beam q2-2018 / q3-2018 performance review...7 i. executive summary beam overview - objectives 1 to...
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BEAM | Q2-2018 / Q3-2018 Performance ReviewNovember 1, 2018
8888 University Drive | Burnaby | British Columbia | Canada | www.beedie.sfu.ca/beam
I. Executive Summary Jas GillPortfolio Manager
II. Equity Update Blake CoombesAnalyst, Utilities
III. Fixed Income Update Carl DaviesAnalyst, Fixed Income
IV. Going Forward Yuliya KimPortfolio Manager
Questions
V.Appendix
Agenda
I. Executive SummaryJas Gill | Portfolio Manager
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
4
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
5
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
7
I. Executive Summary
BEAM Overview - Objectives
To preserve inflation-adjusted invested capital1
To outperform the equity benchmark by 150 basis points and outperform the fixed
income benchmark by 40 basis points on a rolling 4-year average2
Use ESG as a tool to conform to SFU endowment responsibilities and the United
Nations’ Principles for Responsible Investment3
Provide an engaging educational experience that trains the next generation of
responsible and ethical finance professionals4
8
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.
9
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.
10
ESG Methods
I. Executive Summary
Exclusionary Screening
Best-in-Class Selection
Active Ownership Thematic Investing
Impact Investing ESG Integration
11
ESG Methods
I. Executive Summary
Exclusionary Screening
Best-in-Class Selection
Active Ownership Thematic Investing
Impact Investing ESG Integration
12
ESG Methods
I. Executive Summary
Best-in-Class Selection
Active Ownership Thematic Investing
Impact Investing
Exclusionary Screening
ESG Integration
Selection of companiesthat 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
13
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
opportunities 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/
overweight)
14
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
15
Compliance
I. Executive Summary
IPS Guidelines and ConstraintsCurrent
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 UpdateBlake Coombes | Analyst, Utilities
17
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.
18
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.
19
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%
20
Un
de
rperf
orm
ed
Ou
tpe
rfo
rme
d
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
21
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
origination 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%
RY14%
MFC13%
CM12%
BAM11%
NA8%
IFC7%
XFN7%
TCN6%
22
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
SU27%
CNQ20%TRP
20%
WCP13%
CU8%
CCO6%
AAV6%
23
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
outperformed 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
CNR59%STN
21%
FTT20%
24
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
FM24%
FNV21%
NTR20%
ITP19%
WPM16%
25
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.A22%
T21%
SAP16%
GIL12%
CGX11%
L10%
SIA8%
III. Fixed Income UpdateCarl Davies | Analyst, Fixed Income
27
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.
28
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.
29
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%
Curv
e R
etu
rn
Source: Bloomberg
Note: As of September 28, 2018.
30
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
Federal17%
Municipal4%
Provincial42%
Corporate31%
ETF6%
BBB, 9%
A, 31%
AA, 40%
AAA, 21%
31
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 CorporateSource: 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 WeightingMarket Value Contribution to Duration
32
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
33
Current Initiatives
III. Fixed Income Update
Provincial Strategy
Long-Term Curve StrategyCorporate Strategy
Continue targeting high-quality corporate bonds
outside 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 ForwardYuliya Kim | Portfolio Manager
Watch List
IV. Going Forward
Buy Radar
35
Year-to-date Recap
Year-to-date Active Return:
(1.65%)
Fixed
Income
Cash
Other
Activities
CY2018 Performance Review: February 2018
Equities
Be
gin
nin
g P
ort
foli
oV
alu
e
En
din
g P
ortfo
lioV
alu
e
$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
36
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
44
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
45
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 ISLAND 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 ETF 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 ETF 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
46
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 MUNICIPALITY15-Dec-25 107,000 98.38 105,902.67
9/5/2018 SELL YORK ONTARIO REGL MUNICIPALITY29-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