Agenda Jas Gill I. Executive Summary Portfolio Manager Blake - - PowerPoint PPT Presentation

BEAM | Q2-2018 / Q3-2018 Performance Review

November 1, 2018

8888 University Drive | Burnaby | British Columbia | Canada | www.beedie.sfu.ca/beam

• I. Executive Summary

Jas Gill

Portfolio Manager

• II. Equity Update

Blake Coombes

Analyst, Utilities

• III. Fixed Income Update

Carl Davies

Analyst, Fixed Income

• IV. Going Forward

Yuliya Kim

Portfolio Manager

Questions V .Appendix

Agenda

• I. Executive Summary

Jas Gill | Portfolio Manager jga77@sfu.ca

• BEAM is unique in that management turns over every two years as students graduate from the

program and enter the work force

• Since inception, BEAM has had 6 cohorts and approximately 70 members graduated from the program

3

• I. Executive Summary

BEAM Overview - Timeline

2014-15

4th Cohort

2015-16

5th Cohort

2013-14

3rd Cohort

Feb 2012

1st Cohort

2011-12

Founding Cohort

Jan 2012

BEAM Inception Received C$3 mm IC

2012-13

2nd Cohort

2017-18

7th Cohort

2016-17

6th Cohort

2018-19

8th Cohort

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• I. Executive Summary

BEAM Overview – Toronto Trip Firms Visited

• Asset Management
• Connor, Clark & Lunn
• Franklin Templeton Investments
• Fidelity Investments
• RBC Global Asset Management
• Sprucegrove Investment Management
• Capital Markets
• BMO Capital Markets
• CIBC World Markets
• Scotiabank Global Banking and Markets
• TD Securities
• Research Analytics
• MSCI

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• I. Executive Summary

Training & Education

• The 2018 - 2019 cohort are in the process of completing two 3-credit courses, specifically tailored to

help them manage the fund and learn the tools and methods necessary to evaluate portfolio and security performance BEAM Overview – Cohort Integration BUS 493 BUS 318 Management of Equity & Fixed Income Investments

Publishable research: Industry/sector analysis Credit analysis Company valuation

BUS 493 Portfolio Management

Portfolio management Risk management Performance measurement Ethics

• I. Executive Summary

BEAM Overview - Recruitment

BEAM Open Meeting Lecture Presentations & Campus Promotion Application Deadlines Interviewing & Hiring New Cohort Training & Integration

Upcoming Completed

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• I. Executive Summary

BEAM Overview - Objectives To preserve inflation-adjusted invested capital

1

To outperform the equity benchmark by 150 basis points and outperform the fixed income benchmark by 40 basis points on a rolling 4-year average

2

Use ESG as a tool to conform to SFU endowment responsibilities and the United Nations’ Principles for Responsible Investment

3

Provide an engaging educational experience that trains the next generation of responsible and ethical finance professionals

4

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• I. Executive Summary

YTD-2018 Portfolio vs. Benchmark Total Return Relative Return Tracking Error Information Ratio

(1.65%) 2.39% (0.69)

Balanced Portfolio Return

(2.00%) (1.75%) (1.50%) (1.25%) (1.00%) (0.75%) (0.50%) (0.25%) 0.00% Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 (6.00%) (5.00%) (4.00%) (3.00%) (2.00%) (1.00%) 0.00% 1.00% 2.00% 3.00% Portfolio Benchmark

(0.86%) 0.79%

Source: Bloomberg Note: As of September 28, 2018.

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Asset Allocation

• I. Executive Summary

60% 39% 1% 60% 38% 2% Equity Fixed Income Cash Current Benchmark

Source: Bloomberg Note: As of September 28, 2018.

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ESG Methods

• I. Executive Summary

Exclusionary Screening Best-in-Class Selection Active Ownership Thematic Investing Impact Investing ESG Integration

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ESG Methods

• I. Executive Summary

Exclusionary Screening Best-in-Class Selection Active Ownership Thematic Investing Impact Investing ESG Integration

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ESG Methods

• I. Executive Summary

Best-in-Class Selection Active Ownership Thematic Investing Impact Investing Exclusionary Screening ESG Integration Selection of companies that are consistent with the United Nations’ Principles for Responsible Investment

• Companies producing

cluster munitions or nuclear weapons are excluded

• Companies earning greater

than 5% of revenues from the manufacture, distribution, or sale of tobacco are excluded

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ESG Methods

• I. Executive Summary

Best-in-Class Selection Active Ownership Thematic Investing Impact Investing Exclusionary Screening ESG Integration Systematic and explicit inclusion of ESG risks and

• pportunities in investment

analysis (revising forecasts and discount rates) Stage 1: Qualitative analysis Stage 2: Quantitative analysis Stage 3: Investment decision (buy/sell/hold) Stage 4: Active ownership assessment (underweight/

• verweight)

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ESG Integration Templates

• I. Executive Summary

Other ESG Factors

Factors Sectors

• Violations of human rights
• Lack of Indigenous consultation
• All Sectors
• Commodity-Based Sectors
• Spill response time
• Transition from coal to low-carbon

emissions

• Energy and Railways
• Utilities

Environmental Social Governance

Carbon Intensity and Water Usage Total Reportable Incident Frequency Women on Board Total Energy Consumption Loss-Time Injury Frequency Independent Directors Waste Produced Community Engagement Executive Compensation

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Compliance

• I. Executive Summary

IPS Guidelines and Constraints Current Compliance

General

• Asset Mix within IPS Range



• Limits on equity security holdings



• Micro Cap, prohibited



Equity

• 7 Sectors, with 50% allocation relative to benchmark



• At least 25 stocks



• 15 largest stocks, at most 70% of equity value



Fixed Income

• No more than 5% per issuer, excluding federal and

provincials

• Allocation limits based on bond ratings
• Duration within ± 1 year of the DEX

  

• II. Equity Update

Blake Coombes | Analyst, Utilities bcoombes@sfu.ca

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Equity Portfolio Return

• II. Equity Update

YTD-2018 Portfolio vs. Benchmark Total Return Relative Return Tracking Error Information Ratio

(2.56%) 2.47% (1.04)

1.38% (1.18%)

(3.50%) (3.00%) (2.50%) (2.00%) (1.50%) (1.00%) (0.50%) 0.00% Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 (10.00%) (8.00%) (6.00%) (4.00%) (2.00%) 0.00% 2.00% 4.00% 6.00% Portfolio Benchmark Source: Bloomberg Note: As of September 28, 2018.

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Equity Performance

• II. Equity Update

Total Return Annualized

Dec 31, 2014 – Sep 28, 2018

17.09% 4.30% (1.18%) 22.78% 5.62% 1.38%

Year to Date BEAM Equity Benchmark

Source: Bloomberg Note: As of September 28, 2018.

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Year-to-date Selection

• II. Equity Update

Source: Bloomberg Note: As of September 28, 2018. Note: Telecommunication Services has been changed to Communication Services.

0.20% (0.72%) 0.01% (0.77%) 0.14% (0.48%) (0.14%) (0.05%) (0.08%) (0.26%) (0.47%) (1.00%) (0.80%) (0.60%) (0.40%) (0.20%) 0.00% 0.20% 0.40% Financials Energy Materials Industrials Communication Services Consumer Staples Information Technology Consumer Discretionary Utilities Real Estate Health Care

0.59% 0.29% 0.26% 0.20% 0.15% (0.18%) (0.23%) (0.28%) (0.30%) (0.34%) (1.00%) (0.50%) 0.00% 0.50% 1.00% (0.76%) (0.42%) (0.34%) (0.34%) (0.27%) 0.09% 0.10% 0.14% 0.17% 0.18% (1.00%) (0.50%) 0.00% 0.50% 1.00%

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Underperformed Outperformed Overweight Underweight

Source: Bloomberg Note: Excludes TRP and ATD.B as we were both overweight and underweight at different points in the year. Note: As of September 28, 2018.

• II. Equity Update

Year-to-date CTR

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Financials Sector Update

• II. Equity Update

Market Commentary Current Holdings Go-Forward Strategy

Source: Bloomberg Note: Holdings as of September 28, 2018.

• New mortgage qualification rules came into effect,

slowing mortgage growth

• Higher interest rates helped with net interest

margin expansion

• Capital adequacy ratios remain strong
• Litigation threats on legacy insurance contracts

caused a devaluation of Manulife

• We will continue to monitor the pace at which the Bank of Canada raises interest rates and how this affects mortgage
• rigination and net interest margin expansion
• While mortgage growth has slowed for Canadian banks, we believe stronger margins and expense discipline will

continue to support quality EPS growth

• We will continue to monitor the trend towards passive investing and believe many asset managers will see pressure on

AUM over the coming years

TD 21% RY 14% MFC 13% CM 12% BAM 11% NA 8% IFC 7% XFN 7% TCN 6%

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Energy Sector Update

• II. Equity Update

Market Commentary Current Holdings Go-Forward Strategy

Source: Bloomberg Note: Holdings as of September 28, 2018.

• Setbacks with respect to Canadian pipeline

approval has affected WCSB producers, as takeaway issues have caused WTI / WCS spreads to blow out

• Increasing demand for global LNG, particularly

from Asian markets, has driven prices higher

• Rising interest rate environment continues to be a

headwind for high-yielding dividend stocks

• We continue to favour low-cost E&P names with strong growth prospects and limited leverage
• In our view, Suncor is well positioned to withstand a lower-for-longer Canadian oil price environment due to its

integrated business model

• We favour well-positioned, integrated utilities with sustainable cash flows that will support continued dividend growth

SU 27% CNQ 20% TRP 20% WCP 13% CU 8% CCO 6% AAV 6%

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Industrials Sector Update

• II. Equity Update

Market Commentary Current Holdings Go-Forward Strategy

Source: Bloomberg Note: Holdings as of September 28, 2018.

• Strong demand conditions for railways has led to

a rebound in pricing and performance during Q2/Q3

• Protection of North American free trade through

USMCA bodes well for industrials, though steel and aluminum tariffs persist

• Canadian Industrials index has considerably
• utperformed the TSX
• We remain bullish on CNR going forward as a buoyant demand environment should lead to strong operating

performance coupled with a favourable implied valuation

• Despite headwinds from the current steel and aluminum tariffs, we believe Finning shares remain undervalued
• We are in the process of exploring names that may benefit from the Liberal government’s expansive infrastructure

spending plan

CNR 59% STN 21% FTT 20%

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Materials Sector Update

• II. Equity Update

Market Commentary Current Holdings Go-Forward Strategy

Source: Bloomberg Note: Holdings as of September 28, 2018.

• Metals have come under pressure recently as an

escalation in the U.S. – China trade tensions made investors concerned about global growth prospects

• Additional concerns are a flattening yield curve,

strong U.S. dollar, and weak emerging markets

• In our view, a lot of the negative headwinds for metals have been priced in
• Sharp share price declines and current company valuations lead us to believe that investors have priced in a slower

growth scenario

• Continue to view copper favourably as the fundamental outlook remains attractive despite negative sentiment

FM 24% FNV 21% NTR 20% ITP 19% WPM 16%

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Diversified Sector Update

• II. Equity Update

Market Commentary Current Holdings Go-Forward Strategy

Source: Bloomberg Note: Holdings as of September 28, 2018.

• Headwinds for retailers include the drug pricing

reform, minimum wage increases and uncertainty around tariffs

• Strong competition, rising interest rates, falling

ARPU and regulation continue to be headwinds for telecoms

• We favour 5G advances and diversification away from traditional telecom services
• We prefer diversified IT names that are not overly dependent on individual segments of IT
• We will continue to monitor the growth of cybersecurity demand as institutions grow increasingly concerned about

cybersecurity

GIB.A 22% T 21% SAP 16% GIL 12% CGX 11% L 10% SIA 8%

• III. Fixed Income Update

Carl Davies | Analyst, Fixed Income carld@sfu.ca

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Fixed Income Portfolio Return

• III. Fixed Income Update

YTD-2018 Portfolio vs. Benchmark Total Return Relative Return Tracking Error Information Ratio

(0.16%) 0.21% (0.76)

(0.36%) (0.52%)

(0.35%) (0.30%) (0.25%) (0.20%) (0.15%) (0.10%) (0.05%) 0.00% 0.05% Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 (2.50%) (2.00%) (1.50%) (1.00%) (0.50%) 0.00% 0.50% 1.00% 1.50% Portfolio Benchmark Source: Bloomberg Note: As of September 28, 2018.

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• III. Fixed Income Update

Total Return Annualized

Dec 31, 2014 – Sep 28, 2018

6.68% 1.74% (0.52%) 7.65% 1.99% (0.36%)

Year to Date BEAM FI Benchmark

Fixed Income Performance

Source: Bloomberg Note: As of September 28, 2018.

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Year-to-date Attribution

• III. Fixed Income Update

(0.40%) (0.20%) 0.00% 0.20% 0.40% 6 Months 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y

Active Curve Return

Total Curve Change Curve Carry Total Allocation Selection Excess

Active Return Attribution

Curve Change Curve Carry Total (0.10%) (0.08%) (0.06%) (0.04%) (0.02%) 0.00% Curve Return

Source: Bloomberg Note: As of September 28, 2018.

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YTD-2018 Active Duration Active Yield Option Adjusted Spread

(0.07)

(1)

0.05%

(1)

4.97

Source: Bloomberg Note: As of September 28, 2018. (1) Active duration and active yield include ETF exposure in both the benchmark and the portfolio.

Current Asset and Rating Mix

• III. Fixed Income Update

Federal 17% Municipal 4% Provincial 42% Corporate 31% ETF 6% BBB, 9% A, 31% AA, 40% AAA, 21%

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Contribution to Duration Comparison Portfolio Composition

• III. Fixed Income Update

(1.2) (0.6) 0.0 0.6 1.2 Short Term Medium Term Long Term Federal Provincial Municipal Corporate

Source: Bloomberg, BlackRock Note: As of September 28, 2018. Note: Contribution to duration and active weights do not include ETF exposure in both the benchmark and the portfolio.

Sector Short Term Medium Term Long Term Short Term Medium Term Long Term (1-5 years) (6 - 10 years) (10 + years) Total (1-5 years) (6 - 10 years) (10 + years) Total Federal (6.64%) 2.35% (2.55%) (6.84%) (0.10) 0.04 (0.30) (0.37) Provincial 3.46% (0.83%) 6.79% 9.42% 0.02 (0.05) 1.14 1.11 Municipal (0.28%) 3.72% (0.74%) 2.70% (0.01) 0.24 (0.11) 0.12 Corporate (4.98%) 8.97% (9.28%) (5.29%) (0.17) 0.40 (0.95) (0.71) Total (8.44%) 14.21% (5.78%) 0.00% (0.26) 0.63 (0.22) 0.16

Active Weighting

Market Value Contribution to Duration

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Strategy

• III. Fixed Income Update

Outlook Yield Curve Projection (6 months)

• Following the October BOC meeting, BEAM predicts two more rate hikes before 2020, while

the market expects three before 2020

• The Bank of Canada will continue following a symmetrical inflation target, allowing forward

inflation expectations - and thus longer-dated yields - to push upwards

• Trade disputes are overblown and concerns reflected in the long end of the curve are

misplaced; yield curve steepening will begin after midterm elections

• High levels of household indebtedness and effects from previous rate hikes will contribute to

the Bank of Canada’s conservative path going forward

• Considering it takes seven quarters for rate hikes to be felt by consumers, two hikes before

2020 seems to be the most likely path

Source: Bloomberg

1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 1Y 2Y 5Y 10Y 20Y 30Y October 1, 2018 April 1, 2019

3M 1.55% 2.05% 6M 1.77% 2.26% 1Y 2.04% 2.55% 2Y 2.27% 2.79% 3Y 2.33% 2.89% 5Y 2.40% 3.02% 7Y 2.45% 3.07% 10Y 2.49% 3.11% 20Y 2.50% 3.14% 30Y 2.48% 3.14% Date Current Projected

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Current Initiatives

• III. Fixed Income Update

Provincial Strategy Long-Term Curve Strategy Corporate Strategy

• Continue targeting high-quality corporate bonds
• utside of financial sectors
• Explore greater AAA exposure through corporate

bonds to decrease risk and provide greater liquidity

• Maintain slightly underweight position on duration

to take advantage of potential steepening and allow for maneuverability of future duration shifting

• Build a comprehensive thesis for each individual

province, allowing for quick entry / exit if necessary

• Continue to explore Atlantic provinces to bump up

yield

• Build working theses for corporate credits we could

move into when value is present

• Continue to utilize the equity team for possible

corporate credit options

• Keep duration low to minimize rate exposure and

minimize trade costs

Short-Term Curve Strategy

• Wait for 10-30 year spread to widen with the

potential to shift out the duration

• Utilize maneuverability of liquid names to shift out

duration while maintaining low trading costs

• IV. Going Forward

Yuliya Kim | Portfolio Manager yuliya_kim@sfu.ca

Watch List

• IV. Going Forward

Buy Radar

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Year-to-date Recap

Year-to-date Active Return: (1.65%)

Fixed Income Cash Other Activities

CY2018 Performance Review: February 2018

Equities Beginning Portfolio Value Ending Portfolio Value

$6.69MM $6.61MM

• Maintain current levels
• Attend networking events for Fall Recruit
• Continue efforts with Fall Recruitment job search
• Recruitment of next cohort
• Build a more concise strategy on provincials
• Build an excess of corporate theses on prospective

corporate names

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Source: Bloomberg

Strategy Moving Forward

• IV. Going Forward
• Take advantage of recent dip to find opportunities
• Continued focus on acquiring strong names at a

discount to intrinsic value

Questions

• V. Appendix

39

Equity Holdings

• V. Appendix

Source: CIBC Mellon

40

Equity Holdings (continued)

• V. Appendix

Source: CIBC Mellon

41

Fixed Income Holdings

• V. Appendix

Source: CIBC Mellon

42

Fixed Income Holdings (continued)

• V. Appendix

Source: CIBC Mellon

43

Equity Transactions

• V. Appendix

Source: CIBC Mellon

Date Action Type Name Shares Fill-in Price Transaction Amount 4/30/2018 BUY SAPUTO INC 1,450 41.80 60,760.00 4/30/2018 BUY SAPUTO INC 1,300 41.86 54,418.00 4/30/2018 SELL ALIMENTATION COUCHE-TARD INC 1,150 55.84 64,063.00 4/30/2018 SELL GILDAN ACTIVEWEAR INC 615 37.63 22,992.45 4/30/2018 SELL ISHARES CORE S&P/TSX CAPPED 3,200 24.87 79,443.98 6/5/2018 SELL BCE INC 371 54.81 20,184.51 6/15/2018 BUY TRANSCANADA CORP 3,207 55.01 176,571.07 6/15/2018 SELL ENBRIDGE INC 4,100 42.39 173,620.96 6/18/2018 BUY INTERTAPE POLYMER GROUP INC 1,364 18.26 25,057.91 6/18/2018 BUY TELUS CORP 1,799 46.39 83,597.10 6/18/2018 SELL ADVANTAGE OIL & GAS LTD 4,950 4.07 19,997.00 6/18/2018 SELL BCE INC 1,629 54.06 87,910.73 6/18/2018 SELL CANADIAN IMPERIAL BK OF COMM 347 115.33 39,869.51 6/18/2018 SELL FRANCO-NEVADA CORP 269 92.24 24,661.56 7/4/2018 SELL CANADIAN NATURAL RESOURCES LTD 654 46.69 30,385.26 7/4/2018 SELL SUNCOR ENERGY INC 392 54.03 21,031.26

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Equity Transactions (continued)

• V. Appendix

Source: CIBC Mellon

Date Action Type Name Shares Fill-in Price Transaction Amount 7/16/2018 BUY FIRST QUANTUM MINERALS LTD 2,120 18.86 40,143.20 7/16/2018 BUY ISHARES S&P/TSX CAPPED 1,054 38.07 40,275.78 7/16/2018 BUY SAPUTO INC 333 45.35 15,250.05 7/16/2018 SELL ROYAL BANK OF CANADA 394 102.03 40,049.82 8/15/2018 BUY TRICON CAPITAL GROUP INC 8,493 11.70 99,533.17 8/15/2018 SELL ROYAL BANK OF CANADA 294 101.39 29,657.66 8/15/2018 SELL SMARTCENTRES REIT 2,300 30.84 70,775.00 8/31/2018 BUY SIENNA SENIOR LIVING INC 1,252 17.55 22,120.08 9/28/2018 BUY ADVANTAGE OIL & GAS LTD 4,075 3.61 14,840.75 9/28/2018 BUY FRANCO-NEVADA CORP 191 81.07 15,634.37 9/28/2018 BUY INTACT FINANCIAL CORP 230 107.03 24,766.90 9/28/2018 BUY WHITECAP RESOURCES INC 1,950 7.90 15,555.00 9/28/2018 SELL ISHARES S&P/TSX CAPPED 2,600 12.08 31,261.00

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Fixed Income Transactions

• V. Appendix

Source: CIBC Mellon

Date Action Type Name Maturity Shares/Par Fill-in Price Transaction Amount 4/9/2018 BUY PROV OF ALBERTA 1-Jun-24 110,000 102.87 114,375.58 4/9/2018 BUY PROV OF BRITISH COLUMBIA 18-Dec-20 74,000 104.42 78,126.40 4/9/2018 BUY GOVERNMENT OF CANADA 1-Jun-24 121,000 102.60 125,230.59 4/9/2018 BUY PROV OF PRINCE EDWARD ISLAN 2-Sep-20 89,000 103.70 92,649.88 4/9/2018 SELL PROV OF ALBERTA 1-Dec-19 110,000 103.06 114,940.89 4/9/2018 SELL PROV OF BRITISH COLUMBIA 18-Jun-35 69,000 131.82 92,121.68 4/9/2018 SELL GOVERNMENT OF CANADA 1-Sep-20 129,000 97.19 125,486.49 4/9/2018 SELL PROV OF ONTARIO 2-Jun-35 58,000 132.79 78,173.40 4/30/2018 BUY BMO MID CORPORATE BD INDEX n/a 4,000 15.87 63,629.00 6/5/2018 BUY TERANET HOLDINGS LP 16-Dec-20 50,000 104.53 53,403.99 6/14/2018 BUY GOVERNMENT OF CANADA 1-Dec-48 64,000 110.24 70,632.63 6/14/2018 SELL GOVERNMENT OF CANADA 1-Jun-25 69,000 99.91 69,011.31 7/31/2018 BUY BMO MID CORPORATE BD INDEX n/a 2,000 15.77 31,690.00 8/13/2018 BUY LAURENTIAN BANK OF CANADA 12-Sep-22 50,000 98.83 50,055.40 8/28/2018 BUY PROV OF ALBERTA 1-Dec-48 65,000 99.69 65,287.73

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Fixed Income Transactions (continued)

• V. Appendix

Source: CIBC Mellon

Date Action Type Name Maturity Shares/Par Fill-in Price Transaction Amount 8/28/2018 BUY 407 INTERNATIONAL INC 26-May-21 100,000 104.29 105,418.26 8/28/2018 SELL GOVERNMENT OF CANADA 1-Jun-25 169,000 99.55 169,170.51 9/5/2018 BUY YORK ONTARIO REGL MUNICIPA 15-Dec-25 107,000 98.38 105,902.67 9/5/2018 SELL YORK ONTARIO REGL MUNICIPA 29-Apr-19 95,000 101.68 98,300.98 9/28/2018 BUY GOVERNMENT OF CANADA 1-Jun-25 60,000 99.46 60,131.59 9/28/2018 SELL GOVERNMENT OF CANADA 1-Mar-19 100,000 99.79 99,936.53