March 2016 Endowment Quarterly Investment Report

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Performance Review


University of Guelph Endowment Funds
1st 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 March 31st, 2016)

The Total Endowment Funds lost 3.3% over the last 12 months, underperforming their hedged benchmark by 1.3% and their unhedged benchmark by 2.0%.

Canadian Equity U.S. Equity U.S. Equity
  • The Canadian equity portfolio lost 8.5% over the past year, 1.9% below the return of the S&P/TSX index.
  • Burgundy is responsible for the bulk of the underperformance, with lower returns and a higher dollar allocation. Sionna matched the S&P/TSX return over 1 year (-6.6%).
  • The lack of dedicated small cap exposure helped returns as small caps underperformed large caps by 0.6% over the past year.
  • U.S. equity markets performed well in Canadian dollar terms with a 1-year return of 3.9% for the S&P500.
  • However, the Endowment’s U.S. equity investments did not perform as well, with a return of -0.2%.
  • The U.S. large cap manager (Fiduciary) lagged the S&P500 index by 1.7%, and the mid cap mandate managed by Wedge lagged its benchmark by 3.4%. The sole outperformer was Wedge’s small cap strategy, which beat the Russel 2000 Value Index by 5.2% over the past year.
Non-North American Equity Fixed Income
  • In Canadian dollars, non-North American equities outperformed Canada but lagged the U.S. with a return of -6.4% for developed markets. Emerging markets lost 9.8% over the past year.
  • The developed markets managers (with 20.4% of the total Endowment funds) both beat the MSCI EAFE. Tweedy Browne did well in falling markets with an outperformance of 3.4%, while LSV beat the index by a smaller but significant 1.1%.
  • The emerging markets manager (LSV) lagged the MSCI Emerging Markets index by 2.3% over the past year, although it outperformed from 2012 to 2014.
  • The Canadian fixed income portfolio is indexed to the FTSE TMX Universe and, as expected, closely matched its return of 0.8%.
  • The cash return was negative due to losses on internal foreign exchange transactions.
  • The infrastructure portfolio managed by Brookfield outperformed its index by 2.6% over the past year. Short-term returns should be interpreted with caution due to important foreign exchange fluctuations.

.
Total Endowment Portfolio Vs Endowment Policy Benchmark Benchmark

As of March 31, 2016 (Gross of Fees, Annualized for Periods over 1 Year)

vertical bar graph illustrating total endowment portfolio vs endowment policy benchmark: current quarter -0.3 vs -1.8 benchmark return vs -0.6 benchmark return (hedged); 1 year -3.3 vs -1.3 benchmark return vs -2.0 benchmark return (hedged); 3 years 8.2 vs 10.0 benchmark return vs 8.4 benchmark return (hedged); 5 years 8.3 vs 8.4 benchmark return vs 7.4 benchmark return (hedged);10 years 5.6 vs 5.2 benchmark return vs 4.8 benchmark return (hedged)

Returns are presented gross of fees in CAD.
Endowment Policy Benchmark: 27.5% FTSE TMX Bond Universe + 5% Infrastructure (CPI+5%) + 20% S&P/TSX Composite + 25% S&P 500 ($CAD) + 17.5% MSCI EAFE Net ($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.

 

 

Annualized Asset Class Performance

As of March 31, 2016 (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 58,153,753 17.7 5.7 -8.5 -2.6 4.5 6.8 4.0 6.1 10.1 4.8 4.3 5.1
S&P/TSX Composite Index     4.5 -6.6 0.0 5.0 5.3 2.1 4.9 9.6 3.2 3.3 4.0
Relative Performance     1.2 -1.9 -2.6 -0.5 1.5 1.9 1.2 0.5 1.6 1.0 1.1
US Equity 80,963,275 24.6 -3.9 -0.2 14.2 19.6 20.1 17.4 17.8 19.7 13.3 8.9 9.4
S&P 500     -5.7 3.9 15.9 21.1 19.8 18.1 16.8 17.4 11.2 7.8 8.1
Relative Performance     1.8 -4.1 -1.7 -1.5 0.3 -0.7 1.0 2.3 2.1 1.1 1.3
Non-North American Equity 67,178,407 20.4 -8.1 -3.6 3.9 11.9 13.2 11.0 10.6 12.9 6.4 3.7 4.7
MSCI EAFE (net)     -9.7 -6.4 3.2 10.7 11.4 8.3 7.8 10.1 3.2 1.2 2.8
Relative Performance     1.6 2.8 0.7 1.2 1.8 2.7 2.8 2.8 3.2 2.5 1.9
Emerging Markets Equity 15,986,197 4.9 -1.1 -12.1 1.0 3.1 4.1 2.2 N/A N/A N/A N/A N/A
MSCI Emerging Markets Index     -1.6 -9.8 2.1 3.8 3.9 1.8 3.7 9.0 2.2 2.8 4.4
Relative Performance     0.5 -2.3 -1.1 -0.7 0.2 0.4 N/A N/A N/A N/A N/A
Canadian Fixed Income 85,121,431 25.9 1.4 0.8 5.5 4.0 4.2 5.3 5.3 5.8 5.5 5.4 5.4
FTSE TMX Canada Universe Bond Index     1.4 0.8 5.4 3.9 4.0 5.1 5.1 5.1 5.1 5.2 5.2
Relative Performance     0.0 0.0 0.1 0.1 0.2 0.2 0.2 0.7 0.4 0.2 0.2
Infrastructure 18,657,084 5.7 -6.8 9.1 17.5 N/A N/A N/A N/A N/A N/A N/A N/A
CPI + 5%     1.5 6.5 6.3 6.4 6.3 6.5 6.7 6.7 6.6 6.6 6.7
Relative Performance     -8.3 2.6 11.2 N/A N/A N/A N/A N/A N/A N/A N/A
Internal Cash 163,433 0.0 -0.3 -0.2 -1.4 -1.8 -1.4 0.2 1.6 1.4 1.4 N/A N/A
FTSE TMX Canada 91 Day T-Bill     0.1 0.5 0.7 0.8 0.9 0.9 0.9 0.8 1.0 1.4 1.7
Relative Performance      -0.4 -0.7 -2.1 -2.6 -2.3 -0.7 0.7 0.6 0.4 N/A N/A
Total Endowment (Net of Fees) 328,881,208 100.0 -0.5 -3.9 3.9 7.6 8.9 7.7 8.4 10.5 6.3 4.3 5.0
Endowment Policy Benchmark     -1.8 -1.3 6.7 10.0 9.9 8.4 8.7 10.8 6.1 4.4 5.2
Relative Performance     1.3 -2.6 -2.8 -2.4 -1.0 -0.7 -0.3 -0.3 0.2 -0.1 -0.2
Endowment Policy Benchmark (Hedged)     -0.6 -2.0 5.5 8.4 8.7 7.4 8.0 10.3 5.6 4.0 4.8
Relative Performance     0.1 -1.9 -1.6 -0.8 0.2 0.3 0.4 0.2 0.7 0.3 0.2
Total Endowment (Gross of Fees) 328,881,208 100.0 -0.3 -3.3 4.5 8.2 9.5 8.3 9.0 11.1 6.9 4.8 5.6
Endowment Policy Benchmark     -1.8 -1.3 6.7 10.0 9.9 8.4 8.7 10.8 6.1 4.4 5.2
Relative Performance     1.5 -2.0 -2.2 -1.8 -0.4 -0.1 0.3 0.3 0.8 0.4 0.4
Endowment Policy Benchmark (Hedged)     -0.6 -2.0 5.5 8.4 8.7 7.4 8.0 10.3 5.6 4.0 4.8
Relative Performance     0.3 -1.3 -1.0 -0.2 0.8 0.9 1.0 0.8 1.3 0.8 0.8

          

Endowment Policy Benchmark: 27.5% FTSE TMX Bond Universe + 5% Infrastructure (CPI+5%) + 20% S&P/TSX Composite + 25% S&P 500 ($CAD) + 17.5% MSCI EAFE Net ($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.

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).


Annual Asset Class Performance

(Gross of Fees)

Annual Asset Class Performance
  Performance(%)
 : Apr-2015 To Mar-2016 Apr-2014 To Mar-2015 Apr-2013 To Mar-2014 Apr-2012 To Mar-2013 Apr-2011 To Mar-2012 Apr-2010 To Mar-2011 Apr-2009 To Mar-2010 Apr-2008 To Mar-2009 Apr-2007 To Mar-2008 Apr-2006 To Mar-2007
Canadian Equity -8.5 3.6 20.2 14.2 -6.7 17.2 37.6 -25.5 -0.2 13.1
S&P/TSX Composite Index -6.6 6.9 16.0 6.1 -9.8 20.4 42.1 -32.4 4.0 11.4
Relative Performance -1.9 -3.3 4.2 8.1 3.1 -3.2 -4.5 6.9 -4.2 1.7
US
Equity
-0.2 30.6 31.4 21.6 7.2 19.6 31.6 -22.6 -20.9 14.2
S&P 500 3.9 29.4 32.2 16.0 11.5 10.5 21.2 -24.1 -15.5 10.5
Relative
Performance
-4.1 1.2 -0.8 5.6 -4.3 9.1 10.4 1.5 -5.4 3.7
Non-North
American
Equity
-3.6 12.0 29.6 17.0 2.9 8.7 27.2 -29.5 -15.6 13.9
MSCI EAFE (net) -6.4 13.7 27.5 13.3 -3.2 5.5 25.0 -34.4 -13.4 18.8
RelativePerformance 2.8 -1.7 2.1 3.7 6.1 3.2 2.2 4.9 -2.2 -4.9
Emerging
Markets
Equity
-12.1 16.1 7.6 6.9 -5.1 N/A N/A N/A N/A N/A
MSCI Emerging Markets Index -9.8 15.7 7.3 4.2 -6.0 13.5 46.9 -34.9 8.2 19.6
Relative Performance -2.3 0.4 0.3 2.7 0.9 N/A N/A N/A N/A N/A
Canadian
Fixed
Income
0.8 10.4 1.0 4.9 10.0 5.3 8.4 3.5 4.7 5.3
FTSE TMX Canada Universe Bond Index 0.8 10.3 0.8 4.5 9.7 5.1 5.1 4.9 5.8 5.5
Relative
Performance
0.0 0.1 0.2 0.4 0.3 0.2 3.3 -1.4 -1.1 -0.2
Infrastructure 9.1 26.5 N/A N/A N/A N/A N/A N/A N/A N/A
CPI + 5% 6.5 6.2 6.4 6.2 7.0 8.2 6.5 6.1 6.5 7.5
Relative
Performance
2.6 20.3 N/A N/A N/A N/A N/A N/A N/A N/A
Internal
Cash
-0.2 -2.6 -2.7 -0.1 6.9 8.9 0.0 2.1 N/A N/A
FTSE TMX Canada 91 Day T-Bill 0.5 0.9 1.0 1.0 0.9 0.8 0.3 2.4 4.6 4.2
Relative
Performance
-0.7 -3.5 -3.7 -1.1 6.0 8.1 -0.3 -0.3 N/A N/A
Total Endowment (Net of Fees)  -3.9 12.3 15.4 13.0 2.9 11.9 24.4 -19.2 -10.3 12.0
Endowment Policy Benchmark -1.3 15.2 16.9 9.5 2.9 9.9 24.9 -22.0 -8.4 12.6
Relative Performance -2.6 -2.9 -1.5 3.5 0.0 2.0 -0.5 2.8 -1.9 -0.6
Endowment Policy Benchmark (Hedged) -2.0 13.6 14.5 9.7 2.4 10.9 24.9 -22.0 -8.4 12.6
Relative Performance -1.9 -1.3 0.9 3.3 0.5 1.0 -0.5 2.8 -1.9 -0.6
Total Endowment (Gross of Fees) -3.3 13.1 15.9 13.6 3.4 12.4 25.2 -18.8 -10.0 12.3
Endowment Policy Benchmark -1.3 15.2 16.9 9.5 2.9 9.9 24.9 -22.0 -8.4 12.6
Relative Performance -2.0 -2.1 -1.0 4.1 0.5 2.5 0.3 3.2 -1.6 -0.3
Endowment Policy Benchmark (Hedged) -2.0 13.6 14.5 9.7 2.4 10.9 24.9 -22.0 -8.4 12.6
Relative Performance -1.3 -0.5 1.4 3.9 1.0 1.5 0.3 3.2 -1.6 -0.3


       
        


 

Endowment Policy Benchmark: 27.5% FTSE TMX Bond Universe + 5% Infrastructure (CPI+5%) + 20% S&P/TSX Composite + 25% S&P 500 ($CAD) + 17.5% MSCI EAFE Net ($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.


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)
.
The Endowment Policy Benchmark (Hedged) has the same components as the Endowment Policy Benchmark, but all foreign indices are 50% hedged back to Canadian dollars.


Performance Attribution

Total Endowment Funds Vs Endowment Policy Benchmark

1 Year Ending March 31, 2016

a grouping of bar graphs illustrating performance attribution numbers in percentages part 1 performance: total fund -3.34 vs endowment policy benchmark -1.28, total value added -2.06 part 2 attribution of total value added: asset allocation -0.19; manager value added -0.84; FX hedge and other -1.03 part three average active weight, contribution to total asset allocation value added (-0.19) and contribution to total manager value added (-0.84) by canadian equity are -2.26, 0.05 and -0.35; us equity 1.51, 0.05 and -1.10; non-north american equity 3.62, -0.23 and 0.60; emerging markets 0.05, -0.04 and -0.10; canadian fixed income -2.78, -0.08 and 0.02; infrastructure -0.01, 0.00 and 0.09; internal cash 0.36, 0.06 and 0.00

 



Returns are presented gross of fees in CAD.

 

Endowment Policy Benchmark: 27.5% FTSE TMX Bond Universe + 5% Infrastructure (CPI+5%) + 20% S&P/TSX Composite + 25% S&P 500 ($CAD) + 17.5% MSCI EAFE Net ($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, 2016

bar graph illustrating endowment asset mix. total value $328,881,208 market value, target allocation, actual allocation and allocation difference for canadian equities are $58,135,549, 20.0%, 17.7% and -2.3%; us equities $71,979,379, 25.0%, 21.9% and -3.1%; non-north american equities $65,604.520, 17.5%, 19.9% and 2.4%; emerging markets $15,986,197, 5.0%, 4.9% and -0.1%; canadian fixed income $85,121,431, 27.5%, 25.9% and -1.6%; infrastructure $18,620,701, 5.0%, 5.7% and 0.7%; cash $13,433,431, 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).

 

Endowment Currency Exposure


As of March 31st, 2016

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

Currency March31st,
2016Unhedged
GrossExposure
(CAD)
Hedge(CAD) March31st,
2016Hedged
NetHedged
Exposure(CAD)
Endowment Currency Exposure
Canadian Dollar 43.5% 141,886,950 90,262,463 70.6% 232,149,413
U.S. Dollar 38.6% 125,853,921 -59,963,150 20.0% 65,890,771
Euro 6.9% 22,511,910 -10,874,504 3.5% 11,637,406
British Pound 3.4% 11,026,374 -5,512,987 1.7% 5,513,387
Swiss Franc 2.6% 8,076,489 -4,046,600 1.3% 4,029,889
Japanese Yen 2.5% 8,400,354 -4,182,186 1.2% 4,218,168
Other 2.6% 8,467,582 -3,025,407 1.7% 5,442,175


     
    
   
   

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 Endowment funds from excessive foreign currency fluctuations.

 

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 one-year returns to quarter-end of each year. $M endowment fund market value for 2007 186.9 2008 170.8 2009 138.5 2010 179.6 2011 215.1 2012 227.4 2013 263.8 2014 306.5 2015 344.5 2016 328.9 percentage Cad$ return net for 2007 12.0% 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 -3.9%

 

Over the last 12 months the total Endowment portfolio decreased $15.6 M to $337.1 M consisting of:

 

– Total contributions of $7.2 M and distributions of $8.8 M.
– 1-year return (net of investment management fees) of -3.9% compared to 12.3% one year ago.