September 30, 2016 Pension Quarterly Investment Report

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Performance Review
University of Guelph Pension Plans 3rd Quarter 2016


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, 2016)

The Total Plan gained 9.4% over the last 12 months, matching its unhedged benchmark and underperforming its hedged benchmark by 0.2%.

Canadian Equity U.S. Equity
  • The Canadian equity portfolio returned 14.9% over the past year, beating the S&P/TSX index by 0.7%.
  • All plan’s large cap managers outperformed the TSX over the last year, beating the index by 1.4%, 0.1% and 2.3% for Burgundy, CC&L and Sionna respectively.
  • The plan’s Canadian small caps manager (Sionna) performed poorly, lagging the BMO Small Cap index by 21.1%.
  • U.S. large caps performed well in Canadian dollar terms, with a 1-year return of 13.2% for the S&P 500.
  • The plan’s U.S. equity investments (including U.S. small and mid-caps) also generated a solid return of 10.4%, though underperforming the S&P 500 by 2.8%.
  • All plan’s U.S. equities managers lagged their benchmarks. The large cap strategy managed by Barrow lagged the Russell 1000 Value index by 4.1%. The mid cap and small cap strategies managed by Wedge underperformed their corresponding Russell indices by 5.5% and 1.7%.
Global/Non-North American Equity Fixed Income
  • In Canadian dollars, Non-North American equities underperformed both Canada and the U.S., with the MSCI EAFE Index returning 4.9%.
  • Tweedy Browne and LSV beat the MSCI EAFE index by 1.4% and 1.2% respectively. As a result, the plan’s Non-North American equity performance improved during the past year with an outperformance of 1.3%.
  • Global equities, as measured by the MSCI World ex-Canada index, returned 9.7% over the last year. Moreover, the pension plan’s only Global equity manager, Acadian, underperformed the index by 1.0%.
  • The Canadian fixed income portfolio is indexed to the FTSE TMX Universe and, as expected, closely matched its return of 6.3% over the past year.
  • The high Cash returns include income distributions from private equities.
  • The real estate portfolio managed by Greystone lagged its index by 1.4%.

Total Pension Portfolio Vs Composite Benchmark

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

vertical bar graph illustrating total pension portfolio vs composite benchmark current quarter 4.5 vs 4.3 benchmark return vs 4.1 benchmark return (hedged) ; 1 year 9.4 vs 9.4 benchmark return vs 9.6 benchmark return (hedged) ; 3 years 9.0 vs 10.1 benchmark return vs 8.9 benchmark return hedged; 5 years 11.2 vs 10.6 benchmark return vs 9.9 benchmark return hedged; 10 years 6.6 vs. 5.9 benchmark return vs 5.6 benchmark return hedged

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) + 28% FTSE TMX Universe + 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 since December 2011.

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 313,100,436 23.1 7.2 14.9 8.1 11.0 6.8 14.9 -8.8 20.5 16.6 14.5 -6.1
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     1.7 0.7 0.1 2.9 1.5 0.7 -0.4 0.1 9.5 5.3 -2.5
US Equity 233,681,073 17.2 6.3 10.4 19.1 22.8 9.5 10.4 20.8 26.6 33.0 24.3 0.2
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     1.2 -2.8 -1.6 0.9 0.5 -2.8 1.6 -3.6 8.3 1.4 -2.5
Non-North American Equity 219,978,926 16.2 7.0 6.2 10.5 14.3 6.2 6.2 9.2 16.4 29.4 11.8 -2.0
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     -0.8 1.3 1.0 1.3 2.2 1.3 -0.8 2.6 -0.4 3.9 5.5
Global Equity 108,598,261 8.0 6.4 8.7 16.3 18.3 6.3 8.7 14.8 26.2 26.4 16.4 3.6
MSCI World Ex Canada     6.2 9.7 15.8 18.1 6.9 9.7 15.5 22.7 27.3 15.9 -2.2
Relative Performance     0.2 -1.0 0.5 0.2 -0.6 -1.0 -0.7 3.5 -0.9 0.5 5.8
Canadian Fixed Income 401,867,178 29.6 1.2 6.4 6.0 4.4 5.4 6.4 5.3 6.4 -1.2 5.5 6.8
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      0.0 0.1 0.0 0.0 0.2 0.1 0.0 0.1 0.1 0.0 0.1
Real Estate 62,491,087 4.6 1.3 6.1 6.7 N/A N/A 6.1 5.7 8.3 10.7 N/A N/A
IPD Canadian Property Index     1.4 7.5 7.9 9.9 9.5 7.5 7.1 9.2 12.4 13.6 14.3
Relative Performance     -0.1 -1.4 -1.2 N/A N/A -1.4 -1.4 -0.9 -1.7 N/A N/A
Infrastructure 11,498,770 0.8 2.2 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     3.6 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Relative Performance     -1.4 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Internal Cash (STIF)* 9,744,900 0.7 0.2 4.3 3.6 1.0 0.4 4.3 0.6 6.0 -0.1 -5.6 0.4
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     0.1 3.8 2.9 0.2 -1.1 3.8 -0.2 5.1 -1.2 -6.5 -0.6
Total Pension Gross of Fees 1,357,677,477 100.0 4.5 9.4 9.0 11.2  6.6 9.4  2.5 15.5 15.8 13.5  0.6
Net of Fees     4.3 8.8 8.5 10.7 6.2 8.8 2.1 15.0 15.4 13.0 0.3
Relative Performance     0.2 0.6 0.5 0.5 0.4 0.6 0.4 0.5 0.4 0.5 0.3
Composite Benchmark (Hedged)     4.1 9.6 8.9 9.9 5.6 9.6 2.6 14.9 11.6 11.3 0.0
Relative Performance     0.4 -0.2 0.1 1.3 1.0 -0.2 -0.1 0.6 4.2 2.2 0.6
Total Pension (Gross of Fees) 1,357,677,477 100.0 4.5 9.4  9.0 11.2 6.6 9.4 2.5 15.5 15.8 13.5 0.6
Total Pension ex. FX overlay     4.7 9.1 10.4 12.0 N/A 9.1 5.5 16.8 16.5 12.6 0.6
Relative Performance     -0.2 0.3 -1.4 -0.8 N/A 0.3 -3.0 -1.3 -0.7 0.9 0.0

Current Composite Benchmark (Hedged): 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 foreign indices are 50% hedged back to Canadian dollars since December 2011.

*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 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, 2016

a grouping of bar graphs illustrating performance attribution numbers in percentages part 1 performance: total fund 9.35 vs attribution benchmark 9.50, total value added -0.14 part 2 attribution of total value added: asset allocation -0.20; manager value added -0.21; FX hedge and other 0.26 part 3 average active weight, contribution to total asset allocation value added (-0.20) and contribution to total manager value added (-0.21) by canadian equity are -2.78, -0.16 and 0.17; us equity 1.46, 0.05 and -0.54; non-north american equity 0.66, -0.10 and 0.21; global equity 0.31, -0.03 and -0.04; canadian fixed income 1.91, -0.10 and 0.03; real estate -0.31, 0.00 and -0.07; internal cash (STIF) -1.39, 0.14 and 0.03

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, 2016

 

bar graph illustrating pension plans asset mix total value $1,357,677,477 market value, target allocation, actual allocation and allocation difference for canadian equities are $305,667,662, 25.0%, 22.5% and -2.5%; us equities $286,496,963, 20.0%, 21.1% and 1.1%; non-north american equities $253,141,473, 20.0%, 18.6% and -1.4%; canadian fixed income $401,480,051, 28.0%, 29.6% and 1.6%; real estate $73,959,977, 5.0%, 5.4% and 0.4%; cash $36,931,351, 2.0%, 2.7% and 0.7%
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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

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. $M pension fund market value for total plan (professional, non-professional and retirement plan) for 2007 892.1 2008 805.7 2009 828.1 2010 865.1 2011 856.3 2012 961.8 2013 1,089.5 2014 1,245.3 2015 1,264.2 2016 1,357.7 percentage Cad$ return net for 2007 8.3% 2008 -10.5% 2009 6.0 2010 6.5% 2011 0.3% 2012 13.0% 2013 15.3% 2014 15.0% 2015 2.1% 2016 8.8%

Over the last 12 months the Total Pension portfolio increased $ 93.5 M to $1,357.7 M consisting of:

–Total contributions of $ 64.1 M and disbursements of $ 78.8 M
–1-year return (net of investment management fees) of 8.8% compared to 2.1% one year ago.