Foundation Tactical Balanced Portfolio Management Report of Fund Performance. For the period from March 28, 2013 to December 31, 2013

Transcription

1 Foundation Tactical Balanced Portfolio Management Report of Fund Performance For the period from March 28, 2013 to December 31, 2013

2 Foundation Tactical Balanced Portfolio Management Report of Fund Performance Table of Contents Page Management Discussion of Fund Performance... 3 Financial Highlights... 5 Results by series Explanatory Notes to Financial Highlights... 7 Past Performance/Annual Compound Returns Summary of investment portfolio This annual management report of fund performance contains financial highlights but does not contain the complete annual financial statements of the Fund. You can get a copy of the annual financial statements at your request, and at no cost by calling or SEDAR at Securityholders may also contact us at or fundinfo@pssecurities.ca to request a copy of the Fund s proxy voting policies and procedures, proxy voting disclosure record and/or quarterly portfolio disclosure. 2

3 Management Discussion of Fund Performance Investment Objective and Strategies The investment objective of the Foundation Tactical Balanced Portfolio (the Fund ) is to provide moderate growth and stable moderate income. The Fund aims to provide superior risk adjusted returns versus a benchmark that is a balance of 60% TSX Composite and 40% DEX Universe Bond index. Comprised of a basket of ETFs with exposure to both Canadian and global equities and fixed income, the Fund is intended to produce moderate equity growth balanced by income. In order to achieve this goal, the manager will implement a quantitative risk and return methodology to determine tactical asset allocation, attempting to ensure that the portfolio always holds the most attractive mix of yield producing vehicles and equity that are aligned with a low to medium risk profile. Risk The Fund is subject to a number of risks that have not changed since the Fund s inception. The Fund s risks include credit risk, ETF risk, and equity risk. See the prospectus of the Fund for a full description of the risks that the Fund may be exposed to. The Fund also continues to have a risk rating of low to medium. Results of Operations The Fund returned 2.51% in the fourth quarter of The Fund s benchmark returned 4.62% in the same time period. The Fund s benchmark is 60% TSX Composite index and 40% DEX Universe index. Recent Developments The Fund shortened duration in the fourth quarter of 2013 to reduce interest rate risk within the portfolio. The management team believes that yields may rise and many interest rate sensitive markets could be impacted as the Federal Reserve Bank in the U.S tapers its purchases of rate sensitive assets. Longer duration assets are subject to more price risk and as such the reduction in Federal Reserve Bank purchases adds to the risks in longer term bonds. Management has confidence in the economic recovery and decided to focus investments in the short end of the yield curve and in those investments that provide an attractive yield over government bonds. In Management s opinion, various specific equity markets have turned the corner toward the expensive end of the value scale. As equity markets move higher we have become decidedly more cautious today. As a result, the Fund has been avoiding markets and their ETFs which it considers expensive or that demonstrate elevated price risk. Tilting to higher value in our investments has resulted in an increase in exposure to our theme that Canadian energy and resource shares are undervalued. As a result the Fund added exposure to energy, gold and basic materials towards the end of the quarter. Related Party Transactions Portfolio Strategies Securities Inc. (the Manager ) is the manager and portfolio manager for the Fund. The Trustee of the Fund ( Valiant Trust Company ) has delegated to the Manager the responsibility for managing the day-to-day activities of the Fund and providing for all required administrative services of the Fund including making all portfolio investment decisions on behalf of the Fund. In consideration for such services, certain classes of the Fund pay the Manager a monthly management fee. 3

4 The Manager has also created an Independent Review Committee ( IRC ) to review and provide impartial judgment on conflict of interest matters. The IRC reviews potential conflicts of interest referred to it by the Manager and makes recommendations on whether a course of action is fair and reasonable for the Fund. The IRC prepares an annual report of its activities for interested parties. The latest report can be found on the Manager s website Management Fees The table below outlines the Fund s annual management fees and the trailer fees, if any. The Manager pays Trailer Fees to dealers who distribute units of the applicable class of the Fund (i.e., a percentage of the daily NAV of such class). No management fee is paid by the unit holders of Class O units to the Fund. The Manager is paid an annual management fee by each unitholder who invests in class O units of the Fund pursuant to a class O investment management agreement. Class A Class F Management Fee (including Trailer Fee) 1.95% 0.75% Trailer Fee (maximum rate) 1.20% N/A 4

5 Foundation Tactical Balanced Portfolio Financial Highlights The following tables show selected key financial information about the Fund and are intended to help you understand the Fund's financial performance for the period ended December 31, Series A Dec. 31, 2013 Net assets (per unit) - beginning of period (1) $10.00 Increase (decrease) from operations: Total revenue $0.15 Total expenses ($0.13) Realized gains (losses) $0.22 Unrealized gains (losses) $0.62 Total increase (decrease) from operations (2) $0.86 Distributions: From net realized gain on investments ($0.09) From net investment income 0.00 Total Distributions Net assets - end of period (0.09) $10.24 Ratios and Supplemental Data Total net asset value (NAV) (1) $504 Number of units outstanding: (1) 49 Management expense ratio before waivers or absorption (%) (2) 46.37% Management expense ratio 2.08% Trading expense ratio (%) (4) 0.23% Portfolio turnover rate (%) (3) 21.59% Series F Net assets (per unit) - beginning of period (1) $10.00 Increase (decrease) from operations: Total revenue $0.02 Total expenses ($ 0.01) Realized gains (losses) $0.03 Unrealized gains (losses) $0.08 Total increase (decrease) from operations (2) $0.12 Distributions: From net realized gain on investments $0 From net investment income $0 Total Distributions Net assets - end of period $10.12 $0.00 5

6 Ratios and Supplemental Data Total net asset value (NAV) (1) $506 Number of units outstanding: (1) 50 Management expense ratio before waivers or absorption (%) (2) 78.33% Management expense ratio 1.59% Trading expense ratio (%) (4) 0.23% Portfolio turnover rate (%) (3) 21.59% Series O Net assets (per unit) - beginning of period (1) $10.00 Increase (decrease) from operations: Total revenue $0.01 Total expenses ($0.01) Realized gains (losses) $0.02 Unrealized gains (losses) $0.06 Total increase (decrease) from operations (2) $0.08 Distributions: From net realized gain on investments $0 From net investment income $0 Total Distributions $0.0 Net assets - end of period $10.08 Ratios and Supplemental Data Total net asset value (NAV) (1) $155,208 Number of units outstanding: (1) 15,397 Management expense ratio before waivers or absorption (%) (2) 67.63% Management expense ratio 0.93% Trading expense ratio (%) (4) 0.23% Portfolio turnover rate (%) (3) 21.59% 6

7 Explanatory Notes to Financial Highlights Net assets per unit (1) This information is derived from the Fund s audited annual financial statements. In the period the Fund or series is established, the financial information is provided from the date of inception to the end of the period. The Fund was established on March 28, 2013 and so the financial information is provided for the period from March 28, 2013 December 31, As of May 13, 2013, the Fund s seed capital was $150,000. Please note the net assets per unit that are presented in the financial statements differ from the net asset value calculated for fund pricing purposes. An explanation of these differences can be found in the notes to the financial statements. (2) Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase (decrease) in net assets from operations is based on the weighted average number of units outstanding over the fiscal period. This table is not intended to be a reconciliation of opening and closing net assets per unit. Ratios and Supplemental Data (1) This information is provided as at the end of the period shown. (2) Management expense ratio ( MER ) is based on total expenses for the stated period and is expressed as an annualized percentage of daily average net asset value during the period including the Fund s proportionate share of the MER of any underlying fund. During the period a related party of the Manager waived most of the Fund s expenses. The amount of expenses waived is determined in the discretion of the Manager and the Manager may terminate the waiver at any time. The MER without any waivers or absorptions is indicated and is higher than the MER after such waivers and/or absorptions which are also shown. The Manager expects that such waivers and/or absorptions will continue indefinitely or until the Fund reaches a certain level of assets under management. (3) The Fund s portfolio turnover rate indicates how actively the Fund s investments are traded. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all its investments once in the course of the relevant period. There is not necessarily a relationship between a high turnover rate and the performance of the Fund. (4) The trading expense ratio represents the total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. 7

8 Past Performance The indicated rates of return assume reinvestment of all distributions. They do not take into account sales, redemption, distribution or optional sales charges that would have reduced returns. The past performance of the Fund is not necessarily an indication of how it will perform in the future. Year by Year returns The following data is supposed to show the annual performance for each series of the Fund and illustrate how such series performance has varied from year to year. As this is the first year of a series, the percentage shown is the actual return of the series from the commencement of such series operations to December 31, Series A Series F Series O Return (not annualized) 2.51% 1.34% 0.93% Benchmark (Blended) 4.62% 1.58% 1.26% (60% TSX and 40% DEX Universe index) Series A from Oct, 2013 Series F from Nov 8, 2013 Series O from Oct 31, Last Qtr YTD 1 YR 2 YR 3 YR 4 YR 5 YR Inception Last Qtr YTD 1 YR 2 YR 3 YR 4 YR 5 YR Inception Last Qtr YTD 1 YR 2 YR 3 YR 4 YR 5 YR Inception Last Qtr YTD 1 YR 2 YR 3 YR 4 YR 5 YR Inception Last Qtr YTD 1 YR 2 YR 3 YR 4 YR 5 YR Inception Last Qtr YTD 1 YR 2 YR 3 YR 4 YR 5 YR Inception 8

9 Annual Compound Returns The following table shows the Fund s historical annual compound returns for each series of the Fund for the periods indicated. The annual compound returns are also compared to a broad based index and the Fund s blended index, as described below. Returns 1 3 & 5 Year Broad Index* Blended* Since Inception Series A N/A 7.325% 4.62% 2.51% Oct 1, 2013 Series F N/A 2.3% 1.58% 1.34% Nov 8, 2013 Series O N/A 2.5% 1.26% 0.93% Oct 31, 2013 Broad Index is S&P/TSX Composite Index. Blended index is 60% TSX Composite/40% DEX Universe Index 9

10 Foundation Tactical Balanced Portfolio Summary of Investment Portfolio as at December 31, 2013 Portfolio Breakdown All Holdings Category Percentage of Net Asset Value (%) Security Name Percentage of Net Asset Value (%) Asset Allocation Canadian Equity 33.6 Global Equity 21.0 Canadian Fixed income Global Fixed income Theme 10.0 Cash 1.4 Sector Allocation Financials 24.9 Oil & Gas /Energy 18.3 Basic Materials 14.6 Industrials 6.7 Consumer services 6.2 Health Care 4.6 Communications 3.3 Utilities 6.1 Consumer Goods 6.1 ISHARES 1-5 YR LDRD ETF CM UN 15.7 ISHARES JPM USD E/M ETF 8.6 ISHARES SP/TSX INF TC ETF 3.3 VANGUARD FTSE DEV NA ETF 13.1 ISHARES DJ CDA SL VAL ETF 6.6 ISHARES SP/TSX CAP ENERGY ETF 4.5 ISHARES SP/TSX CAP MATERIALS ETF 3.2 IHARES 1-5 YR GOV ETF COM UN 5.0 ISHARES S&P/TSX GL GLD ETF 2.3 HORIZONS S&P/TSX 60 ETF 5.4 ISHARES S&P/TSX N/AMET/U 4.2 VANGUARD FTSE CDA IDXETF 5.7 VANGUARD CDN AGG BNDETF 4.7 HORIZONS S&P500 IDX-AETF 5.5 ISHARES S&P/TSX CAPPDETF 2.4 ISHARES S&P/TSX CDN DIVETF 3.1 VANGUARD FTSE CDN HIDIV 2.9 VANGUARD US TOTAL MKTT/U 2.4 Technology

11 Summary of Investment Portfolio Total Mutual fund Investments 98.31% Number of Units Average Cost$ Fair Value$ Exchange Traded Funds 3,255 82,963 86,473 Income Trust units 1,645 32,403 32,258 Index funds 2,445 34,480 34,852 Total Investments 98.31% 149, ,583 Other Assets and Liabilities, Net % 2,635 Net Assets % 156,218 The Fund s summary of investment portfolio set out above will change due to ongoing portfolio transactions. A quarterly update is available on request or on the Manager s website 11

12 FOUNDATION TACTICAL BALANCED PORTFOLIO Portfolio Strategies Securities Inc. 95 Wellington Street Suite 910, P.O. Box 33 Toronto, Ontario M5J 2N7 Toll-free: Caution Regarding Forward-looking Statements Certain portions of this report, including, but not limited to, Results of Operations" and Recent Developments, may contain forward-looking statements about the Fund, including its strategy, risks, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as expects, anticipates", intends, plans", believes, estimates" and similar forward-looking expressions or negative versions thereof. In addition, any statement that may be made concerning future performance, strategies or prospects, and possible future Fund action, is also a forward-looking statement. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Fund and economic factors. Accordingly, assumptions concerning future economic and other factors may prove to be incorrect at a future date. Forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made by the Fund. Any number of important factors could contribute to these digressions, including, but not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. It should be stressed that the above-mentioned list of important factors is not exhaustive. You are encouraged to consider these and other factors carefully before making any investment decisions and you are urged to avoid placing undue reliance on forward-looking statements. Further, you should be aware of the fact that the Fund has no specific intention of updating any forward-looking statements whether as a result of new information, future events or otherwise, prior to the release of the next management report of fund performance. 12