September 30, 2016 Endowment Quarterly Investment Report

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Performance Review

University of Guelph Endowment Funds

3rd Quarter 2016

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

Endowment Funds Results Overview

(Gross Returns for the 12 months ended September 30th, 2016)
The Total Endowment Funds gained 9.9% over the last 12 months, matching their hedged benchmark and outperforming their unhedged benchmark by 0.2%.

 

Canadian Equity U.S. Equity
  • The Canadian equity portfolio gained 15.8% over the past year, 1.6% above the return of the S&P/TSX index.
  • Both Burgundy and Sionna contributed to the strong performance with 15.6% and 16.7% returns respectively.
  • The S&P/TSX index posted a 14.2% return over the past year while both Burgundy and Sionna outperformed this benchmark by 1.4% and 2.5% respectively.
  • U.S. equity markets performed well in Canadian dollar terms with a 1-year return of 13.2% for the S&P500.
  • The Endowment’s U.S. equity investments gained 11.8% over last year, underperforming the S&P500 index by 1.4%.
  • The U.S. large cap manager (Fiduciary) lagged the S&P 500 index by 2.0%, and the mid cap mandate managed by Wedge lagged its benchmark by 5.4%. Wedge’s small cap strategy also underperformed its benchmark, Russell 2000 Value Index, by 1.6% over the past year.
Non-North American Equity Fixed Income
  • In Canadian dollars, non-North American equities in developed markets underperformed both Canada and the U.S. with a return of 4.9%, while emerging markets equities gained 14.9% over the past year.
  • Tweedy Browne and LSV outperformed the MSCI EAFE index by 1.4% and 1.0% respectively.
  • The emerging markets manager (LSV) outperformed the MSCI Emerging Markets index by 0.1% over the past year.
  • The Canadian fixed income portfolio is indexed to the FTSE TMX Universe and, as expected, closely matched its return of 6.3%.
  • The cash return was slightly negative due to losses on internal foreign exchange transactions.

Total Endowment Portfolio Vs Endowment Policy Benchmark

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

vertical bar graph illustrating total endowment portfolio vs endowment policy benchmark: current quarter 4.9 vs 4.5 benchmark return vs 4.1 benchmark return (hedged); 1 year 9.9 vs 9.7 benchmark return vs 9.9 benchmark return (hedged); 3 years 9.2 vs 10.9 benchmark return vs 9.3 benchmark return (hedged); 5 years 11.7 vs 11.4 benchmark return vs 10.6 benchmark return (hedged); 10 years 6.2 vs 5.8 benchmark return vs 5.4 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 September 30, 2016 (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 2015 To 2016 2014 To 2015 2013 To 2014 2012 To 2013 2011 To 2012 2010 To 2011
Canadian Equity 70,450,947 18.6 8.0 15.8 6.4 10.0 6.5 15.8 -11.9 18.0 17.5 13.8 -3.8
S&P/TSX Composite Index     5.5 14.2 8.0 8.1 5.3 14.2 -8.4 20.4 7.1 9.2 -3.6
Relative Performance     2.5 1.6 -1.6 1.9 1.2 1.6 -3.5 -2.4 10.4 4.6 -0.2
US Equity 88,024,880 23.2 5.7 11.8 19.9 22.8 9.9 11.8 21.3 27.2 30.08 23.5 0.8
S&P 500 Index (CAD)     5.1 13.2 20.7 21.9 9.0 13.2 19.2 30.2 24.7 22.9 2.7
Relative Performance     0.6 -1.4 -0.8 0.9 0.9 -1.4 2.1 -3.0 6.1 0.6 -1.9
Non-North American Equity 77,770,454 20.5 7.2 6.2 10.6 14.2 5.3 6.2 9.3 16.4 29.1 11.5 -4.1
MSCI EAFE Composite     7.8 4.9 9.5 13.0 4.0 4.9 10.0 13.8 29.8 7.9 -7.5
Relative Performance     -0.6 1.3 1.1 1.2 1.3 1.3 -0.7 2.6 -0.7 3.6 3.4
Emerging Markets Equity 18,128,304 4.8 12.6 15.0 8.5 9.2 N/A 15.0 -5.5 17.4 9.2 11.5 -16.6
MSCI Emerging Markets Index     10.5 14.9 8.3 8.3 6.0 14.9 -2.8 13.8 5.9 10.8 -14.6
Relative Performance     2.1 0.1 0.2 0.9 N/A 0.1 -2.7 3.6 3.3 0.7 -2.0
Canadian Fixed Income 103,099,355 27.2 1.3 6.5 6.1 4.7 5.4 6.5 5.4 6.5 -1.1 6.7 6.0
FTSE TMX Canada Universe Bond Index     1.2 6.3 6.0 4.4 5.2 6.3 5.3 6.3 -1.3 5.5 6.7
Relative Performance     0.1 0.2 0.1 0.3 0.2 0.2 0.1 0.2 0.2 1.2 -0.7
Infrastructure 21,615,972 5.7 1.2 0.1 N/A N/A N/A 0.1 30.7 N/A N/A N/A N/A
CPI + 5%     1.0 6.3 6.5 6.4 6.7 6.3 6.0 7.1 6.1 6.2 8.4
Relative Performance     0.2 -6.2 N/A N/A N/A -6.2 24.7 N/A N/A N/A N/A
Internal Cash 700,315 0.2 -0.1 -0.3 -1.3 -1.3 N/A -0.3 -2.6 -1.0 -1.9 -0.6 7.5
FTSE TMX Canada 91 Day T-Bill     0.1 0.5 0.7 0.8 1.5 0.5 0.8 0.9 1.1 0.9 1.0
Relative Performance     -0.2 -0.8 -2.0 -2.1 N/A -0.8 -3.4 -1.9 -3.0 -1.5 6.5
Total Endowment
Gross of Fees		 378,695,333 100.0 4.9 9.9 9.2 11.7 6.2 9.9 2.8 15.3 16.0 14.9 0.3
Net of Fees     4.7 9.2 8.5 11.0 5.6 9.2 2.2 14.6 15.5 14.3 -0.2
Relative Performance     0.2 0.7 0.7 0.7 0.6 0.7 0.6 0.7 0.5 0.6 0.5
Endowment Policy Benchmark (Hedged)     4.1 9.9 9.3 10.6 5.4 9.9 3.3 15.1 12.2 12.8 -0.8
Relative Performance     0.8 0.0 -0.1 1.1 0.8 0.0 -0.5 0.2 3.8 2.1 1.1
Total Endowment (Gross of Fees) 378,695,333 100.0 4.9 9.9 9.2 11.7 6.2 9.9 2.8 15.3 16.0 14.9 0.3
Total Endowment ex. FX Overlay     5.2 9.4 11.2 12.7 6.7 9.4 7.3 17.1 17.0 13.2 0.9
Relative Performance     -0.3 0.5 -2.0 -1.0 -0.5 0.5 -4.5 -1.8 -1.0 1.7 -0.6

 

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

a grouping of bar graphs illustrating performance attribution numbers in percentages part 1 performance: total fund 9.88 vs endowment policy benchmark 9.79, total value added 0.09 part 2 attribution of total value added: asset allocation -0.15; manager value added -0.22; FX hedge and other 0.47 part 3 average active weight, contribution to total asset allocation value added (-0.15) and contribution to total manager value added (-0.22) by canadian equity are -1.55, -0.10 and 0.30; us equity 1.81, 0.03 and -0.43; non-north american equity 2.45, -0.19 and 0.27; emerging markets -0.23, -0.03 and 0.01; canadian fixed income -2.64, 0.03 and 0.04; infrastructure -0.30, 0.08 and -0.41; internal cash 0.46, 0.03 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 September 30, 2016

bar graph illustrating endowment asset mix. total value $378,695,333 market value, target allocation, actual allocation and allocation difference for canadian equities are $69,091,703, 17.5%, 18.2% and 0.7%; us equities $78,687,691, 20.0%, 20.8% and 0.8%; non-north american equities $72,740,263, 20.0%, 19.2% and -0.8%; emerging markets $18,128,304, 5.0%, 4.8% and -0.2%; Canadian fixed income $103,099,355, 30.0%, 27.2% and -2.8%; infrastructure $21,526,694, 7.5%, 5.7% and -1.8%; cash $15,421,322, 0.0%, 4.1% and 4.1%

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


September Market Values and Net 1-Year Returns to September 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. $M endowment fund market value for 2007 175.1 2008 157.5 2009 165.4 2010 193.2 2011 198.1 2012 234.4 2013 274.3 2014 317.5 2015 322.8 2016 378.7 percentage Cad$ return net for 2007 4.3% 2008 -11.5% 2009 4.1% 2010 6.6% 2011 -0.2% 2012 14.3% 2013 15.5% 2014 14.6% 2015 2.2% 2016 9.2%


Over the last 12 months the total Endowment portfolio increased $55.9 M to $378.7 M consisting of:
–Total contributions of $33.2 M and distributions of $7.4 M.
–1-year return (net of investment management fees) of 9.2% compared to 2.2% 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.