CIBC Dividend Growth Fund. Annual Management Report of Fund Performance

Transcription

1 CIBC Dividend Growth Fund Annua Management Report of Fund Performance for the financia year ended December 31, 2015 A figures are reported in Canadian doars uness otherwise noted This annua management report of fund performance contains financia highights but does not contain the compete annua financia statements of the investment fund If you have not received a copy of the annua financia statements with this annua management report of fund performance, you can get a copy of the annua financia statements at your request, and at no cost, by caing us to-free at , by writing to us at CIBC, 18 York Street, Suite 1300, Toronto, Ontario, M5J 2T8, or by visiting wwwcibccom/mutuafunds or the SEDAR website at wwwsedarcom Unithoders may aso contact us using one of these methods to request a copy of the investment fund s proy voting poicies and procedures, proy voting discosure record, or quartery portfoio discosure Management Discussion of Fund Performance Investment Objective and Strategies Investment Objective: CIBC Dividend Growth Fund (the Fund) seeks to maimize income and potentia capita growth by investing primariy in Canadian equity securities that produce dividend income Investment Strategies: The Fund identifies stocks that have attractive dividend yieds and capita appreciation potentia The Fund aims to add vaue through prudent security seection based on fundamenta, bottom-up anaysis and through the aocation of assets between common and preferred shares, bonds, income trusts, and other securities based on a review of economic and capita market conditions Risk The Fund is a Canadian dividend and income equity fund that is suitabe for medium- to ong-term investors who can toerate ow to medium investment risk For the period ended December 31, 2015, the Fund s overa eve of risk remains as discussed in the simpified prospectus Resuts of Operations The portfoio advisor of the Fund is CIBC Asset Management Inc (CAMI or the Portfoio Advisor) The commentary that foows provides a summary of the resuts of operations for the period ended December 31, 2015 A doar figures are epressed in thousands, uness otherwise indicated The Fund's net asset vaue decreased by 21% during the period, from $1,035,563 as at December 31, 2014 to $817,906 as at December 31, 2015 Net redemptions of $117,731 and negative investment performance resuted in an overa decrease in net asset vaue Cass A units of the Fund posted a return of -105% for the period The Fund s benchmark, the S&P/TSX Composite Dividend Inde (the benchmark), returned -77% for the same period The Fund s return is after the deduction of fees and epenses, unike the benchmark See Past Performance for the returns of other casses of units offered by the Fund Steady US economic growth during the period was offset by weak growth in Europe and a disappointing growth rate in China Canada s economy contracted in the first haf of 2015, eading the Bank of Canada to cut interest rates twice The US doar strengthened against a number of currencies on the epectation that the US Federa Reserve Board woud increase its federa funds rate in 2015 The stronger US doar, combined with weaker industria demand from China, caused commodity prices to fa Moreover, after two separate meetings in 2015, the Organization of the Petroeum Eporting Countries (OPEC) did not cut its oi production quotas, and non-opec oi production did not decrease As a resut, oi prices decined further, with the West Teas Intermediate price down approimatey 39% In this economic environment, Canadian corporate earnings growth was weak A arge overweight aocation to the strugging heath care and a sight overweight aocation to the energy sectors, particuary in infrastructure companies, detracted from the Fund s performance, as did a arge underweight eposure to the outperforming consumer discretionary sector Individua detractors from the Fund s performance incuded Westshore Terminas Investment Corp (Western Terminas), Pembina Pipeine Corp (Pembina Pipeine) and Jean Coutu Group (PJC) Inc (Jean Coutu) Westshore Terminas strugged with weak therma commodity prices, which caused some of its cients to negotiate ower voume throughputs at Westshore Terminas faciities The company reduced its revenue and earnings outook and cut its dividend Pembina Pipeine s share price decined as a resut of ow energy prices, a reativey high vauation and concerns about the company s abiity to fund future growth The Portfoio Advisor epects the company can grow its dividend in the high-singe-digit range in 2017 as it deivers on $2 biion in epansion projects Recent changes to Quebec s generic drug egisation and rate fees paid to pharmacists are epected to negativey affect Jean Coutu s franchisee business mode However, the company continues to generate free cash fow and has no debt

2 CIBC Dividend Growth Fund The Fund s sight overweight eposure to the outperforming consumer stapes and financia sectors, arge overweight eposure to the information technoogy sector, moderate overweight eposure to the teecommunication services sector contributed to its performance, as did its arge underweight aocation to the weak materias sector The most significant individua contributors to the Fund s performance incuded Aimentation Couche-Tard Inc (Aimentation Couche-Tard), Agrium Inc (Agrium) and Canadian Apartment Properties REIT (Canadian Apartment Properties) Aimentation Couche-Tard benefited from strong operationa resuts, improving fue retai margins and the potentia for acquisition growth Agrium s stock price rose on strong free cash fow growth as a resut of its stabe retai franchise, the ramp-up of its new Vanscoy potash mine and ower capita ependitures Canadian Apartment Properties had steady but ow cash fow growth and geographicay diversified operations, and the company competed strategic acquisitions in 2015 The Portfoio Advisor added a new hoding in Brookfied Asset Management Inc based on its asset management fee growth profie and epectations of significant acquisitions with the proceeds of the company s equity issue Eement Financia Corp, a ease financing services company, was purchased on the epectation that equity proceeds wi go toward funding acquisitions in the areas of rai and feet easing Macy s Inc was aso purchased as the Portfoio Advisor beieves the stock is undervaued when its underying rea estate vaue is taken into account It is the Portfoio Advisor s epectation that the company wi be restructured The Fund s eisting hoding in TELUS Corp was increased on share price weakness and the strength of the company s growing heath care information data service Hodings eiminated from the Fund incuded Barrick God Corp (Barrick), Cenovus Energy Inc (Cenovus) and Empire Co Ltd (Empire) Barrick is re-structuring, and the company wi need to se assets to reduce high debt eves in a ow commodity price environment Cenovus was sod as a resut of the weaker energy price environment and the stock s high reative vauation Empire posted successive disappointing quartery operationa resuts, faced a more intense competitive environment and has a weaker earnings growth outook Eisting hodings in Suncor Energy Inc (Suncor) and Open Tet Corp (Open Tet) were trimmed in an effort to reduce risk Suncor strugged with ower energy prices, whie Open Tet s earnings growth may be at risk as it transitions to a coud-based saes strategy The Portfoio Advisor aso beieves Open Tet may face weak saes growth as a resut of sower economic growth in Europe Recent Deveopments During the period, there were no events or activities that had a materia impact on the Fund Reated Party Transactions Canadian Imperia Bank of Commerce (CIBC) and its affiiates have the foowing roes and responsibiities with respect to the Fund, and receive the fees described beow in connection with their roes and responsibiities Manager CIBC is the Manager of the Fund CIBC receives management fees with respect to the day-to-day business and operations of the Fund, cacuated based on the net asset vaue of each respective cass of units of the Fund as described in the section entited Management Fees The Manager aso compensates its whoesaers in connection with their marketing activities regarding the Fund From time to time, CIBC may provide seed capita to the Fund Trustee CIBC Trust Corporation, a whoy-owned subsidiary of CIBC, is the trustee (the Trustee) of the Fund The Trustee hods tite to the property (cash and securities) of the Fund on behaf of its unithoders Portfoio Advisor The portfoio advisor provides, or arranges to provide, investment advice and portfoio management services to the Fund CAMI, a whoy-owned subsidiary of CIBC, is the portfoio advisor of the Fund Distributor Deaers and other firms se the units of the Fund to investors These deaers and other firms incude CIBC s reated deaers such as the principa distributor, CIBC Securities Inc (CIBC SI), the CIBC Investor s Edge discount brokerage division of CIBC Investor Services Inc (CIBC ISI), the CIBC Imperia Service division of CIBC ISI, and the CIBC Wood Gundy division of CIBC Word Markets Inc (CIBC WM) CIBC SI, CIBC ISI, and CIBC WM are whoy-owned subsidiaries of CIBC CIBC may pay traiing commissions to these deaers and firms in connection with the sae of units of the Fund These deaers and other firms may pay a portion of these traiing commissions to their advisors who se units of the Fund to investors Brokerage Arrangements and Soft Doars The Portfoio Advisor makes decisions, incuding the seection of markets and deaers and the negotiation of commissions, with respect to the purchase and sae of portfoio securities, certain derivative products (incuding futures) and the eecution of portfoio transactions Brokerage business may be aocated by the Portfoio Advisor to CIBC WM and CIBC Word Markets Corp, each a subsidiary of CIBC CIBC WM and CIBC Word Markets Corp may aso earn spreads on the sae of fied income securities and other securities and certain derivative products (incuding forwards) to the Fund A spread is the difference between the bid and ask prices for a security in the appicabe marketpace, with respect to the eecution of portfoio transactions The spread wi differ based upon various factors such as the type and iquidity of the security Deaers, incuding CIBC WM and CIBC Word Markets Corp, may furnish goods and services, other than order eecution, to the Portfoio Advisor in partia echange for processing trades through them (referred to in the industry as soft doar arrangements) These goods and services are paid for with a portion of the brokerage commissions and assist the Portfoio Advisor with investment decision-making 2

3 CIBC Dividend Growth Fund services for the Fund or reate directy to the eecution of portfoio transactions on behaf of the Fund In addition, CIBC may enter into commission recapture arrangements with certain deaers with respect to the Fund Any commission recaptured wi be paid to the Fund During the period, the Fund paid brokerage commissions and other fees of $4,221 to CIBC WM; the Fund did not pay any brokerage commissions or other fees to CIBC Word Markets Corp Spreads associated with fied income and other securities are not ascertainabe and, for that reason, cannot be incuded when determining these amounts Fund Transactions The Fund may enter into one or more of the foowing transactions (the Reated Party Transactions) in reiance on the standing instructions issued by the Independent Review Committee (IRC): invest in or hod equity securities of CIBC or issuers reated to a portfoio sub-advisor; invest in or hod non-echange-traded debt securities of CIBC or an issuer reated to CIBC in a primary offering and in the secondary market; make an investment in the securities of an issuer for which CIBC WM, CIBC Word Markets Corp, or any affiiate of CIBC (a Reated Deaer) acts as an underwriter during the offering of the securities at any time during the 60-day period foowing the competion of the offering of such securities (in the case of a private pacement offering, in accordance with the eemptive reief order granted by the Canadian securities reguatory authorities and in accordance with the poicies and procedures reating to such investment); purchase equity or debt securities from or se them to a Reated Deaer, where it is acting as principa; undertake currency and currency derivative transactions where a Reated Deaer is the counterparty; and purchase securities from or se securities to another investment fund or a managed account managed by the Manager or an affiiate of the Manager At east annuay, the IRC reviews the Reated Party Transactions for which they have issued standing instructions The IRC is required to advise the Canadian securities reguatory authorities if it determines that an investment decision was not made in accordance with conditions of its approva Custodian CIBC Meon Trust Company is the custodian of the Fund (the Custodian) The Custodian hods a cash and securities for the Fund and ensures that those assets are kept separate from any other cash or securities that the Custodian might be hoding The Custodian aso provides other services to the Fund incuding record-keeping and processing of foreign echange transactions The Custodian may hire sub-custodians for the Fund The fees and spreads for services of the Custodian directy reated to the eecution of portfoio transactions by the Fund are paid by CAMI and/or deaer(s) directed by CAMI, up to the amount of the credits generated under soft doar arrangements from trading on behaf of the Fund during that month A other fees and spreads for the services of the Custodian are paid by the Manager and charged to the Fund on a recoverabe basis CIBC owns a 50% interest in the Custodian Service Provider CIBC Meon Goba Securities Services Company (CIBC GSS) provides certain services to the Fund, incuding securities ending, fund accounting and reporting, and portfoio vauation Such servicing fees are paid by the Manager, and charged to the Fund on a recoverabe basis CIBC indirecty owns a 50% interest in CIBC GSS 3

4 CIBC Dividend Growth Fund Financia Highights The foowing tabes show seected key financia information about the Fund and are intended to hep you understand the Fund s financia performance for the period ended December 31 The Fund's Net Assets per Unit¹ - Cass A Units Net Assets, beginning of period $ 3740 $ 3450 $ 3068 $ 2855 $ 2933 Increase (decrease) from operations: Tota revenue $ 124 $ 120 $ 111 $ 104 $ 097 Tota epenses (075) (076) (066) (060) (060) Reaized gains (osses) for the period (009) Unreaized gains (osses) for the period (467) (108) Tota increase (decrease) from operations 2 $ (381) $ 319 $ 401 $ 222 $ (080) Distributions: From income (ecuding dividends) $ $ $ $ $ From dividends From capita gains Return of capita Tota Distributions 3 $ 021 $ 025 $ 024 $ 017 $ 007 Net Assets, end of period $ 3328 $ 3740 $ 3450 $ 3064 $ This information is derived from the Fund's audited annua financia statements The Fund adopted Internationa Financia Reporting Standards (IFRS) on January 1, 2014 Previousy, the Fund prepared its financia statements in accordance with Canadian Generay Accepted Accounting Principes (GAAP) as defined in Part V of the CPA Canada Handbook Under Canadian GAAP, the Fund measured fair vaues of its investments in accordance with CICA Handbook Section 3855 which required the use of bid prices for ong positions and ask prices for short positions As such, the net assets per unit figure presented in the financia statements may differ from the net asset vaue cacuated for fund pricing purposes An epanation of these differences can be found in the notes to the financia statements issued prior to January 1, 2014 Upon adoption of IFRS, the Fund measures the fair vaue of its investments by using the cose market prices, where the cose market price fas within the bid-ask spread As such, the Fund's accounting poicies for measuring the fair vaue of investments in the financia statements are consistent with those used in measuring the net asset vaue for transactions with unithoders Accordingy, the opening net asset figure as at January 1, 2013 was restated to refect accounting poicy adjustments made in accordance with IFRS A figures presented for periods prior to January 1, 2013 were prepared in accordance with Canadian GAAP and subsequent thereto were prepared in accordance with IFRS 2 Net assets and distributions are based on the actua number of units outstanding at the reevant time The tota increase (decrease) from operations is based on the weighted average number of units outstanding during the period 3 Distributions were paid in cash, reinvested in additiona units of the Fund, or both Ratios and Suppementa Data - Cass A Units Tota Net Asset Vaue (000s) 4 $ 817,906 $ 1,035,563 $ 999,068 $ 933,185 $ 944,214 Number of Units Outstanding 4 24,577,198 27,690,361 28,958,550 30,413,635 33,019,947 Management Epense Ratio 5 203% 202% 205% 205% 205% Management Epense Ratio before waivers or absorptions 6 203% 203% 205% 205% 205% Trading Epense Ratio 7 003% 004% 002% 002% 002% Portfoio Turnover Rate 8 558% 2091% 932% 923% 718% Net Asset Vaue per Unit $ 3328 $ 3740 $ 3450 $ 3068 $ This information is presented as at December 31 of the period(s) shown 5 Management epense ratio is based on the tota epenses of the fund (ecuding commissions and other portfoio transaction costs), incurred by or aocated to a cass of units for the period shown, epressed as an annuaized percentage of the daiy average net asset vaue of that cass during the period 6 The decision to waive and/or absorb management fees and operating epenses is at the discretion of the Manager The practice of waiving and/or absorbing management fees and operating epenses may continue indefinitey or may be terminated at any time without notice to unithoders 7 The trading epense ratio represents tota commissions and other portfoio transaction costs before income taes epressed as an annuaized percentage of the daiy average net asset vaue during the period Spreads associated with fied income securities trading are not ascertainabe and, for that reason, are not incuded in the trading epense ratio cacuation 8 The portfoio turnover rate indicates how activey the portfoio advisor and/or portfoio sub-advisor manages the portfoio investmentsa portfoio turnover rate of 100% is equivaent to a fund buying and seing a of the securities in its portfoio once in the course of the period The higher a portfoio turnover rate in a period, the greater the trading costs payabe by a fund in the period, and the greater the chance of an investor receiving taabe capita gains in the year There is not necessariy a reationship between a high turnover rate and the performance of a fund 4

5 CIBC Dividend Growth Fund The Fund's Net Assets per Unit¹ - Cass O Units 2015 a Net Assets, beginning of period $ 1465 b Increase (decrease) from operations: Tota revenue $ Tota epenses Reaized gains (osses) for the period Unreaized gains (osses) for the period (148) Tota increase (decrease) from operations 2 $ (148) Distributions: From income (ecuding dividends) $ From dividends 010 From capita gains Return of capita Tota Distributions 3 $ 010 Net Assets, end of period $ 1376 a Information presented is for the period from October 30, 2015 to December 31, 2015 b Represents the price on the first day in the period in which the cass became active 1 This information is derived from the Fund's audited annua financia statements The Fund adopted IFRS on January 1, Net assets and distributions are based on the actua number of units outstanding at the reevant time The tota increase (decrease) from operations is based on the weighted average number of units outstanding during the period 3 Distributions were paid in cash, reinvested in additiona units of the Fund, or both Ratios and Suppementa Data - Cass O Units 2015 a Tota Net Asset Vaue (000s) 4 $ Number of Units Outstanding 4 1 Management Epense Ratio 5 000%* Management Epense Ratio before waivers or absorptions 6 101%* Trading Epense Ratio 7 003% Portfoio Turnover Rate 8 558% Net Asset Vaue per Unit $ 1376 a Information presented is for the period from October 30, 2015 to December 31, 2015 * Ratio has been annuaized 4 This information is presented as at December 31 of the period(s) shown 5 Management epense ratio is based on the tota epenses of the fund (ecuding commissions and other portfoio transaction costs), incurred by or aocated to a cass of units for the period shown, epressed as an annuaized percentage of the daiy average net asset vaue of that cass during the period 6 The decision to waive and/or absorb management fees and operating epenses is at the discretion of the Manager The practice of waiving and/or absorbing management fees and operating epenses may continue indefinitey or may be terminated at any time without notice to unithoders 7 The trading epense ratio represents tota commissions and other portfoio transaction costs before income taes epressed as an annuaized percentage of the daiy average net asset vaue during the period Spreads associated with fied income securities trading are not ascertainabe and, for that reason, are not incuded in the trading epense ratio cacuation 8 The portfoio turnover rate indicates how activey the portfoio advisor and/or portfoio sub-advisor manages the portfoio investmentsa portfoio turnover rate of 100% is equivaent to a fund buying and seing a of the securities in its portfoio once in the course of the period The higher a portfoio turnover rate in a period, the greater the trading costs payabe by a fund in the period, and the greater the chance of an investor receiving taabe capita gains in the year There is not necessariy a reationship between a high turnover rate and the performance of a fund 5

6 CIBC Dividend Growth Fund Management Fees The Fund, either directy or indirecty, pays an annua management fee to CIBC to cover the costs of managing the Fund Management fees are based on the net asset vaue of the Fund and are cacuated daiy and paid monthy Management fees are paid to CIBC in consideration for providing, or arranging for the provision of, management, distribution, and portfoio advisory services Advertising and promotiona epenses, office overhead epenses, traiing commissions, and the fees of the portfoio sub-advisor(s) are paid by CIBC out of the management fees received from the Fund The Fund is required to pay appicabe taes on the management fees paid to CIBC Refer to the Simpified Prospectus for the maimum annua management fee rate for each cass of units For Cass O units, the management fee is negotiated with and paid by, or as directed by, unithoders or deaers and discretionary managers on behaf of unithoders Such Cass O management fee wi not eceed the Cass A unit management fee rate The foowing tabe shows a breakdown of the services received in consideration of the management fees, as a percentage of the management fees coected from the Fund for the period ended December 31, 2015 These amounts do not incude waived fees or absorbed epenses Cass A Units Saes and traiing commissions paid to deaers 4543% Genera administration, investment advice, and profit 5457% Past Performance The performance data provided assumes reinvestment of distributions ony and does not take into account saes, redemption, distribution, or other optiona charges payabe by any unithoder that woud have reduced returns Past performance does not necessariy indicate how a fund wi perform in the future The Fund s returns are after the deduction of fees and epenses, and the difference in returns between casses of units is primariy due to differences in the management epense ratio See the section entited Financia Highights for the management epense ratio Year-by-Year Returns These bar charts show the annua performance of each cass of units of the Fund for each of the periods shown, and iustrate how the performance has changed from period to period These bar charts show, in percentage terms, how an investment made on January 1 woud have increased or decreased by December 31, uness otherwise indicated Cass A Units 6

7 CIBC Dividend Growth Fund Cass O Units a 2015 return is for the period from October 30, 2015 to December 31, 2015 Annua Compound Returns This tabe shows the annua compound return of each cass of units of the Fund for each indicated period ended on December 31, 2015 The annua compound tota return is aso compared to the Fund s benchmark(s) During the period, the Fund's primary benchmark was changed to better refect the Fund's investment strategy The Fund s current benchmark is the S&P/TSX Composite Dividend Inde The Fund s previous benchmark was the S&P/TSX Composite Inde 1 Year 3 Years 5 Years 10 Years* or Since Inception* Inception Date Cass A units -105% 35% 31% 37% August 7, 1991 S&P/TSX Composite Dividend Inde -77% 51% 34% 48% S&P/TSX Composite Inde -83% 46% 23% 44% Cass O units -54% October 30, 2015 S&P/TSX Composite Dividend Inde -36% S&P/TSX Composite Inde -32% * If a cass of units has been outstanding for ess than 10 years, the annua compound return since inception is shown S&P/TSX Composite Dividend Inde aims to provide a broad-based benchmark of Canadian dividend-paying stocks It incudes a stocks in the S&P/TSX Composite Inde with positive annua dividend yieds as of the atest rebaancing of the S&P/TSX Composite Inde S&P/TSX Composite Inde is intended to represent the Canadian equity market and incudes the argest companies isted on the TSX A discussion of the reative performance of the Fund compared to its primary benchmark(s) can be found in Resuts of Operations 7

8 CIBC Dividend Growth Fund Summary of Investment Portfoio (as at December 31, 2015) The summary of investment portfoio may change due to ongoing portfoio transactions of the investment fund A quartery update is avaiabe by visiting wwwcibccom/mutuafunds The Top Positions tabe shows a fund s 25 argest positions For funds with fewer than 25 positions in tota, a positions are shown Cash and cash equivaents are shown in tota as one position % of Net Asset Portfoio Breakdown Vaue Financias 440 Energy 196 Teecommunication Services 76 Consumer Stapes 55 Industrias 53 Materias 52 Consumer Discretionary 50 Information Technoogy 31 Utiities 20 Cash & Cash Equivaents 16 Heath Care 11 % of Net Asset Vaue Top Positions Toronto-Dominion Bank (The) 72 Roya Bank of Canada 63 Canadian Nationa Raiway Co 50 Bank of Nova Scotia 46 Canadian Imperia Bank of Commerce 44 Bank of Montrea 39 BCE Inc 37 Enbridge Inc 31 Manuife Financia Corp 30 Sun Life Financia Inc 27 TELUS Corp 26 Aimentation Couche-Tard Inc, Cass 'B' 22 Agrium Inc 22 Magna Internationa Inc, Cass 'A' 22 Keyera Corp 21 Pembina Pipeine Corp 21 Suncor Energy Inc 21 Canadian Natura Resources Ltd 19 Intact Financia Corp 18 Canadian Apartment Properties REIT 18 TransCanada Corp 17 RioCan REIT 17 AtaGas Ltd 16 Open Tet Corp 16 Cash & Cash Equivaents 16 8

9 The management report of fund performance may contain forward-ooking statements Forward-ooking statements incude statements that are predictive in nature, that depend upon or refer to future events or conditions, or that incude words such as epects, anticipates, intends, pans, beieves, estimates, or other simiar wording In addition, any statements that may be made concerning future performance, strategies, or prospects and possibe future actions taken by the fund, are aso forward-ooking statements These statements invove known and unknown risks, uncertainties, and other factors that may cause the actua resuts and achievements of the fund to differ materiay from those epressed or impied by such statements Such factors incude, but are not imited to: genera economic, market, and business conditions; fuctuations in securities prices, interest rates, and foreign currency echange rates; changes in government reguations; and catastrophic events We do not undertake, and specificay discaim, any obigation to update or revise any forward-ooking statements, whether as a resut of new information, future deveopments, or otherwise prior to the reease of the net management report of fund performance

10 CIBC Mutua Funds CIBC Famiy of Managed Portfoios CIBC 18 York Street, Suite 1300 Toronto, Ontario M5J 2T8 CIBC Securities Inc Website wwwcibccom/mutuafunds CIBC Securities Inc is a whoy-owned subsidiary of CIBC and is the principa distributor of the CIBC Mutua Funds and the CIBC Famiy of Managed Portfoios CIBC Famiy of Managed Portfoios are mutua funds that primariy invest in other CIBC Mutua Funds To obtain a copy of the simpified prospectus, ca CIBC Securities Inc at or ask your advisor