Investment update from CI Investment Consulting Alfred Lam, MBA, CFA VP and Portfolio Manager CI Investment Consulting
Jan 02, 2016
Investment update fromCI Investment Consulting
Alfred Lam, MBA, CFAVP and Portfolio ManagerCI Investment Consulting
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Agenda
• Industry trends, CI’s Multi-Manager Excellence• Advantages of CI’s Managed Solutions• Challenges in the markets and how to navigate
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Destination investing
Average advisors
Focus:Out-performance
Value propositions:Fund selectionTactical shifts
Risk:Under-performance
Successful advisors
Focus: Relationship
Value propositions:Planning
Asset locationBehavioural coaching
Risk: Capacity
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CI’s income & balanced solutions
Investment Consulting
Signature Harbour Cambridge Black Creek
DiversifiedIncome
Portfolio Series
High Income
Portfolio Select Series
Diversified Yield
High Income
Balanced Portfolio Series
Canadian Balanced
Growth & Income
Canadian Asset Allocation
Global Balanced
Portfolio Select Series
Income & Growth
Global Growth & Income
G5|20 Global Income & Growth
Assets ($61.3billion)
$27.7 $23.8 $5.9 $2.9 $1.0
*As of August 2014
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Managed solution landscape
Fund Company Assets $ 3-year CAGR %
RBC 49 23
CIBC 41 19
TD 37 22
CI Investments 24 34
Scotia 24 22
BMO 20 29
Investors Group 20 8
Great-West Life 17 5
Desjardins 15 17
National Bank 11 20
Top 10 258 (77%) 20
Source: Investor Economics, Dec 2013
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CI Investment Consulting
“We create investment solutions for investors and build
relationships with advisors” CI Investment Consulting
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Portfolio Management
$28 billion assets under management
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CI Investment Consulting
Name Title Credentials
Industry Experienc
e
Alfred Lam VP & Portfolio Manager CFA, MBA, BComm 14Yoonjai Shin Director CFA, BA Economics 11Lewis Harkes Senior Analyst CFA, BA Economics 10Marchello Holditch Senior Analyst CFA, BMath (Honours) 5
Andrew Ashworth Analyst Level II CFA, BMOS Finance 4
Responsibilities:
Portfolio management Alfred, Yoonjai
Trading/operations Yoonjai, Nick Asnani, Andrew
Manager selection Alfred, Yoonjai
Due diligence Yoonjai, Alfred, Marchello, Lewis, Andrew
Performance analysis & reporting Lewis, Andrew
Communications Alfred, Yoonjai, Marchello
Organizational Structure:
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What is an investment plan?
It’s a four-step process:
1. Discovery
2. Planning
3. Execution (Investments –TR Equation)
4. Review
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Total return = Asset mix + Alpha + Market beta + Currency – Tax – Fees
Optimize
Maximize Manage
Manage/reduce Minimize
Reduce
Total Return Equation
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Portfolio Series, Best Fund of Funds Award – 2011
Portfolio Series, Best Fund of Funds Award – 2012
Portfolio Select Series, Best Fund of Funds Award – 2013
Industry Recognition
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Stock market valuations
Source: TD Securities
Price-Earnings MultiplesBased on 12 Month Forward Operating Earnings
Bottom Up Earnings Based on CPMS (TSE) and IBES (S&P) ConsensusM84 OCT 2014
26 26
24 24
22 22
20 20
18 18
16 16
14 14
12 12
10 10
8 886 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
TSXS&P 500
14.615.1
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Suppressed volatility
0
10
20
30
40
50
60
70
80
90
8/31/2004 8/31/2005 8/31/2006 8/31/2007 8/31/2008 8/31/2009 8/31/2010 8/31/2011 8/31/2012 8/31/2013 8/31/2014
VIX Index: August 31, 2004 - August 31, 2014
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Equity market return expectations
Equity return = Risk-free return + Risk Premium
Historical Today
Risk-free 2-4% 0-1%
Risk Premium 4-6% 4-6%
Total Return 6-10% 4-7%
Dividends 2-3% 2-4%
Earnings Growth 4-8% 2-5%
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Implications
• As long as rates stay low:
• Incentive for business to grow is less
• Incentive for business to hire is less
• Low wage inflation
• Market volatility is low
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When will interest rates change
• Two years later?!
• When household and sovereign debts return to
normal
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1.00
1.25
1.50
1.75
2.00
2.25
3/30
/12
5/30
/12
7/30
/12
9/30
/12
11/3
0/1
2
1/31
/13
3/31
/13
5/31
/13
7/31
/13
9/30
/13
11/3
0/1
3
1/31
/14
3/31
/14
5/31
/14
7/31
/14
9/30
/14
Chart: Government of Canada Benchmark Bond Yield - 5 year
Source: Bank of Canada
Outlook: fixed income
Bond markets are in a trading range
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Represented by Select Income Managed Corporate Class
Source: CI Investments
Weighting (%)
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3 Target
Cash 15 21 21 27 34 24 21 22 25 18 20 0%
Government & IG corporate
44 41 41 36 31 44 48 44 40 47 45 60%
High-yield bonds 22 19 18 15 13 12 11 14 15 15 14 20%
High-dividend Stocks
19 19 20 22 22 20 20 20 20 20 21 20%
Duration (years) 4.5 4.2 4.1 4.1 3.3 3.7 4.0 3.7 3.4 3.4 3.4
Historical asset allocations:
Select Income Managed Corporate Class (SIM)
20FOR INTERNAL USE ONLY
Select Income Managed Corporate ClassPerformance as of October 31, 2014
Performance has met expectations
% 3mth YTD 1yr 2yr 3yr 5yr
SinceInception*
3-yrStandard deviation
Select Income Managed Corporate Class (Class A)
0.8 4.9 4.9 4.8 5.6 5.3 4.1 2.1
FTSE TMX Universe Bond Index 1.0 6.5 5.8 2.8 3.8 5.0 5.1 3.1
*November 2005
21Total: 107 observations (months)
SIM: controlled volatility
>2% 1 to 2% 0 to 1% -1 to 0% <-1%0
10
20
30
40
50
60
70
3
19
62
17
67
21
42
31
6
Monthly return distribution
Select Income FTSE TMX Universe Bond Index
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High consistency
1 yr 2 yr 3 yr 5 yr 7 yr SI (107 mths)
Select Income Managed Corporate Class (Class A)
11 20 31 49 67 84
TMX Universe Bond Index 8 15 23 40 56 70
Select Income Managed Corporate Class (Class A)
92% 83% 86% 82% 80% 79%
TMX Universe Bond Index 67% 63% 64% 67% 67% 65%
Frequency of positive months as at Oct 2014
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Recap of capital market outlook
• Record government and household debt levels
put a lid on interest rates
• Low interest rates lead to sub-par growth
• Equity volatility is suppressed
• Bond volatility is unusually high; with unusually
low expected returns
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Positioning
• Income allocation to drive alpha
• Safety is not limited to cash and government
bonds
• Take advantage of low equity market volatility
• Watch whether growth driven by p/e or earnings
• Watching EM bonds and stocks
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Thank you
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