advisory board meeting – winter 2014 · 2014. 8. 19. · advisory board meeting – winter 2014 ....

Advisory Board Meeting – Winter 2014

April 1, 2014

Figures in millions USD (NYSE/NASDAQ-listed) or CAD (TSX-listed) except for share price or as noted

• Winter 2014 Team

• Overview

• Macroeconomic Conditions

• Fund Performance

• Recommendations

• New Initiatives

Agenda

2

Click to edit Master title style

WINTER 2014 TEAM

Winter 2014

4

Spring 2012

Inception

Fall 2012

Winter 2013

Spring 2013 New Team Structure

Fall 2013 Course Credit Enter into U.S.

Winter 2014

L-R (Back): Andrew George-Parkin, Joanne Toporowski, Jasmine Zhang, Jiatong Ma, Hammad Bin Saeed, Camille Tan, Courtland Livesley-James

L-R (Front): Jing Xu, Dustin Fader

Note: Hammad Bin Saeed is no longer with the team


OVERVIEW

The Fund

6

Purpose

Objective

“To provide students with an investment management experience in an institutional setting. Specifically, it will provide students hands-on-

training in equity valuation and portfolio management with guidance from industry experts and with supervision by finance faculty.”

“To generate long-term growth of the Fund’s assets. The Fund will invest in a broadly diversified portfolio of mid-to-large capitalization stocks of

Canadian and US issuers that may provide capital gains and /or income.”

Benchmark 85% S&P/TSX Total Return Index and 15% S&P 500 Total Return Index

Investment Philosophy

7

Value-Oriented

Invest in stocks that trade for less than their intrinsic value Identify financially-sound companies with good potential profitability which are selling at a discount to their intrinsic value

Investment Policy

8

Restrictions Constraints

Asset Class Canadian & U.S. Equities1

Market Capitalization Above $300 mm

Debt Rating Greater than B2

Cash & Equiv Weight 0-15%

Total Securities 10-25

Sector Weight Maximum 25%

Stock Weight Maximum 10%

U.S. Weight Maximum 30%3

Ownership of Shares

Less than 5% of average daily

trading volume over 10-day period

1 Trading on Toronto Stock Exchange, NYSE, or NASDAQ 2 S&P rating of B or greater 3 Going forward, recommend an increase to 50% weight in U.S. stocks

• Breakdown of industries and further divide into sectors or sub-sectors

• Remove any stocks within the universe that does not meet the Fund’s restrictions

• Select and apply relevant industry metrics for each stock

• Rank all stocks and select the top four

• Select one stock within the top four and conduct detailed research

Investment Process

9

Selling Discipline Under Consideration

10

Fundamental

Price Movement

Material change in the business or in the industry

Exceed 25% capital gain from the time of purchase or

Exceed 15% capital loss from the time of purchase or

Exceed 25% decline in price from the highest price attained since initial purchase

Valuation Reached 12-month target price

We will review our holdings if:


MACRO

Diverging Growth

• Advanced economies

• Emerging market economies

Fiscal Consolidation

• Quantitative Easing

• Zero Policy Rates

Structural Reform

• Cyclical Recovery

• Sustained Reform

Key Macroeconomic Themes

12

Overweight

• Technology • Cons. Disc. • Healthcare

Market Weight

• Energy • Industrials • Cons.

Staples

Underweight

• Materials • Utilities • Financials

Sector Allocation Strategy

13


FUND PERFORMANCE

Portfolio Returns Since Inception Net Asset Value

Term Returns

10.00 10.06 10.09 10.48 10.45 10.49 10.44

10.71

11.38 11.70

12.10

10.00

10.62 10.59 11.04 11.16 11.12 11.05

11.37

11.96 12.31

12.90

9.9010.4010.9011.4011.9012.4012.90

Fund NAV 85% S&P TSX and 15% S&P500 TRI from Jan 2014 - C$ return

Fund NAV NAV Return TRI Bench-mark Relative Return Avg. Cash % of Portfolio Spring ’12 9.98 -0.16% 2.65% -2.81% 75.10%

Fall ’12 10.17 1.86% 5.21% -3.35% 44.99% Winter ’12 10.33 1.62% 1.20% 0.42% 25.74% Spring ’13 10.54 2.01% 2.63% -0.62% 15.22%

Fall ’13 11.53 9.33% 8.77% 0.56% 14.40% Winter ’14 12.10 4.98% 5.72% -0.74% 31.41%

Since Inception 12.10 21.00%* 28.98% -7.98% 27.47%

• Includes 2.8% dividend yield All figures are C$ basis 15

Portfolio Characteristics Historical

Average Portfolio Return 0.96%

Portfolio Standard Deviation 1.86%

Average Benchmark Return 1.30%

Benchmark Standard Deviation 2.01%

Portfolio Beta 0.62

Portfolio Alpha 0.16%

Sharpe Ratio 0.38

Looking Forward

Weighted Average Beta 0.94

16 All figures are C$ basis

All returns are listed on a monthly basis

Security and Sector Returns (Jan 2 – Mar 28, 2014) Security Returns Sector Returns

-20% -10% 0% 10% 20% 30% 40%

AGCOAGUALK

AX.UNBDIBNSCCACCOCPX

D.UNFTS

GNAPIR

PRASU

VRX

Capital Return Dividend Return

All figures are C$ basis 17

-10% -5% 0% 5% 10% 15% 20%

Consumer Discretionary

Consumer Staples

Energy

Financials

Healthcare

Industrials

Materials

Tech & Telecom

Utilities

All Sectors

S&P/TSX Composite Return

Security Returns: Jan 2 – March 28, 2014

Capital Return From Jan. 2

Dividend Return Since Jan. 2 Total Return Since Jan. 2

AGCO -3.58% 0.20% -3.38% AGU 9.06% 0.82% 9.88% ALK 29.08% 0.36% 29.44% AX.UN 5.96% 1.83% 7.79% BDI 17.11% 0.77% 17.87% BNS -3.65% 0.94% -2.71% CCA 17.71% 0.63% 18.33% CCO 17.13% 0.46% 17.60% CPX 22.85% 1.52% 24.37%

D.UN 0.24% 1.95% 2.19%

FTS 3.31% 1.05% 4.36% G 15.17% 0.46% 15.63% NA -0.31% 1.04% 0.74% PIR -14.77% 0.27% -14.50% PRA -3.89% 0.00% -3.89% SU 3.81% 0.00% 3.81% VRX 12.88% 0.00% 12.88%


Sector Attribution


Sector Consumer

Discretionary Consumer

Staples Energy Financials HealthCare Industrials Materials Tech &

Telecom Utilities All

Sectors

Weighting 8.84% 0.00% 8.73% 25.99% 5.96% 15.85% 14.10% 4.54% 15.98%

Dec.31 Value 9,805.60 0.00 9,682.40 28,812.62 6,604.86 17,571.04 15,633.62 5,037.90 17,718.15 110,866.19

Mar. 28 Value 9,232.65 0.00 9,929.40 28,397.31 7,770.80 20,204.99 18,042.44 5,905.20 19,763.51 119,246.29 Portfolio Return (%) -5.84% 0.00% 2.55% -1.44% 17.65% 14.99% 15.41% 17.22% 11.54% 7.56% Benchmark Weigthing 7.37% 5.09% 22.85% 31.76% 4.19% 7.85% 9.80% 8.68% 2.42% Benchmark Return (%) 0.28% 6.48% 7.63% 1.45% 9.92% 0.38% 10.56% 3.64% 10.95% 4.61%

Difference -6.13% -6.48% -5.08% -2.89% 7.73% 14.61% 4.85% 13.57% 0.59% 2.95% Pure Sector Allocation -0.06% -0.09% -0.42% 0.19% 0.09% -0.34% 0.25% 0.04% 0.85% 0.51% Allocation Selection -0.09% 0.33% 0.72% 0.17% 0.14% 1.17% 0.21% -0.56% 0.08% 2.16% Within Sector Selection -0.45% -0.33% -1.16% -0.92% 0.32% 1.15% 0.48% 1.18% 0.01% 0.28% Value Added Return -0.61% -0.09% -0.86% -0.57% 0.55% 1.97% 0.94% 0.66% 0.95% 2.95%


PORTFOLIO BREAKDOWN

GIL 8%

SU 11%

AX.UN 6%

BNS 8%

D.UN 6%

NA 5% PRA

5% ALK 7%

BDI 9%

AGU 6%

CCO 6%

G 7%

CCA 6%

CPX 5%

FTS 5%

Portfolio Breakdown 28 March 2014 Ticker Name Shares Value GIL Gildan Activewear 130 $7,087.60 SU Suncor 260 9,929.40 AX.UN Artis REIT 350 5,477.50 BNS Scotiabank 124 7,886.40 D.UN Dundee REIT 180 5,185.80 NA National Bank 108 4,754.16 PRA Proassurance 105 5,093.44 ALK Alaska Air Group 64 6,423.36 BDI Black Diamond 239 8,228.77 AGU Agrium 50 5,320.50 CCO Cameco 238 6,052.34 G Goldcorp 240 6,669.60 CCA Cogeco Cable 105 5,905.20 CPX Capital Power 200 5,086.00 FTS Fortis 150 4,726.50

Market Value $93,826.57 Cash 76,877.63 Portfolio Value $170,704.20

Note: According to the Fund SIPP, portfolio weighting in any one security should be no greater than 10%.


Portfolio Breakdown 28 March 2014

CDN 88%

US 12%

Consumer Discretionary

8% Energy

11%

Financials 30%

Industrials 16%

Materials 19%

Tech & Telecom

6%

Utilities 10%

0%

10%

20%

30%

40%

50%

ConsumerDiscretionary

ConsumerStaples

Energy Financials HealthCare Industrials Materials Tech &Telecom

Utilities

Portfolio S&P/TSX S&P 500

Small Cap 15%

Mid Cap 42%

Large Cap 43%



BUY RECOMMENDATIONS

CanElson Drilling Inc. (TSX:CDI)

24

Company Overview Provides Land-based contract drilling services primarily in Canada and the U.S.

Revenue by Geography Financials

Canada51%

USA49%

52 Week Price Range: Beta (5Y): Dividend Yield: Return on Equity:Net Debt/EBITDA:

$4.31-$7.230.33.6% 12%0.3x

Valuation

Share Performance

0

2

4

6

8

-50%

50%

150%

250%

350%

Aug-09 Aug-10 Aug-11 Aug-12 Aug-13

Volu

me

(mm

)

Ret

urn

Drivers & Risks Drivers

Risks

Operating efficiency results in strong competitiveness High potential growth from CanGas solutions Strategic presence in the most active oil & gas basins Management with over 20 years of industry experience

Industry-wide volatile E&P activity level Concentrated customer base (4 customers, ~50%

revenue) Weak pricing power as a small player in the industry Challenging labour market with aging workforce

Market Cap $674 Beta 0.9 Debt/Equity 10.0% S&P Rating NR

DCF with Exit Multiples: Discount Rate 10.5% Exit Date Dec 31, 2018 Price per Share in 12 Months $7.94

Comparable analysis: Industry Median

Canelson Multiple

Implied Price

TEV/EBITDA LTM 6.9x 8.5x $5.48 TEV/EBIT LTM 13.9x 11.3x $8.53 P/Diluted EPS Before Extra 19.0x 14.3x $8.53 P/Tangible BV 1.4x 2.0x $8.17

12-Month Price Target $7.50 Potential Upside 12.3%

CDI Volume CDI Return Sector Return

All figures are C$ basis

Gildan Activewear Inc (TSE:GIL)

25

Valuation

Company Overview Share Performance

Drivers & Risks

Manufactures and markets branded basic activewear Revenue by Segment

Drivers

Risks

Dominance in Printwear segment: established relationships with suppliers and customers, reliable product quality and variety, reputation as low-cost provider Growth potential in Branded Apparel segment, backed

by strong balance sheet

Volatility in cotton prices Reliance on a small number of significant customers Branded Apparel segment “unknown territory”

67.24% Printwear

32.76% Branded Apparel

DCF LTM EV/EBITDA

NTM EV/EBITDA

WACC 11.1% Exit Multiple 12.0x Current Multiples 13.6x 11.3x Historical 15.4x Comparable Companies 12.1x Implied Share Price $58.09 $62.42 $64.18 Weighting 50% 25% 25% Target Price $60.70 Current Price $54.56 Total Upside 12.15%

Revenue by Location

89.64% U.S

3.02% Canada

7.35% Other

Market Cap $6,614 Beta 0.9 Debt/Equity 3.7% S&P Rating NR



SELL RECOMMENDATIONS

Stock Performance

AGCO Corp. (NYSE:AGCO)

27

Events Sell Rationale

All figures are US$ basis

A

B C

A

B Feb 4, 2014 – AGCO announced Q4 2013 results and revised 2014 guidance

Dec 10, 2013 – Purchased 86 shares at $60.33 per share; initiating 12-month target price of $68.70

Mar 26, 2014 – Sold all AGCO shares at $54.12 and realized capital loss of 10.3% C

Unanticipated sales slowdown in North America and South America lowered forecasted cash flows significant

Dramatic increase in political risk concerning Ukraine-Russian conflict in Crimea

Revised target price of $55.20 implies potential upside lower than the cost of equity

Market Cap $5,035Beta 1.52Debt/Equity 30.9%S&P Rating BBB-

Cost Value $5,188Sold Value $4,654Capital Gains (10.3%)Dividend 0.8%

Stock Performance

Pier 1 Imports Inc. (NYSE:PIR)

28


All figures are US$ basis

A B C

A

B Feb 28, 2014 – PIR announced FY 2013 results and revised 2014 sales and earnings guidance

Dec 10, 2013 – Purchased 400 shares at $21.43 per share; initiating 12-month target price of $25.84

Mar 26, 2014 – Sold all PIR shares at $19.38 and realized capital loss of 9.6% C

Decreasing margins and weak e-commerce sales performance caused earnings forecast to move lower

Unfavourable holiday sales likely to continue; unable to keep up with changing consumer preference

Lost faith in management’s ability to improve margin and earnings

Cost Value $8,572Sold Value $7,752Capital Gains (9.6%)Dividend 1.1%

Market Cap $1,857Beta 1.71Debt/Equity 1.9%S&P Rating NR

Stock Performance

Valeant Pharmaceuticals (TSX:VRX)

29



A

B C

A

B Feb 3, 2014 – VRX to acquire Precision Dermatology for $475mm

July 31, 2013 – Purchased 53 shares at $94.13 per share

Mar 26, 2014 – Sold all VRX shares at $146.75 and realized capital gains of 55.9% C

Upside limited to future acquisitions and fundamentally fair priced

Highly leveraged, subject to significant interest rate risk, and dependent on cash flow generation ability

No longer a value play and therefore does not fit with fund investment philosophy

Cost Value $4,989Sold Value $7,778Capital Gains 55.9%Dividend 0.0%

Market Cap $47,026 Beta 1.16 Debt/Equity 40% S&P Rating BB-

Stock Performance

Fortis Inc. (TSX:FTS) & Capital Power (TSX:CPX)

30

FTS Events CPX Events


A B

C

A

B Apr 15, 2013 – Purchased 115 shares of FTS at $33.35 per share

July 31, 2012 – Purchased 150 shares of FTS at $33.38 per share

Mar 26, 2014 – Sold 115 shares of FTS at $31.28 C

A

B Mar 22, 2013 – Purchased 268 shares of CPX at $21.64 per share

Nov 30, 2012 – Purchased 185 shares of CPX at $21.77 per share

Mar 26, 2014 – Sold 253 shares of CPX at $25.17 C

A B

C

Sell Rationale: to reduce weighting on utility holdings


HOLD RECOMMENDATIONS

Hold Recommendations

32


NEW INITIATIVES

Pipeline of Initiatives

34

Increase U.S. Maximum

Weighting Limit New Selling

Policy Historical Pitch

Tracker

Analyst Training Prior to

Beginning of Term

Partners Faculty

Alan Douglas Craig Geoffrey Ranjini Jha Andrew Ecclestone

Advisory Board

Anish Chopra John Gort Jeffrey Stacey Aazar Zafar Thomas Scott Dennis Huber

35

Industry Mentors

36

Mike Williams Jin Li

Dan Lavric Lu Jiang

Niall Glynn Aly Hadibhai

Ohad Lederer

Kevin Huynh

Simon Kwan

David Middleton

Dorena Tu

Meng Wang

Ian Gutwinski Derek Chu

Ray Wan Joey Zhang

Ian Gutwinski

• CIBC, IB Analyst (2013)

• Onex Associate (2014)

Huazaho Zhu

• TD, Senior Treasury Analyst (2013)

Mo Du

• Ross Smith Associates, Investment Analyst (2013)

Rosa Han

• Veritas, Research Associate (2013)

Prasanth Pahirathan

• Manulife Bank, Analyst (2013)

Alumni Full-Time Placements

37

Catherine Zheng

• CAPREIT, Corporate Analyst (2013)

Michael Liu


Sunny Guo

• UBS, Trading (2014)

Michael Wang


Anqi Wang


Linda Teng

• Morgan Stanley (2014)

Nitish Sharma

• Oliver Wyman, Consultant (2014)

Dustin Fader

• RBC Capital Markets, Analyst (2014)

Jing Xu

• CPPIB, Analyst (2014)


FINAL QUESTIONS


APPENDIX

Correlation Matrix

Methodology: correlation of 5 year historical daily returns

AGU ALK AX-U BDI BNS CCA CCO CPX D-U FTS G GIL NA PRA SU

AGU 1.00

ALK 0.25 1.00

AX-U 0.18 0.19 1.00

BDI 0.19 0.19 0.21 1.00

BNS 0.26 0.25 0.19 0.23 1.00

CCA 0.01 0.09 0.13 0.03 0.11 1.00

CCO 0.28 0.16 0.19 0.19 0.31 0.10 1.00

CPX 0.08 0.11 0.23 0.11 0.17 0.08 0.17 1.00

D-U 0.12 0.19 0.52 0.12 0.22 0.15 0.20 0.20 1.00

FTS 0.20 0.23 0.25 0.20 0.41 0.11 0.22 0.28 0.27 1.00

G 0.11 0.02 0.08 0.02 0.14 0.09 0.16 0.05 0.10 0.11 1.00

GIL 0.19 0.18 0.12 0.21 0.30 0.10 0.21 0.09 0.15 0.22 0.04 1.00

NA 0.21 0.24 0.19 0.17 0.54 0.12 0.32 0.16 0.20 0.30 0.09 0.25 1.00

PRA 0.27 0.27 0.14 0.13 0.22 0.08 0.26 0.05 0.16 0.21 0.14 0.18 0.24 1.00

SU 0.27 0.19 0.21 0.26 0.46 0.10 0.37 0.18 0.21 0.31 0.24 0.29 0.36 0.33 1.00

40

advisory board meeting – winter 2014 · 2014. 8. 19. · advisory board meeting – winter 2014 ....

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