September 30, 2015 Pension Quarterly Investment Report

Printer-friendly versionPDF version

Performance Review

University of Guelph Pension Plans

3rdQuarter 2015

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 September 30th, 2015)

The Total Plan returned 2.5% for the last 12 months, an underperformance of 2.9% versus its composite benchmark.

Canadian Equity U.S. Equity
  • The Canadian equity portfolio returned -8.8% over the past year, lagging the S&P/TSX by 0.4%.
  • Results are mixed for the plan's large cap managers. CC&L has been steadily outperforming over all reported periods with a one-year outperformance of 5.1%. Burgundy and Sionna lagged by 3.5% and 3.1% respectively over the last year.
  • Despite the relatively poor performance of small cap stocks in Canada, the plan's manager (Sionna) performed extremely well, outperformed the index by 11.6%.
  • U.S. equity markets performed very well in Canadian dollar terms, with a one-year return of 19.2% for the S&P500.
  • The plan's U.S. equity investments performed well with a return of 20.8%, outperforming the benchmark by 160 basis points.
  • The plan's large cap manager (Barrow) beat the Russel 1000 Value index by 3.7%. Significant value was added versus their respective indices by the small-(5.5%) and mid-cap portfolios (6.2%) managed by Wedge.
Global/Non-North American Equity Fixed Income
  • In Canadian dollars, Non-North American equity largely underperformed the U.S., but outperformed Canada with the MSCI EAFE index returning 10.0%.
  • The plan's Non-North American equity performance deteriorated during the past year with a 0.8% underperformance. Both LSV and Tweedy Browne trailed the MSCI EAFE over the last year.
  • Global equity, as measured by the MSCI World ex-Canada index, performed very well in Canadian dollars with a return of 15.5% over the last year. However, the pension's only Global equity manager, Acadian, underperformed the index by 70 basis points.
  • The Canadian fixed income portfolio is indexed to the FTSE TMX Universe and, as expected, matched its return of 5.3% over the past year.
  • The 3.3% two-year return for Cash includes a private equity investment that was held at book for many years and was written up to market value and exited in May 2014.
  • The real estate portfolio managed by Greystone underperformed its index by 1.4%.
  • Currency hedging, which is implemented for risk control rather than to generate returns, was a drag on performance as it cost the portfolio 3.0%.

Total Pension Portfolio Vs Composite Benchmark

As of September 30, 2015 (Gross of Fees, Annualized for Periods over 1 year)

current quarter -4.4% versus -2.5% 1 year 2.5% versus 5.3% 3 years 11.1% versus 11.0% 5 years 9.4% versus 8.6% and 10 years 7.3% versus 5.8%

Returns are presented gross of fees in CAD
Current Composite Benchmark: 25% S&P/TSX Comp Capped + 20% MSCI EAFE ($CAD) + 20% S&P 500 ($CAD) + 28% FTSE TMX Universe + 2% FTSE TMX 91 Day T-Bill + 5% IPD Canada Annual Property Index.

Annualized Asset Class Performance

As of September 30, 2015 (Gross of Fees)

Annualized Asset Class Performance
  Allocation Performance(%)
  Market Value ($) % of portfolio year to date 1 year 2 years 3 years 4 years 5 years 6 years 7 years 8 years 9 years 10 years
Canadian Equity  279,674,082  22.1 -7.8 -8.8 4.9 8.6 10.1 6.6 7.2 6.8 3.6 6.0 6.5
S&P/TSX Composite Index     -7.0 -8.4 5.0 5.7 6.6 4.5 5.6 4.9 2.2 4.3 4.8
Relative Performance     -0.8 -0.4 -0.1 2.9 3.5 2.1 1.6 1.9 1.4 1.7 1.7
US Equity  223,998,602 17.7 8.2 20.8 23.7 26.7 26.1 20.4 18.1 14.8 10.8 9.4 8.9
S&P 500     9.7 19.2 24.6 24.6 24.2 19.6 17.1 13.5 9.2 8.5 8.3
Relative Performance     -1.5 1.6 -0.9 2.1 1.9 0.8 1.0 1.3 1.6 0.9 0.6
Non-North American Equity  215,762,303 17.1 10.1 9.2 12.8 18.0 16.4 12.5 10.9 11.1 5.6 6.2 6.7
MSCI EAFE (net)      9.7 9.5 11.4 17.1 14.6 9.7 7.8 7.3 2.5 3.4 4.4
Relative Performance      0.4  -0.3 1.4 0.9 1.8 2.8 3.1 3.8 3.1 2.8    2.3
Global Equity 107,234,458 8.5 8.7 14.8 20.4 22.3 20.8 17.2 14.4 11.1 5.3 6.0    6.7
MSCI World Ex Canada     10.0 15.5 19.1 21.7 20.3 15.4 13.1 11.0   6.4   6.6    6.9
Relative Performance     -1.3  -0.7  1.3  0.6 0.5 1.8 1.3   0.1   -1.1 -0.6 -0.2
Canadian Fixed Income  377,871,354  29.9 2.6 5.3 5.9 3.4 3.9 4.5 5.0 5.6 5.5 5.2 5.1
FTSE TMX Canada Universe Bond Index     2.5 5.3 5.8 3.4 3.9 4.5 4.9 5.7 5.5 5.1 5.0
Relative Performance     0.1 0.0 0.1 0.0 0.0 0.0 0.1 -0.1 0.0 0.1    0.1
Real Estate 58,883,160 4.7 3.8 5.7 7.0 8.2 N/A N/A N/A N/A N/A N/A N/A
IPD Canadian Property Index     4.1 7.1 7.9 9.4 10.4 11.2 10.7 9.2 8.9 9.7 10.5
Relative Performance      -0.3 -1.4 -0.9 -1.2 N/A N/A N/A N/A N/A N/A N/A
Internal Cash (STIF)*  5,221,193 0.4 0.4 0.6 3.3 2.2 0.1 0.2 0.2 0.2 1.5 -0.1 14.5
FTSE TMX Canada 91 Day T-Bill      0.5 0.8 0.8 0.9 0.9 0.9 0.8 0.9 1.3 1.6 1.8
Relative Performance     -0.1 -0.2 2.5 1.3 -0.8 -0.7 -0.6 -0.7 0.2 -1.7 12.7
Total Pension (Net of Fees) 1,264,216,162 100.0 -0.2 2.1 8.4 10.6 11.2 8.9 8.5 8.2 5.6 5.9 6.9
Composite Benchmark     3.0 5.3 10.5 11.0 10.9 8.6 8.3 7.6 5.0 5.6   5.8
Relative Performance     -3.2 -3.2 -2.1 -0.4 0.3 0.3 0.2 0.6 0.6 0.3 1.1
Total Pension (Gross of Fees) 1,264,216,162 100.0 0.1 2.5 8.8 11.1 11.7 9.4 9.0 8.6 6.0 6.3 7.3
Composite Benchmark     3.0 5.3 10.5 11.0 10.9 8.6 8.3 7.6 5.0 5.6 5.8
Relative Performance     -2.9 -2.8 -1.7 0.1 0.8 0.8 0.7 1.0 1.0 0.7 1.5
Total Pension ex. Currency Hedge 1,268,645,153 100.4 2.7 5.5 11.0 12.8 N/A N/A N/A N/A N/A N/A N/A
Composite Benchmark     3.0 5.3 10.5 11.0 10.9 8.6 8.3 7.6 5.0 5.6 5.8
Relative Performance     -0.3 0.2 0.5 1.8 N/A N/A N/A N/A N/A N/A N/A
Effect of Passive Currency Hedge     -2.6 -3.0 -2.2 -1.7 N/A N/A N/A N/A N/A N/A N/A

Current Composite Benchmark: 25% S&P/TSX Comp Capped + 20% MSCI EAFE Net ($CAD) + 20% S&P500 ($CAD) + 28% FTSE TMX Universe + 2% FTSE MX 91 Day T-Bill + 5%  IPD Canada Annual Property Index.

*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 of 3.3%. 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).

Annual Asset Class Performance

(Gross of Fees)

Annual Asset Class Performance
  Performance(%)
  Oct 2014 to Sep 2015 Oct 2013 to Sep 2014 Oct 2012 to Sep 2013 Oct 2011 to Sep 2012 Oct 2010 to Sep 2011 Oct 2009 to Sct 2010 Oct 2008 to Sep 2009 Oct 2007 to Sep 2008 Oct 2006 to Sep 2007 Oct 2005 to Sep 2006
Canadian Equity  -8.8 20.5 16.6 14.5 -6.1 10.4 4.3 -16.5 27.1 11.0
S&P/TSX Composite Index -8.4 20.4 7.1 9.2 -3.6 11.6 0.5 -14.4 22.8 9.2
Relative Performance -0.4 0.1 9.5 5.3 -2.5 -1.2 3.8 -2.1 4.3 1.8
US Equity 20.8 26.6 33.0 24.3 0.2 7.4 -3.3 -13.6 -1.4 4.6
S&P 500 19.2 30.1 24.7 22.9 2.8 5.3 -5.9 -16.6 3.6 6.2
Relative Performance 1.6 -3.5 8.3 1.4 -2.6 2.1 2.6 3.0 -5.0 -1.6
Non-North American Equity 9.2 16.4 29.4 11.8 -2.0 3.1 12.5 -26.1 11.5 11.3
MSCI EAFE (net) 9.5 13.3 29.4 7.4 -7.9 -1.3 4.3 -25.7 11.1 14.2
Relative Performance -0.3 3.1 0.0 4.4 5.9 4.4 8.2 -0.4 0.4 -2.9
Global Equity 14.8 26.2 26.4 16.4 3.6 1.5 -7.0 -27.5 12.2 12.8
MSCI World Ex Canada 15.5 22.7 27.3 15.9 -2.2   2.3 -0.8 -20.8 7.8 10.4
Relative Performance -0.7 3.5 -0.9 0.5 5.8 -0.8 -6.2 -6.7 4.4 2.4
Canadian Fixed Income Composite 5.3 6.4 -1.2 5.5 6.8 7.3 9.6 4.4 3.4 4.0
FTSE TMX Canada Universe Bond Index 5.3 6.3 -1.3 5.5 6.7 7.3 10.3 4.6 1.6 4.0
Relative Performance 0.0 0.1 0.1 0.0 0.1 0.0 -0.7 -0.2 1.8 0.0
Real Estate 5.7 8.3 10.7 N/A N/A N/A N/A N/A N/A N/A
IPD Canadian Property Index 7.1 8.8 12.4 13.6 14.3 8.2 0.6 6.7 16.4 18.4
Relative Performance -1.4 -0.5 -1.7 N/A N/A N/A N/A N/A N/A N/A
Internal Cash (STIF)* 0.6 6.0 -0.1 -5.6 0.4 0.2 -0.1 11.1 -11.5 288.1
FTSE TMX Canada 91 Day T-Bill 0.8 0.9 1.1 0.9 1.0 0.4 1.3 3.7 4.4 3.7
Relative Performance -0.2 5.1 -1.2 -6.5 -0.6 -0.2 -1.4 7.4 -15.9 284.4
Total Pension (Net of Fees) 2.1 15.0 15.4 13.0  0.3 6.5 6.0 -10.5 8.3 16.2
Composite Benchmark 5.3 16.0 12.1 10.4 0.1 6.6 3.4 -11.4 10.3 8.2
Relative Performance -3.2 -1.0 3.3 2.6 0.2 -0.1 2.6 0.9 -2.0 8.0
Total Pension (Gross of Fees) 2.5 15.5 15.8 13.5 0.6 6.9 6.4 -10.2 8.6 16.4
Composite Benchmark 5.3 16.0 12.1 10.4 0.1 6.6 3.4 -11.4 10.3 8.2
Relative Performance -2.8 -0.5 3.7 3.1 0.5 0.3 3.0  1.2 -1.7 8.2
Total Pension ex. Currency Hedge 5.5 16.8 16.5 N/A N/A N/A N/A N/A N/A N/A
Composite Benchmark  5.3 16.0 12.1 10.4 0.1 6.6 3.4 -11.4 10.3 8.2
Relative Performance 0.2 0.8 4.4 N/A N/A N/A N/A N/A N/A N/A

 

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.

*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.
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 the high 2014 return of 6.3%. The 2006 cash return was caused by marking to market value a private equity position that was held at book value since inception.
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 September 30, 2015

asset allocation 0.16; manager value added 0.06; FX Hedge and Other negative 3.01. Part 3 average active weight, contribution to total asset allocation value added (0.16) and contribution to total manager value added (0.06) by Canadian Equity are negative 1.44, 0.16 and negative 0.08; US Equity 1.15, 0.06 and 0.21; Non-North America Equity 1.18, negative 0.01 and negative 0.05; Global Equity 0.45, 0.01 and 0.02; Canadian Fixed Income 0.72, negative 0.01 and 0.01; Real Estate negative 0.69, negative 0.02 and negative 0.05; Internal Cash negative 0.89, negative 0.04 and 0.00

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 September 30, 2015

bar graph illustrating pension plans asset mix total value $1,264,216,162 market value, target allocation, actual allocation and allocation differences for canadian equities are $275,610,760 25%, 21.8% and -3.2% us equities $274,177,858 20.0%, 21.7% and 1.7% non north american equity $254,652,345 20.0%, 20.1% and 0.1% canadian fixed income $377,564,874 28.0%, 29.9% and 1.9% real estate $58,883,160 5.0%, 4.7% and -0.3% cash $23,327,164 2.0%, 1.8% and -0.2%

 

 

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). Real Estate includes Greystone Real Estate and a residual position in Banyan Private Equity ($3,239).

Pension Currency Exposure

As of September 30, 2015

 

stacked bar graph illustrating pension currrency exposure at quarter-end unhedged as detailed in the following table. stacked bar graph illustrating pension currency exposure at quarter-end hedged as detailed in the following table.

Currency September 30th,
2015 Unhedged		 Gross Exposure
(CAD)		 Hedge (CAD) September 30th,
2015 Hedged		 Net Hedged
Exposure (CAD)
Canadian Dollar 56.8% 721,040,636 286,247,387 79.7% 1,007,288,022
U.S. Dollar 25.2% 319,862,192 -171,119,398 11.8% 148,742,794
Euro 6.3% 80,075,431 -43,762,549 2.9% 36,312,883
British Pound 3.4% 42,519,275 -22,581,699 1.6% 19,937,576
Swiss Franc 2.5% 32,312,593 -16,861,300 1.2% 15,451,294
Japanese Yen 2.8% 35,738,729 -20,521,080 1.2% 15,217,649
Other 2.9% 37,114,818 -15,830,353 1.7% 21,284,466

 Note: The Net Hedged Exposure equals the fund’s original currency exposure to its total investments (Gross Exposure) plus the currency hedge implemented by Mesirow, which is designed to protect the pension fund from excessive foreign currency fluctuations.  

Growth of Pension Assets

September Market Values and Net 1-year Returns to September 30, 30th of Each Year     
       
Combined bar and line graph illustrating year over year comparison of the quarter-end market values and net one-year returns to quarter-end of each year. $M Pension Fund market value for total plan (Professional, Non professional and retirement plan) for 2006 $813.3 2007 $892.1 2008 $805.7 2009 $828.1 2010 $865.1 2011 $856.3 2012 $961.8 2013 $1,089.5 2014 $1,245.3 2015 $1,264.2. Percentage Cad$ return net for 2006 16.1% 2007 8.3% 2008 negative 10.5% 2009 6.0% 2010 6.5% 2011 0.3% 2012 13.0% 2013 15.0% 2014 15.0% 2015 2.1%.                   
                  
           

Over the last 12 months the Total Pension portfolio increased $18.9 M to $1,264.2 M consisting of:
–    Total contributions of $ 62.2 M and disbursements of $ 66.9 M
–    1-year return (net of investment management fees) of 2.1% compared to 15.0% one year ago.