2004 Annual Report
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Schedule H – Investment Summary Prepared by Eckler Partners Ltd as at March
31, 2004
Overview
- Total assets consist of two main components:
- An Investible Fund, split into two portfolios
- Long Term Fund investing in real return bonds, equities and
other bonds
- Short Term Fund investing in short term bonds
- A Notional Fund, consisting of amounts owed by the provincial
governments
- Investible assets are managed by TD Asset Management, either
passively or on an indexed basis
- Royal Trust are the custodians of the investible assets
- Our analysis is based on statements provided by both Royal Trust
and TD Asset Management as well as previous performance analyses done by Towers
Perrin
- In particular
- All dollar amounts, including asset values and cashflows, are
taken from Royal Trust accounts
- These differed from the audited financial statements for fiscal
2003
- We have not restated our 2003 analysis as a result of this
- Returns after March 2002 are derived from the TD quarterly statements
and have not been independently verified
- Returns prior to April 2002 are mainly from Towers Perrin reports
- TD Asset Management is required to certify that it has complied
with the investment guidelines specified by the trustees. We have not verified
that this has taken place or that the guidelines have been complied with.
Asset Summary
($,000's) |
|
Mar-04 |
Mar-03 |
Fund |
Portfolio |
Strategy |
Bench-mark |
Value |
Asset Alloc |
Fund Alloc |
Value |
Asset Alloc |
Fund Alloc |
Long term |
Real Return Bonds |
Passive |
80.0% |
632,259 |
83.1% |
|
570,260 |
84.4% |
|
|
Universe Bonds |
Index |
6.0% |
42,164 |
5.5% |
|
40,327 |
6.0% |
|
|
Canadian Equity |
Index |
7.0% |
47,411 |
6.2% |
|
35,046 |
5.2% |
|
|
US Equity |
Index |
3.5% |
17,892 |
2.4% |
|
15,088 |
2.2% |
|
|
EAFE Equity |
Index |
3.5% |
20,694 |
2.7% |
|
15,032 |
2.2% |
|
|
Cash |
|
0.0% |
53 |
0.0% |
|
16 |
0.0% |
|
|
|
|
100.0% |
760,474 |
100.0% |
68.8% |
675,768 |
100.0% |
64.4% |
Short Term |
Short Term Bonds |
Index |
|
104,590 |
|
|
117,906 |
|
|
|
Cash |
|
|
35 |
|
|
366 |
|
|
|
|
|
|
104,625 |
|
9.5% |
118,272 |
|
11.3% |
Total Invested Assets * |
|
|
|
865,099 |
|
78.3% |
794,040 |
|
75.7% |
Provinces Notional Assets (net of prepayments) |
|
|
|
240,086 |
|
21.7% |
254,761 |
|
24.3% |
Total Assets |
|
|
|
1,105,185 |
|
100.0% |
1,048,801 |
|
100.0% |
* Total Invested Assets includes
prepayments from Alberta and Ontario |
|
Split of Invested Assets between: |
|
Long Term Fund |
87.9% |
|
|
85.1% |
Short Term Fund |
12.1% |
|
|
14.9% |
Total Invested
Assets |
100.0% |
|
|
100.0% |
This analysis is based on the Royal Trust statements. In 2003 they differed from the audited finanacial statements by $ 839,000. The 2003 position
stated above is taken from our Investment Summary as at March 31, 2003
and has not been adjusted for this difference.
Totals may not add due to rounding
Comments on Asset Summary
As of March 31, 2004
- Real return bonds are currently 3.1% above their benchmark
of 80% of the Long Term Fund
- At March 31, 2003 they were further from the benchmark (4.4%
above)
- This decrease is largely the result of the differences in
relative returns for the different asset classes
- positive for real return bonds, but even more strongly positive
for equities
- Universe bonds are slightly below their benchmark
- Equities are below their benchmark by 2.7%.
- In 2003 they were 4.4% below their benchmark
- The closing of the gap was largely due to relative investment
performance compared to bonds
- PT Notional Funds are net of prepayments by Alberta and
Ontario
- As a percentage of the Invested Assets, the Long Term Fund
has increased from 85.1% to 87.9%, while the Short Term Fund has decreased
from 14.9% to 12.1% during the fiscal year
Asset Development ($,000's)
|
Invested Assets
1 |
|
|
|
Real
Return
Bond
Fund
|
Other Long Term Funds |
Short Term Funds |
Invested Assets 1 |
Provinces' Notional Assets 1 |
Total Assets |
Initial, at April 1, 2003 |
570,267 |
105,501 |
118,272 |
794,040 |
254,761 |
1,048,801 |
Investment Income |
82,160 |
26,355 |
8,815 |
117,330 |
7,013 |
124,343 |
(realized and unrealized) |
|
|
|
|
|
|
Inflow: Recoveries from Provinces |
- |
- |
18,636 |
18,636 |
(18,636) |
- |
Net additional prepayment by Alberta |
|
|
3,053 |
3,053 |
(3,053) |
- |
Outflow:Benefit Payments |
- |
- |
(62,074) |
(62,074) |
- |
(62,074) |
Expenses |
- |
- |
(5,885) |
(5,885) |
- |
(5,885) |
Transfers between funds |
(20,123) |
(3,686) |
23,809 |
- |
- |
- |
Closing, at March 31, 2004 |
632,3042 |
128,1702 |
104,625 |
865,099 |
240,086 |
1,105,185 |
Totals may not add due to rounding
- Invested Assets include PT prepayments; Provinces' Notional Assets are net of prepayments
- These figures differ slightly from those on page 3 because of allocation of cash balances
- Based on Royal Trust statements. The position at April 1, 2003 was understated relative to the audited accounts by $839,000. The bulk of the understatement was due to Royal Trust's
treatment of accrued income on real return bonds. This has been corrected
for the March 2004 statements. We have not revised our fiscal 2003
figures quoted last year - the differences are included in the fiscal
2004 results.
Comments on Asset Development
- Total invested assets (i.e. excluding PT assets) have
increased over the year to March 31, 2004 by $71m
- As a result of investment returns exceeding the “federal” 8/11ths
share of the total payouts
- And an additional prepayment by Alberta of $3m (net)
- The notional PT assets have decreased by $14.7m
- Interest credits are at T-bill rates and hence the returns
are relatively lower than on the invested assets and did not exceed
their 3/11ths share of the total payout
- Total assets (i.e. including PT assets) have increased
by $56.4m
- Benefits are paid from the Short Term Fund
- From June 2002 onwards all recoveries from the provinces
were allocated to the Short Term Fund
- This practice is expected to continue in the future
- TD Asset Management made transfers from the Long Term
Fund to the Short Term Fund of $23.8m
- $20.1m from real return bonds in June and December 2003
- $3.7m from other long term funds spread relatively evenly
over the fiscal year
Expansion of PT Assets ($,000's)
| |
Less: prepayments |
|
Gross PT Assets |
Ontario |
Alberta |
Net PT Assets |
Initial, at April 1, 2003 |
256,361 |
9 |
1,591 |
254,761 |
Interest Credits |
7,117 |
0 |
104 |
7,013 |
Additional Prepayments |
- |
- |
3,053 |
(3,053) |
3/11th share of benefits/expenses |
(18,636) |
- |
- |
(18,636) |
Closing, At March 31, 2004 |
244,842 |
9 |
4,747 |
240,086 |
- Ontario's prepayments were used up by August 2002.
They started making cash payments to cover their share of the benefits/expenses
in September 2002; these subsequent amounts are included in the PT
recoveries on page 5
- Ontario's prepayment balance is negligible
- Alberta made a total payment of $5m in 2004. This was
$3m in excess of its share of the benefits/expenses in 2004
Totals may not add due to rounding
Investment Returns
|
|
Fiscal Year
ending |
Quarterly
Returns Fiscal 2004 |
Fund |
Portfolio |
2001 |
2002 |
2003 |
2004 |
|
Long term |
Real Return Bonds |
11.3% |
2.3% |
19.7% |
14.6% |
1.1% |
1.1% |
4.6% |
7.1% |
|
Universe Bonds |
8.8% |
5.1% |
9.2% |
10.6% |
5.0% |
1.3% |
0.8% |
3.1% |
|
Canadian Equity |
-17.4% |
5.0% |
-17.0% |
37.5% |
10.6% |
6.6% |
11.3% |
4.8% |
|
US Equity |
-15.2% |
1.2% |
-30.9% |
20.2% |
6.5% |
1.9% |
7.3% |
3.3% |
|
EAFE Equity |
-19.9% |
-7.0% |
-29.5% |
40.5% |
10.1% |
7.2% |
12.2% |
6.1% |
|
Total |
7.0% |
2.3% |
12.6% |
16.4% |
2.3% |
1.5% |
5.2% |
6.6% |
Short Term |
Short Term Bonds |
9.0% |
5.9% |
7.0% |
8.1% |
3.1% |
1.3% |
0.8% |
2.7% |
Total Invested Assets |
|
7.5% |
3.5% |
11.7% |
15.3% |
2.4% |
1.4% |
4.6% |
6.1% |
Notional PT Assets |
|
5.6% |
3.5% |
2.6% |
2.9% |
0.8% |
0.8% |
0.6% |
0.6% |
Total Assets |
|
7.1% |
3.6% |
9.4% |
12.4% |
2.0% |
1.3% |
3.7% |
4.9% |
Notes:
- Returns for the fiscal years 2001 and 2002 are as reported in the Towers Perrin Investment Performance Summary March 2002.
- Quarterly returns for the component portfolios for the fiscal year 2003 and 2004 are as reported by TD Asset Management in their quarterly investment reports. EPL has not
independently verified these.
- Aggregated quarterly returns (Total Long Term, Total Invested Assets and Total Assets) are calculated by EPL taking into account the relative market values, cashflows and investment
returns of the component portfolios.
- Returns for the fiscal year 2003 and 2004 are calculated by EPL based on the quarterly returns shown above.
- EPL returns are calculated on an approximate basis, using average cashflows; they may differ slightly from returns calculated by a performance measurement service using
daily cashflows.
Comments on Investment Returns
- The overall return of 12.4% for fiscal 2004 is the
result of positive returns from all the component portfolios
- The returns were particularly strong in the equity
categories, which is a reversal of the negative equity returns
seen in fiscal 2003
- The PT notional fund is charged interest at the
3 month T-bill rate; in 2004 these rates were significantly lower
than the returns on the invested assets
Tracking Error
|
|
Fiscal
Year ending |
4 years |
Target
tracking error |
|
|
2001 |
2002 |
2003 |
2004 |
2001
- 2004 |
1 year |
4 years |
Universe Bonds |
Actual |
8.8% |
5.1% |
9.2% |
10.6% |
8.4% |
|
|
|
Index |
8.7% |
5.1% |
9.1% |
10.8% |
8.4% |
|
|
|
t/e |
0.1% |
0.0% |
0.1% |
-0.2% |
0.0% |
0.2% |
0.1% |
Canadian Equity |
Actual |
-17.4% |
5.0% |
-17.0% |
37.5% |
-0.3% |
|
|
|
Index |
-18.6% |
4.9% |
-17.6% |
37.7% |
-0.8% |
|
|
|
t/e |
1.2% |
0.1% |
0.6% |
-0.2% |
0.5% |
0.3% |
0.2% |
US Equity |
Actual |
-15.2% |
1.2% |
-30.9% |
20.2% |
-8.1% |
|
|
|
Index |
-15.2% |
1.4% |
-30.8% |
20.4% |
-8.0% |
|
|
|
t/e |
0.0% |
-0.2% |
-0.1% |
-0.2% |
-0.1% |
0.3% |
0.2% |
EAFE Equity |
Actual |
-19.9% |
-7.0% |
-29.5% |
40.5% |
-7.3% |
|
|
|
Index |
-19.6% |
-7.3% |
-29.2% |
40.8% |
-7.2% |
|
|
|
t/e |
-0.3% |
0.3% |
-0.3% |
-0.3% |
-0.1% |
0.6% |
0.3% |
Short Term Bonds |
Actual |
9.0% |
5.9% |
7.0% |
8.1% |
7.5% |
|
|
|
Index |
8.9% |
5.8% |
7.0% |
8.3% |
7.5% |
|
|
|
t/e |
0.1% |
0.1% |
0.0% |
-0.2% |
0.0% |
0.2% |
0.1% |
- Actual Returns for the fiscal years 2001 and 2002 are as reported in the Towers Perrin Investment Performance Summary
March 2002.
- Actual returns for the fiscal year 2003 and 2004 are calculated by EPL based on the quarterly returns reported by TD Asset
Management
- Index Returns for all years are calculated by EPL, based on quarterly index returns reported by TD Asset Management
- The annualized returns for the '4 years 2001 - 2004' are calculated by EPL, based on the annual returns shown above
Comments on Tracking Error
- Canadian Equity has a positive tracking error
outside the one year target range for fiscal 2001 and 2003,
as well as outside the 4 year target range for the four years
ending 2004
- All other portfolios meet their tracking error
target over both one and four years
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