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Normandin Beaudry

Institutional Investment Fund Performance

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There, in black and white

NB Bulletin Vol. 16 N. 13, August 2013

Below are the highlights from our mid-year review analyzing the performance as at June 30, 2013, of the institutional managers comprising the Normandin Beaudry Investment Funds Universe.

To be included in the Normandin Beaudry Investment Funds Universe, institutional managers must adopt an active portfolio management approach, have a performance history of at least three years and have a minimum level of assets under management. All returns are presented before management fees.

Canadian Assets

Canadian bonds (DEX Universe) generated a return of -1.69%. This performance can be attributed to the increase in interest rates (+0.6% for 10-year federal bonds) in the second quarter of 2013. Long-term bonds (DEX Long Term: - 4.87%) were more affected by the increase because of their heightened sensitivity to changes in interest rates (longer duration).

The value added by Universe and Long-term bond managers is primarily explained by a shorter duration than that of the benchmark and to an overweighting of corporate bonds. This was the top performing sector for the first half of 2013. It should be noted that only 4th quartile managers failed to add value during this period.

The S&P/TSX Composite Index, representing Canadian equities, generated a return of -0.88% in the first half of 2013. This negative return can be attributed to the underperformance of the Gold and Precious Metals subsectors, which generated returns of -33% and -31% respectively. The value added by the median manager was 3.87% compared to the benchmark, which can be explained by the underweighting of the Gold and Precious Metals subsectors by most institutional managers. Only 6 out of 55 managers underperformed the benchmark in the first 6 months of 2013. It should also be noted that the first quartile manager generated substantial value added (6.45%) and that there were significant differences between performance quartiles.
 

Foreign Assets

      

The S&P 500 Index, representing U.S. equities, and the MSCI EAFE Index, representing international equities, generated returns in Canadian dollars of 20.27% and 9.99% respectively. During the first half of 2013, the Canadian dollar lost around 5.4% in relation to the U.S. dollar.

The MSCI World Index, representing global equities, generated a return of 14.56% in Canadian dollars. The value added was 0.81% for the median manager and 1.70% for the first quartile manager compared to the benchmark in the first half of 2013. To add value, global equity managers had to underweight the European zone and its currency and to overweight Japan and the United States. It should be noted that 9 of the 10 benchmark sectors generated positive returns during this period.

The MSCI Emerging Markets Index generated a return of -4.45% in the first 6 months of 2013. As was the case for the Canadian market, emerging market equities were negatively impacted by the Materials sector. The median emerging markets manager generated a value added of 1.59%, whereas the first quartile manager generated a value added of more than 3.43% compared the MSCI Emerging Markets Index. The underweighting of the Materials sector and the BRIC (Brazil, Russia, India and China) countries was a strategy that allowed for value to be added in comparison with the benchmark.

Financial Health of Pension Plans

Finally, during the first half of 2013, the financial health of pension plans improved by around 8%. This improvement is due in part to the increase in interest rates, which decreased the value of liabilities, and to foreign stock markets’ performance that exceeded expectations.
 

 

Please feel free to contact us for additional information.

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