%; cash $15,132,205, 0.0%, 3.6% and 3.6%
 

 

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

Growth of Endowment Assets

March Market Values and Net 1-Year Returns to March 31st 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. $M endowment fund market value for 2008 170.8 2009 138.5 2010 179.6 2011 215.1 2012 227.4 2013 263.8 2014 306.5 2015 344.5 2016 328.9 2017 419.0 percentage Cad$ return net for 2008 -10.3% 2009 -19.2% 2010 24.4% 2011 11.9% 2012 2.9% 2013 13.0% 2014 15.4% 2015 12.3% 2016 -4.0% 2017 14.8%

Over the last 12 months the total Endowment portfolio increased from $328.9 M to $419.0 M consisting of:
– Total contributions of $45.2 M and distributions of $7.2 M.
– 1-year return (net of investment management fees) of 14.8% compared to -4.0% one year ago.
Per Expendable Fund Investment Policy approved by the Board on Jun. 3, 2016, all sinking funds and a portion of expendable funds are now invested in this portfolio.