Select 40i60e Managed Portfolio

Select 40i60e Managed Portfolio
Portfolio Review – Fourth Quarter 2014
Q4
Select 40i60e Managed Portfolio
Portfolio Review – Fourth Quarter 2014 as at December 31, 2014
Market Overview
Underlying Fund Allocations
Overall, the global economic expansion moved cautiously
forward in 2014, with stock market gains in North America
generally outperforming those of other developed and
emerging markets. The final quarter of the year was
marked by significant stock market volatility as investors
took note of surprisingly weak economic data from
Germany, which is regarded as the stronger of the
Eurozone nations, and then responded to declining oil
prices by selling off stocks of energy-producing companies.
Oil-producing nations and regions that were significantly
impacted were Canada, Russia, South America and many
Middle East countries. Concerns about oversupply in
the energy market caused a sharp drop in the price of oil
and other commodities. The price per barrel dropped to
US$53 at the end of the year, the lowest since 2009.
CI Income Fund
Select U.S. Equity Managed Fund
Select International Equity Managed Fund
Select Canadian Equity Managed Fund
Harbour Corporate Class
Cash
Canada’s commodity-heavy S&P/TSX Composite Index
was particularly volatile in the fourth quarter. The
Canadian index finished the three-month period with a
loss of 1.5%, but registered a respectable gain of 10.6% for
the year. The falling price of oil also caused the Canadian
dollar to lose value relative to the U.S. dollar. The loonie
finished the year at 86.2 cents U.S. Meanwhile, the
FTSE TMX Canada Universe Bond Index, a measure of
Canadian government and investment-grade corporate
bonds, gained 2.7% in the fourth quarter.
The MSCI World Index, which measures large and midcap equities across 23 developed markets, gained 1.1% for
the quarter in U.S. dollar terms and 5.5% for the year. These
gains were magnified to 4.7% and 15.1%, respectively, for
Canadian investors. In the U.S., the benchmark S&P
500 Index benefited from strong U.S. economic trends,
growing consumer and business confidence and healthy
corporate profits, adding 13.7% for the year and 4.9% for
the fourth quarter. In Canadian dollars, the index gained
24% in 2014 and 8.6% for the quarter.
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Portfolio Select Series
38.5%
22.2%
17.4%
16.4%
4.0%
1.5%
Top Ten Holdings
U.S. Treasury Note 1.5% 30Nov19
Apple Inc.
CGI Group Inc.
Microsoft Corp.
Canadian Natural Resources Ltd.
Citigroup Inc.
Empire Co. Ltd.
UnitedHealth Group Inc.
Toronto-Dominion Bank
Bank of Nova Scotia
1.2%
0.8%
0.7%
0.7%
0.7%
0.7%
0.6%
0.6%
0.5%
0.5%
Select 40i60e Managed Portfolio
Portfolio Review – Fourth Quarter 2014 as at December 31, 2014
Portfolio Performance (Class A)
1 Month
3 Months
6 Months
1 Year
3 Years
5 Years
10 Years
Since Inception
-0.4%
1.6%
2.4%
7.3%
11.5%
7.9%
N/A
3.9%
(November 2006)
Asset Allocation Overview and Activity
Different types of investments will respond differently to the markets, reinforcing the importance of a multi-level diversification
strategy. A balanced asset mix ensures that investors are not dependent on any one asset class or security type to provide
returns. CI Investment Consulting combines its portfolio construction expertise with ongoing comprehensive research and
recommendations from State Street Global Advisors, a world leader in asset allocation, to create portfolios designed to capture
evolving opportunities in the various asset classes.
This report is designed to provide you with an up-to-date portfolio overview of the Select 40i60e Managed Portfolio, including
the allocations across asset class, geographic region, equity sector and market capitalization. The arrows indicate whether the
allocation for each category has increased or decreased since the previous quarter-end.
Geographic Regions
Asset Class
24.0%
19.9%
14.0%
11.4%
11.1%
10.0%
5.1%
3.1%
1.4%
—
—
—
—
—
—
—
—
—
▲
▲
▼
▼
▲
▲
▲
▲
▼
34.0%
30.5%
18.5%
3.9%
3.3%
3.2%
2.4%
2.1%
1.3%
0.8%
U.S. equity
Canadian equity
Canadian bond
Cash
European equity
Foreign bond
Asian equity
Emerging markets equity
Other equity
Equity Industry Sector
Equity Market Cap
83.4%
24,0 %
14.7%
19,9
%
1.9%
14,0 %
11,4 %
11,1 %
10,0 %
5,1 %
3,1 %
1,4 %
— ▲ Large-cap
— ▼ Mid-cap
—
— ▲ Small-cap
—
—
—
—
—
—
—
—
▲
▼
■ 27.6%
34,0
%
12.9%
11.5%
30,5
%
10.6%
18,5
%
10.5%
3,9 %
8.2%
3,3
%
7.2%
3,2 %
4.9%
2,4 %
3.8%
2,1 %
2.5%
1,3
%
0.3%
0,8 %
▲
▼
■
—▲
—▲
—▼
—▼
—▼
—▲
—▲
—▼
—▲
—▲
Canada
U.S.
Cash & Other countries
Japan
U.K.
Emerging markets
France
Switzerland
Germany
Ireland
— ▲
—▲
—
—
—▼
—
—▼
—
—▲
—
—▲
— ▼
—
— ■
—
— ▲
—
— ▲
—▲
—
Financial services
Information technology
Energy
Industrials
Consumer discretionary
Consumer staples
Health care
Materials
Telecommunication services
Utilities
Other
—
Portfolio Select Series
23
Select 40i60e Managed Portfolio
Portfolio Review – Fourth Quarter 2014 as at December 31, 2014
Portfolio Commentary
The portfolio gained 1.6% during the quarter,
underperforming its benchmark (40% FTSE TMX
Canada Universe Bond Index, 24% S&P/TSX Composite
Index, 18% MSCI World Index C$, 18% MSCI World
Index local currency), which rose 2.2%. The equity
section underperformed, due largely to the U.S. and
international holdings. Asset allocation had a positive
effect, with an overweight position in U.S. equities
adding value over the quarter. The income component’s
underweight position in government bonds detracted
from relative performance, while exposure to U.S dollars,
dividend-paying equities and global bonds made positive
contributions.
During the quarter, worries over stalling global economic
growth and a downturn in commodity markets caused
investors to avoid riskier assets. Lower demand for oil from
weaker economies, together with an increase in supply,
drove crude prices sharply lower. Weaker commodity
process pushed down the Canadian stock market and
the dollar. In the United States, continued economic
expansion boosted equity markets and the value of the
U.S. dollar. Overseas equities, particularly in Europe,
declined, as Germany experienced slower economic
growth and declining inflation. In fixed-income markets,
global economic weakness combined with low inflation
helped government bonds continue their rally.
In the portfolio’s income portion, our globally diversified
basket of income-generating equities contributed to
performance, led by real estate securities. The target
allocation is 20% in each of Canadian government bonds,
foreign government bonds, investment-grade corporate
bonds, high-yield corporate bonds, and high-yielding
equities. We added modestly to stocks and high-yield
bonds over the three-month period, while reducing our
exposure to the U.S. dollar. We continued to maintain a
large cash position, which helped to protect the portfolio
during the period’s heightened market volatility.
24
Portfolio Select Series
The portfolio’s interest rate risk is reduced through
exposure to bonds with shorter maturities and cash. We
expect to maintain our underweight position in Canadian
government bonds as long as they continue to be priced
at a premium, and will favour income securities that offer
more attractive returns, including corporate bonds and
certain high-quality, dividend-paying equities.
Having a diversified and flexible framework allows us to
take advantage of changes in valuations in the market and
continue providing steady income returns. We continue
to adjust our bond weightings to manage downside
risk and volatility. Our portfolio is invested diversely in
corporate bonds, global bonds, currencies and highquality, dividend-paying equities.
The portfolio’s equity portion benefited from a positive
contribution from its Canadian component, but this was
offset by underperformance by its U.S. and international
holdings.
The sector allocation of the portfolio’s overall equity
portion is more diversified than that of the Canadian
economy and the S&P/TSX Composite Index, which
has 70% of its value concentrated in three sectors:
energy, materials and financials. We continue to focus on
company fundamentals and valuations to add value and
avoid undue concentration in any one sector.
From a regional perspective, we continued to have
an overweight position in the United States, an
underweight allocation to Canada and a neutral position
in international equities. The U.S. market is supported by
a diverse economy, with large exposure to global markets
and strong representation in all major industrial sectors,
making it an attractive asset class on a risk-adjusted basis.
Select 40i60e Managed Portfolio
Portfolio Review – Fourth Quarter 2014 as at December 31, 2014
Select Canadian Equity Managed Fund is positioned quite
differently from its benchmark, the S&P/TSX Composite
Index. The fund has underweight allocations to the
resources and financials sectors, and overweight positions
in other areas such as information technology, consumer
staples and consumer discretionary – positioning that
we believe enhances risk-adjusted return potential. The
fund outperformed the benchmark, due to the portion
managed by Cambridge Global Asset Management. Its
holdings in financials and an overweight position in the
consumer sectors added value.
Select U.S. Equity Managed Fund underperformed its
benchmark, the S&P 500 Index. The portion managed
by Tetrem Capital Management detracted from relative
performance due to its overweight allocation to and stock
selection in the energy sector. The fund favours areas
of the market that are tied to economic growth, while
maintaining underweight positions in defensive sectors.
Hedging a portion of our U.S.-dollar exposure hampered
performance, but nonetheless this added relative value,
because we hedged less than our benchmark for this
segment of the portfolio.
Hedging a portion of our overseas currency exposure
added value as the yen depreciated against the Canadian
dollar following the announcement of additional stimulus
measures in Japan.
Indications of slower growth in China and the strength
of the U.S. dollar held back emerging markets during
the quarter. Our long-term outlook remains favourable
for these countries, particularly in the Asia-Pacific region,
where economic fundamentals are relatively robust and
equity market valuations appear attractive. We continue
to have a modest allocation to emerging market equities
to balance our objectives of reducing risk while increasing
potential returns for investors.
Alfred Lam, CFA, Vice-President and Portfolio Manager
Yoonjai Shin, CFA, Director
Marchello Holditch, CFA, Senior Analyst
Lewis Harkes, CFA, Senior Analyst
Andrew Ashworth, Analyst
Select International Equity Fund underperformed the
MSCI EAFE Index. The portion managed by Signature
Global Asset Management detracted from performance
due to its holdings in financials and its exposure to
emerging markets. The fund had overweight allocations
to information technology and consumer discretionary,
with underweight positions in materials and utilities.
Geographically, we had overweight positions in emerging
markets, mainly in Asia and Latin America, and
underweight allocations to the U.K., Australia, France
and the peripheral European countries.
Portfolio Select Series
25
Portfolio Select Series
Portfolio Management Teams
Altrinsic Global Advisors, LLC follows a fundamental value approach in which the team seeks out
high-quality undervalued companies worldwide. Founded by John Hock and associates, Altrinsic
is based in Greenwich, Connecticut.
Cambridge Global Asset Management is led by Co-Chief Investment Officers Alan Radlo and
Brandon Snow and Chief Market Strategist Robert Swanson. They invest in companies building
long-term economic value. Cambridge is a division of CI Investments and has offices in Boston
and Toronto.
CI Investment Consulting is the portfolio management team responsible for over $25 billion of
assets in CI’s managed solutions and oversight of all CI funds. Led by Portfolio Manager Alfred
Lam, the team’s mandate is centred on asset allocation, manager oversight and selection, and
risk management.
Epoch Investment Partners, Inc. is a New York-based investment management firm founded by
Wall Street veteran William Priest and associates. Epoch uses a value-based approach that
focuses on companies with superior shareholder yield.
Harbour Advisors, a division of CI Investments, is led by Portfolio Managers Stephen Jenkins and
Roger Mortimer. Harbour’s approach entails buying high-quality businesses at a sensible price,
and following a patient, long-term outlook.
Marret Asset Management Inc. focuses on fixed-income investing and alternative strategies
on behalf of institutional, high net worth and retail clients. The firm is led by Chief Investment
Officer Barry Allan.
QV Investors Inc. is a Calgary-based firm that follows a value-based approach. It is led by Chief
Investment Officer Joe Jugovic.
Signature Global Asset Management is among the largest portfolio management teams in Canada,
managing a full range of global and Canadian income, equity and balanced mandates. Chief
Investment Officer Eric Bushell was named Morningstar Fund Manager of the Decade in 2010.
Picton Mahoney Asset Management is led by David Picton and Michael Mahoney and uses
quantitative analysis as the foundation of its approach.
Tetrem Capital Management, led by Chief Investment Officer Daniel Bubis, is based in Winnipeg
and has an office in Boston. Tetrem uses a disciplined approach to invest in undervalued
Canadian and U.S. companies.
For more information on Portfolio Select Series, please contact your
CI Sales Representative or visit www.ci.com/portfolioselect.
All commentaries are published by CI Investments Inc., the manager of all the funds described herein. They are provided as a general source
of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities. Every effort
has been made to ensure that the material contained in the commentaries is accurate at the time of publication. However, CI Investments
Inc. cannot guarantee their accuracy or completeness and accepts no responsibility for any loss arising from any use of or reliance on the
information contained herein.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the
prospectus before investing. Unless otherwise indicated and except for returns for periods less than one year, the indicated rates of return
are the historical annual compounded total returns including changes in security value. All performance data assume reinvestment of all
distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any
securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance
may not be repeated. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government
deposit insurer and there can be no assurances that the CI Money Market Funds will maintain its® net asset value per security at a
constant amount or that the full amount of your investment in these funds will be returned to you. CI Investments, the CI Investments
design, Synergy Mutual
Funds, Harbour Advisors, Harbour Funds, Cambridge and American Managers are registered trademarks of CI
Investments Inc. ™Portfolio Select Series, Portfolio Series, Signature Funds and Signature Global Asset Management are trademarks of
CI Investments Inc. Cambridge Global Asset Management is a business name of CI Investment Inc. used in connection with its subsidiary,
CI Global Investments
Inc. Certain portfolio managers of Cambridge Global Asset Management are registered with CI Investments Inc.
Morningstar Awards© Morningstar Inc. All Rights Reserved. Published January 2015.
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