Annual Management REPORT OF FUND PERFORMANCE. Fiera Sceptre Core Canadian Equity Fund (formerly the Sceptre Canadian Equity Fund)

Transcription

1 Annual Management REPORT OF FUND PERFORMANCE Fo r t h e ye a r e n d e d DEC EMBER 31, Fiera Sceptre Core Canadian Equity Fund (formerly the Sceptre Canadian Equity Fund)

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3 Fiera Sceptre Core Canadian Equity Fund (formerly the Sceptre Canadian Equity Fund) ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE For the year ended December 31, 2011 Annual Management Report of Fund Performance Page 1 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 , by writing to us at Fiera Sceptre Inc., 1501 McGill College, suite 800, Montreal, QC, H3A 3M8 or by visiting our website at or SEDAR at Securityholders may also contact us using one of these methods to request a copy of the investment fund s proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure. MANAGEMENT DISCUSSION OF FUND PERFORMANCE Investment Objective and Strategies The objective of the Fiera Sceptre Core Canadian Equity Fund (the Fund ) is to achieve the highest possible long-term return that is consistent with a conservative investment philosophy encompassing a diversified portfolio approach. The investment style is a blend of value with growth, incorporating both a bottom-up (75%) and a top-down (25%) process. The Fund is a core diversified portfolio of large, medium and small capitalization stocks, with an emphasis and focus on medium to large companies. High quality companies are selected if they represent good value, based on financial strength, earnings growth, strong management and superior products/services. Analysis of company finances and operations is a critical element of security selection. The Fund does not have a bias towards any particular sector. Stock selection is widely diversified among four broad market categories Interest Sensitive, Consumer Related, Resource and Industrial. The Fund invests directly or indirectly in international equity markets. Risk No material changes were made which affected the overall level of risk associated with an investment in the Fund for the one-year period ended December 31, The overall level of risk associated with an investment in the Fund remains as discussed in the simplified prospectus dated August 26, Results of Operations For the 12 month period ending December 31, 2011, the Fiera Sceptre Core Canadian Equity Fund Class A units returned -12.8% after fees, Class B returned -12.3%, Class F returned -12.1% while Class O units returned -10.6%, while the Fund s comparative benchmark index, the S&P/TSX Composite Index, declined 8.7% for the same period. Risk aversion unsettled equity markets in 2011 as investors focused on macroeconomic issues in Europe and signs of a decelerating economy in the US. The Fund s relative performance during the year was primarily attributable to a lack of exposure to the top performing Pipelines sub-sector, offset by positive contributions from stock selection in the Consumer Discretionary and Technology sectors. During 2011, we made select changes to the Fund based on our bottom-up, fundamental approach.we initiated a new position in MEG Energy, an oil-sands producer with exposure to solid land leases and attractive production growth rates. Conversely, we eliminated our holdings in Crescent Point Energy and Pacific Rubiales due to reduced visibility for future production growth.we added Loblaw to the portfolio as rising food inflation and a curtailment of IT spending should support earnings growth over the medium term. Offsetting the purchase of Loblaw, we eliminated our holding in Gildan, as we expect profitability to decline as the company transitions into new market segments. In the Financial Services Sector, we eliminated our position in Bank of Montreal as we remain concerned with its US expansion strategy. Lastly we sold our position in Barrick Gold, following an unexpected African copper mine purchase and initiated positions in Osisko, a gold company with its primary operation located in Quebec, and Eldorado, a high growth international gold producer. Stocks which had a positive impact on performance for 2011 include Canadian National Railway (+23%) as an improving economic backdrop has resulted in improved freight volumes and pricing, Rogers (+17%) a dividend growth stock, and Tim Horton s (+15%) outperformed due to continued signs of improving profitability in the US and strong domestic sales. Not owning Kinross, Sino-Forest and Sun Life also helped with our performance relative to the TSX Index. Stocks that detracted from the Fund s performance included Teck Resources (-41%) which had

4 Page 2 Sceptre Investment Counsel Limited Management Discussion of Fund Performance continued a negative impact due to a combination of increased risk aversion and reduced production guidance from its coal business, and Manulife (-34%) which continued to suffer from falling interest rates and a declining stock market. As mentioned earlier, not owning Pipeline companies Enbridge and TransCanada also hurt our performance. Recent Developments While the core of the Fund remains relatively unchanged since December 2010, we have added to positions which are likely to experience improving profitability and earnings growth in a more positive economic environment. The Fund holds a substantial position in Energy, with a preference for exploration and production companies versus the servicing and transportation companies, as we expect energy prices to remain strong over the longer term. We continue to hold a material position in Financial Services as the Canadian banks will likely experience solid earnings growth from domestic operations and should benefit from their higher levels of regulatory capital versus their global peers. As a result, we expect the Canadian banks to generate attractive returns on capital in Within Materials, we maintain our overweight position in the fertilizer stocks as we expect demographic trends and declining arable land to demand rising crop yields over the longer term. Overall, we believe the Fund is well positioned for 2012 and continue to seek high quality investments as determined by our fundamental approach to selecting stocks. Related Party Transactions Fiera Sceptre Inc., ( Fiera Sceptre ) is the Trustee, Portfolio Advisor and Manager of the Fund. Fiera Sceptre Inc. provides or arranges for the provision of all general management and administrative services required by the Fund in its day to day operations, including establishment of brokerage arrangements relating to the purchase and sale of the investment portfolio and recordkeeping. Fiera Sceptre receives a fee for these services as detailed in the following supplemental data. Fiera Sceptre adopted the practice of funding seed capital for funds that it promotes. Fiera Sceptre held 100% of Class A units, and 0.4% of Class F units at December 31, 2011.

5 Annual Management Report of Fund Performance Page 3 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 past 5 years, where applicable. Fiera Sceptre Core Canadian Equity Fund Class A (4)(5) The Fund s Net Assets per Unit Net Assets, beginning of year (1)(3) $ $ $ Increase (decrease) from operations: Total revenue Total expenses (0.57) (0.40) (0.33) Realized gains (losses) for the year Unrealized gains (losses) for the year (3.84) 2.40 Total increase (decrease) from operations (1) (2.57) Distributions: From income (excluding dividends) From dividends (0.07) (0.22) From capital gains Return of capital Total Annual Distributions (2) (0.07) (0.22) Net Assets, end of year $ $ $ (1) Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase (decrease) from operations is based on the weighted average number of units outstanding over the financial period. Class D units were created April 1, (2) Distributions were paid in cash/reinvested in additional units of the Fund, or both. (3) This information is derived from the Fund s financial statements. The net assets per unit presented in the financial statements differ from the net asset value calculated for fund pricing purposes. For investments that are traded in an active market where quoted prices are readily and regularly available, Section 3855 requires bid prices (for investments held) or ask prices (for investments sold short) to be used in the fair valuation of investments, rather than the use of closing sale prices currently used for the purpose of determining Transactional NAV. (4) On August 26, 2011, the existing Class D were redesigned as Class A. Ratios and Supplemental Data Net Asset Value ($ 000 s) (1) Number of units outstanding (1) ,640 Management expense ratio (%) (2) Management expense ratio before waivers or absorptions (%) Portfolio turnover rate (%) (3) * Trading expense ratio (%) (4) Net Asset Value per unit $17.39 $20.03 $17.49 (1) The information is provided as at December 31 of the year shown. (2) Management expense ratio is based on total expenses (excluding commissions and other portfolio transaction costs) for the stated year and is expressed as an annualized percentage of daily average net asset value during the period. (3) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher a fund s portfolio turnover in a year, the greater the trading costs payable by the fund in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of a fund. (4) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. (5) On August 26, 2011, the existing Class D were redesignated as Class A. * Annualized Management Fees An annual management fee of 2.00% of the Class A net asset value is accrued daily, is attributable only to the Class A units, and is paid to Fiera Sceptre monthly in arrears. Management fees are used by Fiera Sceptre to pay for the costs of managing and promoting the Fund. The major components of such costs include portfolio advisor compensation, transaction compliance, regulatory fees, insurance, and development and marketing costs. In addition, to assist dealers with their distribution, administration and other client service costs in relation to Class A units of the Fund, dealers are paid a trailer fee at the end of each quarter out of the management fees at the rate of 1.00% of the total NAV held by each dealer s clients at the quarter end.

6 Page 4 Sceptre Investment Counsel Limited FINANCIAL HIGHLIGHTS continued Fiera Sceptre Core Canadian Equity Fund Class B (4)(5) The Fund s Net Assets per Unit Net Assets, beginning of year (1)(3) $ $ $ $ $ Increase (decrease) from operations: Total revenue Total expenses (0.47) (0.39) (0.32) (0.47) (0.38) Realized gains (losses) for the year (0.01) (1.97) 0.50 Unrealized gains (losses) for the year (3.78) (5.96) 1.17 Total increase (decrease) from operations (1) (2.45) (7.98) 1.66 Distributions: From income (excluding dividends) From dividends (0.11) (0.03) (0.11) (0.02) (0.02) From capital gains Return of capital Total Annual Distributions (2) (0.11) (0.03) (0.11) (0.02) (0.02) Net Assets, end of year $ $ $ $ $ (1) Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase (decrease) from operations is based on the weighted average number of units outstanding over the financial period. (2) Distributions were paid in cash/reinvested in additional units of the Fund, or both. (3) This information is derived from the Fund s financial statements. The net assets per unit presented in the financial statements differ from the net asset value calculated for fund pricing purposes. For investments that are traded in an active market where quoted prices are readily and regularly available, Section 3855 requires bid prices (for investments held) or ask prices (for investments sold short) to be used in the fair valuation of investments, rather than the use of closing sale prices currently used for the purpose of determining Transactional NAV. (4) On August 26, 2011, the existing Class A were redesigned as Class B. Ratios and Supplemental Data Net Asset Value ($ 000 s) (1) 13,097 18,924 20,852 18,107 30,484 Number of units outstanding (1) 740, ,616 1,178,714 1,319,674 1,420,715 Management expense ratio (%) (2) Management expense ratio before waivers or absorptions (%) Portfolio turnover rate (%) (3) Trading expense ratio (%) (4) Net Asset Value per unit $17.70 $20.31 $17.69 $13.72 $21.46 (1) The information is provided as at December 31 of the year shown. (2) Management expense ratio is based on total expenses (excluding commissions and other portfolio transaction costs) for the stated year and is expressed as an annualized percentage of daily average net asset value during the period. (3) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher a fund s portfolio turnover in a year, the greater the trading costs payable by the fund in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of a fund. (4) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. (5) On August 26, 2011, the existing Class A were redesignated as Class B. Management Fees An annual management fee of 1.25% of the Class B net asset value is accrued daily, is attributable only to the Class B units, and is paid to Fiera Sceptre monthly in arrears. Management fees are used by Fiera Sceptre to pay for the costs of managing and promoting the Fund. The major components of such costs include portfolio advisor compensation, transaction compliance, regulatory fees, insurance, and development and marketing costs. In addition, to assist dealers with their distribution, administration and other client service costs in relation to Class B units of the Fund, dealers are paid a trailer fee at the end of each quarter out of the management fee at the rate of 0.25% of the total NAV held by each dealer s clients at the quarter end.

7 Annual Management Report of Fund Performance Page 5 FINANCIAL HIGHLIGHTS continued Fiera Sceptre Core Canadian Equity Fund Class F The Fund s Net Assets per Unit Net Assets, beginning of year (1)(3) $ $ $ $ $ Increase (decrease) from operations: Total revenue Total expenses (0.41) (0.34) (0.26) (0.47) (0.31) Realized gains (losses) for the year (0.03) (2.25) 0.58 Unrealized gains (losses) for the year (4.78) (5.30) (0.94) Total increase (decrease) from operations (1) (2.94) (7.61) (0.29) Distributions: From income (excluding dividends) From dividends (0.18) (0.06) (0.10) (0.20) From capital gains Return of capital Total Annual Distributions (2) (0.18) (0.06) (0.10) (0.20) Net Assets, end of year $ $ $ $ $ (1) Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase (decrease) from operations is based on the weighted average number of units outstanding over the financial period. (2) Distributions were paid in cash/reinvested in additional units of the Fund, or both. (3) This information is derived from the Fund s financial statements. The net assets per unit presented in the financial statements differ from the net asset value calculated for fund pricing purposes. For investments that are traded in an active market where quoted prices are readily and regularly available, Section 3855 requires bid prices (for investments held) or ask prices (for investments sold short) to be used in the fair valuation of investments, rather than the use of closing sale prices currently used for the purpose of determining Transactional NAV. Ratios and Supplemental Data Net Asset Value ($ 000 s) (1) Number of units outstanding (1) 12,131 25,176 25,175 34,681 26,704 Management expense ratio (%) (2) Management expense ratio before waivers or absorptions (%) Portfolio turnover rate (%) (3) Trading expense ratio (%) (4) Net Asset Value per unit $17.78 $20.43 $17.77 $13.73 $21.37 (1) The information is provided as at December 31 of the year shown. (2) Management expense ratio is based on total expenses (excluding commissions and other portfolio transaction costs) for the stated year and is expressed as an annualized percentage of daily average net asset value during the period. (3) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher a fund s portfolio turnover in a year, the greater the trading costs payable by the fund in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of a fund. (4) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. Management Fees An annual management fee of 1.00% of the Class F net asset value is accrued daily, is attributable only to the Class F units, and is paid to Fiera Sceptre monthly in arrears. Management fees are used by Fiera Sceptre to pay for the costs of managing and promoting the Fund.The major components of such costs include transaction compliance, regulatory fees, insurance, and development and marketing costs.

8 Page 6 Sceptre Investment Counsel Limited FINANCIAL HIGHLIGHTS continued Fiera Sceptre Core Canadian Equity Fund Class O The Fund's Net Assets per Unit Net Assets, beginning of year (1)(3) $ $ $ $ $ Increase (decrease) from operations: Total revenue Total expenses (0.03) (0.02) (0.02) (0.03) (0.04) Realized gains (losses) for the year (0.01) (2.40) 0.53 Unrealized gains (losses) for the year (3.80) (6.45) 1.39 Total increase (decrease) from operations (1) (2.12) (8.43) 2.27 Distributions: From income (excluding dividends) From dividends (0.49) (0.37) (0.40) (0.27) (0.32) From capital gains Return of capital (0.01) Total Annual Distributions (2) (0.49) (0.37) (0.41) (0.27) (0.32) Net Assets, end of year $ $ $ $ $ (1) Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase (decrease) from operations is based on the weighted average number of units outstanding over the financial period. (2) Distributions were paid in cash/reinvested in additional units of the Fund, or both. (3) This information is derived from the Fund s financial statements. The net assets per unit presented in the financial statements differ from the net asset value calculated for fund pricing purposes. For investments that are traded in an active market where quoted prices are readily and regularly available, Section 3855 requires bid prices (for investments held) or ask prices (for investments sold short) to be used in the fair valuation of investments, rather than the use of closing sale prices currently used for the purpose of determining Transactional NAV. Ratios and Supplemental Data Net Asset Value ($ 000 s) (1) 54, , ,340 92, ,863 Number of units outstanding (1) 2,889,740 5,560,100 6,381,041 6,351,585 4,756,758 Management expense ratio (%) (2) Management expense ratio before waivers or absorptions (%) Portfolio turnover rate (%) (3) Trading expense ratio (%) (4) Net Asset Value per unit $18.74 $21.49 $18.70 $14.49 $22.68 (1) The information is provided as at December 31 of the year shown. (2) Management expense ratio is based on total expenses (excluding commissions and other portfolio transaction costs) for the stated year and is expressed as an annualized percentage of daily average net asset value during the period. (3) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher a fund s portfolio turnover in a year, the greater the trading costs payable by the fund in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of a fund. (4) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. Management Fees Class O unitholders are discretionary clients of Fiera Sceptre. Management fees related to Class O net asset value are handled outside of the Fund and are paid directly to Fiera Sceptre from assets held by Class O unitholders. Management fees are used by Fiera Sceptre to pay for the costs of managing and promoting the Fund.The major components of such costs include portfolio advisor compensation, transaction compliance, regulatory fees, insurance, and development and marketing costs.

9 Annual Management Report of Fund Performance Page 7 Past Performance The performance information shown below assumes that all distributions made by the Fund were reinvested in additional units of the Fund. The performance information does not take into account sales, redemption, distribution or other optional charges that, if applicable, would have reduced returns or performance. Mutual funds are not guaranteed. How the Fund performed in the past does not necessarily indicate how it will perform in the future. Year-by-Year Returns The following bar charts show the Fund s annual performance for each of the years shown, and illustrate how the Fund s performance has changed from year to year. The chart shows, in percentage terms, how much an investment in the Fund made on the first day of each financial year would have grown or decreased by the last day of each financial year. Class A Units Annual returns Class B Units Annual returns for the year ended December 31 for the year ended December 31 40% 40% 30% 31.9%* 30% 29.8% 29.9% 20% 10% 14.5% 20% 10% 15.5% 16.3% 21.5% 10.5% 15.0% 0% 0% -10% -20% -12.8% -10% -20% -11.7% -12.3% -30% -30% -40% % % * From March 31, 2009 to December 31, 2009 Class F Units Annual returns Class O Units Annual returns for the year ended December 31 for the year ended December 31 40% 40% 30% 20% 10% 10.82% 29.5% 15.4% 30% 20% 10% 31.4% 32.1% 22.8% 17.0% 17.4% 17.2% 12.1% 0% 0% -10% -12.1% -10% -10.3% -10.6% -20% -20% -30% -30% -40% % % %

10 Page 8 Sceptre Investment Counsel Limited Annual Compound Returns The following table compares the historical annual compound total returns of Class A, D, F and O units of the Fund with the S&P/TSX Composite Index (the S&P/TSX Composite Index reflects the performance of stocks of major companies incorporated under Canadian jurisdictions and listed on the TSX). The Class A units underperformed the Index over the 1 year period and since inception. The Class B units underperformed the Index over the 1, 3, 5 and 10 year periods.the Class F units underperformed the Index the 1, 3, and 5 year periods and since inception. The Class O units underperformed the Index the 1, 3, and 5 year periods and since inception. Since Inception (March 31, 2009) Past 1 year Fiera Sceptre Core Canadian Equity Fund Class A 10.6% -12.8% S&P/TSX Composite Index 15.88% -8.7% Past 10 years Past 5 years Past 3 years Past 1 year Fiera Sceptre Core Canadian Equity Fund Class B 5.7% -1.5% 9.4% -12.3% S&P/TSX Composite Index 7.0% 1.3% 13.2% -8.7% Since inception (December 29, 2006) Past 5 years Past 3 years Past 1 year Fiera Sceptre Core Canadian Equity Fund Class F -1.2% -1.2% 9.7% -12.1% S&P/TSX Composite Index 1.3% 1.3% 13.2% -8.7% Since inception (July 13, 2001) Past 5 years Past 3 years Past 1 year Fiera Sceptre Core Canadian Equity Fund Class O 7.1% 0.2% 11.5% -10.6% S&P/TSX Composite Index -8.4% 1.3% 13.2% -8.7%

11 Annual Management Report of Fund Performance Page 9 Summary of Investment Portfolio as at December 31, 2011 Sector Mix % of Fund s Transactional Net Asset Energy Materials Industrials 7.34 Consumer Discretionary 4.08 Consumer Staples 2.26 Financials Telecommunications Services 5.08 Mutual Funds Cash and Cash Equivalents 1.33 Net Other Assets (0.06) Total Net Asset Value: $67,481,630 Top 25 Investments % of Fund s Transactional Net Asset 1 Sceptre Equity Growth Fund, Class O * The Toronto-Dominion Bank Royal Bank of Canada Bank of Nova Scotia Canadian National Railway Co Suncor Energy Inc Canadian Natural Resources Ltd Goldcorp Inc Canadian Imperial Bank of Commerce Potash Corp of Saskatchewan Inc Cenovus Energy Inc BCE Inc Rogers Communications Inc., Class B Teck Resources Ltd., Class B Brookfield Asset Management Inc., Class A Manulife Financial Corp Silver Wheaton Corp Canadian Pacific Railway Ltd Shaw Communications Inc., Class B Tim Hortons Inc Talisman Energy Inc Baytex Energy Corp Agrium Inc Cash and Cash Equivalents Imperial Oil Ltd The summary of investment portfolio may change due to ongoing portfolio transactions of the Fund. You may obtain quarterly updates to the Fund s holdings free of charge by calling , by writing to us at Fiera Sceptre Inc., 1501 McGill College, suite 800, Montreal, QC, H3A 3M8 or by visiting our website at or SEDAR at

12 1501 McGill College Avenue, Suite 800 Montréal, Québec H3A 3M8 T: / One Queen Street East, Suite 2020 Toronto, Ontario M5C 2W5 T: / West Georgia Street, Suite 2001 Vancouver, British Columbia V6E 4A2 T: / Erb Street West, Suite 504 Waterloo, Ontario N2L 1T2 T: / L M07E