March 31, 2017 Pension Quarterly Investment Report

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Performance Review

University of Guelph Pension Plans
1st Quarter 2017

Prepared by:

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

Pension Plans Results Overview

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

The Total Plan gained 13.2% over the last 12 months, an outperformance of 0.8% vs. its unhedged and hedged benchmarks.

Canadian Equity U.S. Equity
  • The Canadian equity portfolio returned 19.6% over the past year, beating the S&P/TSX index by 1.0%.
  • Results are mixed for  the  plan’s  large  cap  managers.
  • Burgundy and Sionna outperformed the S&P/TSX by 2.6% and 1.9% respectively. However, CC&L lagged the benchmark by 1.9%.
  • The plan’s Canadian small cap manager (Sionna) performed poorly over the last year, lagging the BMO Small Cap index by 8.2%.
  • U.S. large caps had solid performance as the S&P 500 returned 20.8% in Canadian dollar terms over the last year.
  • The plan’s U.S. equity investments (including U.S. small and mid-caps) generated a good return of 24.1%, outperforming the S&P 500 by 3.3%.
  • The plan’s large cap manager (Barrow) beat the Russell 1000 Value index by 0.7%. The mid-cap portfolio managed by Wedge added 0.4% versus its index, but the firm’s small-cap strategy lagged the Russell 2000 Value Index by 7.0%.
Global/Non-North American Equity Fixed Income
  • In Canadian dollars, Non-North American equities underperformed both Canada (18.6%) and the U.S. (20.8%), with the MSCI EAFE Index returning 15.7%.
  • Tweedy Browne and LSV beat the MSCI EAFE index by 0.2% and 1.8% respectively. As a result, the plan’s Non- North American equity outperformance during the past year was 1.0%.
  • Global equities, as measured by the MSCI World ex- Canada index, returned 19.0% over the last year. The pension plan’s only Global equity manager, Acadian, outperformed the index by 0.1%.
  • The Canadian fixed income portfolio, which added the CIBC Short-Term Bond and CIBC Long-Term Bond products in December 2016, underperformed its benchmark by 0.6%.
  • We note that the bond portfolio is being transitioned from a FTSE/TMX Universe index to a combination of the Short- Term and Long-Term indexes. During this period it will be difficult to benchmark.
  • The high Cash returns include income distributions from private equities.
  • The real estate portfolio managed by Greystone beat its index by 1.0%.

Total Pension Portfolio Vs Composite Benchmark

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

vertical bar graph illustrating total pension portfolio vs composite benchmark current quarter 2.9 vs 3.6 benchmark return vs 3.5 benchmark return (hedged) ; 1 year 13.7 vs 12.4 benchmark return vs 12.4 benchmark return (hedged) ; 3 years 7.3 vs 8.0 benchmark return vs 7.3 benchmark return hedged; 5 years 10.2 vs 9.8 benchmark return vs 9.1 benchmark return hedged; 10 years 6.3 vs. 5.4 benchmark return vs 5.1 benchmark return
 

 

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) + 5.5% FTSE TMX Canada Bond Universe + 5% FTSE TMX ST Bond Index + 17.5% FTSE TMX LT Bond Index + 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 from December 2011 to February 2017, 37.5% hedged since March 2017.
 

Asset Class Performance

As of March 31, 2017 (Gross of Fees)

  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 337,075,180 23.6 0.8 20.0 6.0 10.4 6.1 20.0 -7.5 7.2 22.0 13.2 -11.3
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     -1.6 1.4 0.2 2.6 1.4 1.4 -0.9 0.3 6.0 7.1 -1.5
US Equity 255,802,503 17.9 3.5 24.7 16.4 20.7 9.9 24.7 -2.8 30.2 33.4 21.8 6.9
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     -2.0 3.9 -1.2 0.7 0.8 3.9 -6.7 0.8 1.0 6.0 -4.6
Non-North American Equity 238,923,855 16.7 7.1 7.7 8.2 14.1 5.1 17.7 -3.0 11.1 29.9 17.2 2.1
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     0.3 2.0 0.7 1.5 2.1 2.0 2.9 -3.1 1.6 3.6 4.8
Global Equity 119,851,127 8.4 6.5 19.8 12.8 17.1 5.5 19.8 -4.5 25.3 32.1 16.3 9.4
MSCI World Ex Canada     6.1 19.0 13.3 16.9 6.4 19.0 -0.6 22.9 30.7 14.8 4.8
Relative Performance     0.4 0.8 -0.5 0.2 -0.9 0.8 -3.9 2.4 1.4 1.5 4.6
Canadian Fixed Income 389,938,692 27.3 1.4 0.8 3.9 3.4 4.7 0.8 0.8 10.3 0.8 4.6 9.8
Fixed Income Benchmark     1.5 1.4 4.1 3.5 4.8 1.4 0.8 10.3 0.8 4.5 9.7
Relative Performance     -0.1 -0.6 -0.2 -0.1 -0.1 -0.6 0.0 0.0 0.0 0.1 0.1
Real Estate 65,600,518 4.6 0.9 8.1 6.6 N/A N/A 8.1 6.0 5.8 10.3 N/A N/A
IPD Canadian Property Index     2.3 6.0 6.8 9.1 9.0 6.0 7.7 6.8 10.7 14.5 15.1
Relative Performance     -1.4 2.1 -0.2 N/A N/A 2.1 -1.7 -1.0 -0.4 N/A N/A
Infrastructure 14,113,543 1.0 -0.8 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Dow Jones Brookfield Global Infrastructure Index     7.1 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Relative Performance     -7.9 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Internal Cash (STIF)* 8,127,407 0.6 0.5 2.1 3.8 1.1 2.0 2.1 3.0 6.5 -0.1 -5.6 0.3
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     0.4 1.6 3.2 0.3 0.7 1.6 2.5 5.6 -1.1 -6.6 -0.6
Total Pension Gross of Fees 1,428,837,150 100.0 2.9 13.7 7.3 10.2 6.3 13.7 -3.4 12.4 17.0 12.6 2.9
Net of Fees     2.7 13.2 6.8 9.8 5.9 13.2 -3.8 11.9 16.5 12.2 2.5
Relative Performance     0.2 0.5 0.5 0.4 0.4 0.5 0.4 0.5 0.5 0.4 0.4
Composite Benchmark     3.5 12.4 7.3 9.1 5.1 12.4 -2.1 12.4 14.3 9.3 1.9
Relative Performance     -0.6 1.3 0.0 1.1 1.2 1.3 -1.3 0.0 2.7 3.3 1.0
Total Pension (Gross of Fees) 1,428,837,150 100.0 2.9 13.7 7.3 10.2 6.3 13.7 -3.4 12.4 17.0 12.6 2.9
Total Pension ex. FX overlay     2.9 13.9 8.1 11.1 N/A 13.9 -2.6 13.7 19.3 12.5 2.5
Relative Performance     0.0 -0.2 -0.8 -0.9 N/A -0.2 -0.8 -1.3 -2.3 0.1 0.4

 


Current Fixed Income Benchmark: 20% FTSE TMX Canada Bond Universe + 18% FTSE TMX ST Bond Index + 62% FTSE TMX LT Bond Index.

Current Composite Benchmark (Hedged): 25% S&P/TSX Comp Capped + 20% MSCI EAFE Net ($CAD) + 20% S&P 500 ($CAD) + 5.5% FTSE TMX Canada Bond Universe + 5% FTSE TMX ST Bond Index + 17.5% FTSE TMX LT Bond Index + 2% FTSE TMX 91 Day T-Bill + 5% IPD Canada Annual Property Index. All foreign indices are 50% hedged back to Canadian dollars from December 2011 to February 2017, 37.5% hedged since March 2017.

 

*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 CIBC Mellon.
 


Performance Attribution


Total Pension Plans Vs Attribution Benchmark
1 Year Ending March 31, 2017

 

a grouping of bar graphs illustrating performance attribution numbers in percentages part 1 performance: total fund 13.72 vs attribution benchmark 12.54, total value added 1.18 part 2 attribution of total value added: asset allocation 0.00; manager value added 1.29; FX hedge and other -0.11 part 3 average active weight, contribution to total asset allocation value added (0.00) and contribution to total manager value added (1.29) by canadian equity are -1.89, -0.16 and 0.31; us equity 1.49, 0.11 and 0.61; non-north american equity 0.15, -0.02 and 0.32; global equity 0.02, -0.01 and 0.12; canadian fixed income 1.18, -0.13 and -0.18; real estate -0.33, 0.02 and 0.10; internal cash (STIF) -1.40, 0.18 and 0.01

 
 

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 follow: 25% S&P/TSX Comp Capped
+ 16% S&P 500 ($CAD) + 16% MSCI EAFE Net ($CAD) + 8% MSCI World + 5.5% FTSE TMX Canada Bond Universe + 5% FTSE TMX ST Bond Index + 17.5% FTSE TMX LT Bond Index + 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 March 31, 2017
 

bar graph illustrating pension plans asset mix total value $1,428,837,150 market value, target allocation, actual allocation and allocation difference for canadian equities are $329,645,736, 25.0%, 23.1% and -1.9%; us equities $311,733,568, 20.0%, 21.8% and 1.8%; non-north american equities $279,324,188, 20.0%, 19.5% and -0.5%; canadian fixed income $389,377,989, 28.0%, 27.3% and -0.7%; real estate $79,683,741, 5.0%, 5.6% and 0.6%; cash $39,071,928, 2.0%, 2.7% and 0.7%
 

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


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. $M pension fund market value for total plan (professional, non-professional and retirement plan) for 2008 881.3 2009 714.0 2010 848.6 2011 925.5 2012 945.8 2013 1047.7 2014 1,205.1 2015 1,345.1 2016 1,274.9 2017 1,428.8 percentage Cad$ return net for 2008 -4.5% 2009 -16.3% 2010 21.7 2011 11.5% 2012 2.5% 2013 12.2% 2014 16.5% 2015 11.9% 2016 -3.8% 2017 13.2%
 


Over the last 12 months the Total Pension portfolio increased from $1,274.9 M to $1,428.8 M consisting of:
–    Total contributions of $ 65.7 M and disbursements of $ 77.2 M.
–    1-year return (net of investment management fees) of 13.2% compared to -3.8% one year ago.