beam q2-2018 / q3-2018 performance review...7 i. executive summary beam overview - objectives 1 to...

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

[email protected]

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


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


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


BEAM Overview - Recruitment

BEAM Open

Meeting

Lecture

Presentations

& Campus

Promotion

Application

Deadlines

Interviewing &

Hiring

New Cohort

Training &

Integration

Upcoming

Completed

7


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


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


60%

39%

1%

60%

38%

2%

Equity Fixed Income Cash

Current Benchmark

Source: Bloomberg


10

ESG Methods


Exclusionary Screening

Best-in-Class Selection

Active Ownership Thematic Investing

Impact Investing ESG Integration

11

ESG Methods





Impact Investing ESG Integration

12

ESG Methods




Impact Investing


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




Impact Investing


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


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


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

[email protected]

17

Equity Portfolio Return

II. Equity Update

YTD-2018



(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%


(10.00%)

(8.00%)

(6.00%)

(4.00%)

(2.00%)

0.00%

2.00%

4.00%

6.00%

Portfolio Benchmark

Source: Bloomberg


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


19

Year-to-date Selection

II. Equity Update

Source: Bloomberg


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.


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


Go-Forward Strategy

Source: Bloomberg


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


Go-Forward Strategy

Source: Bloomberg


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


Go-Forward Strategy

Source: Bloomberg


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


Go-Forward Strategy

Source: Bloomberg


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

[email protected]

27

Fixed Income Portfolio Return

III. Fixed Income Update

YTD-2018



(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%


(2.50%)

(2.00%)

(1.50%)

(1.00%)

(0.50%)

0.00%

0.50%

1.00%

1.50%

Portfolio Benchmark

Source: Bloomberg


28


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


29

Year-to-date Attribution


(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


30

YTD-2018

Active Duration Active Yield Option Adjusted Spread

(0.07)(1)

0.05%(1)

4.97

Source: Bloomberg


(1) Active duration and active yield include ETF exposure in both the benchmark and the portfolio.

Current Asset and Rating Mix


Federal17%

Municipal4%

Provincial42%

Corporate31%

ETF6%

BBB, 9%

A, 31%

AA, 40%

AAA, 21%

31

Contribution to Duration Comparison

Portfolio Composition


(1.2)

(0.6)

0.0

0.6

1.2

Short Term Medium Term Long Term

Federal Provincial Municipal CorporateSource: Bloomberg, BlackRock


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


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


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

[email protected]

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

beam q2-2018 / q3-2018 performance review...7 i. executive summary beam overview - objectives 1 to...

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