2005 Annual Report
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Schedule H - Investment Summary Prepared by Eckler Partners Ltd as at March 31, 2005
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
- 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
($,000's) |
|
Mar-05 |
Mar-04 |
Fund |
Portfolio |
Strategy |
Bench-mark |
Value |
Asset Alloc |
Fund Alloc |
Value |
Asset Alloc |
Fund Alloc |
Long term |
Real Return Bonds |
Passive |
80.0% |
676,470 |
83.5% |
|
632,253 |
83.1% |
|
|
Universe Bonds |
Index |
6.0% |
41,930 |
5.2% |
|
42,164 |
5.5% |
|
|
Canadian Equity |
Index |
7.0% |
53,264 |
6.6% |
|
47,411 |
6.2% |
|
|
US Equity |
Index |
3.5% |
17,234 |
2.1% |
|
17,892 |
2.4% |
|
|
EAFE Equity |
Index |
3.5% |
21,432 |
2.6% |
|
20,694 |
2.7% |
|
|
Cash |
|
0.0% |
86 |
0.0% |
|
53 |
0.0% |
|
|
|
|
100.0% |
760,474 |
100.0% |
72.6% |
675,768 |
100.0% |
68.8% |
Short Term |
Short Term Bonds |
Index |
|
77,878 |
|
|
104,590 |
|
|
|
Cash |
|
|
20 |
|
|
35 |
|
|
|
|
|
|
77,897 |
|
7.0% |
104,625 |
|
9.5% |
Total Invested Assets * |
|
|
|
88,315 |
|
79.6% |
865,099 |
|
78.3% |
Provinces Notional Assets (net of prepayments) |
|
|
|
224,986 |
|
20.4% |
240,086 |
|
21.7% |
Total Assets |
|
|
|
1,116,301 |
|
100.0% |
1,105,185 |
|
100.0% |
* Total Invested Assets includes prepayments from Alberta and Ontario |
|
|
Split of Invested Assets between: |
|
Long Term Fund |
91.2% |
|
|
87.9% |
Short Term Fund |
8.8% |
|
|
12.1% |
Total Invested Assets |
100.0% |
|
|
100.0% |
Totals may not add due to rounding
Comments on Asset Summary
As of March 31, 2005
- Real return bonds are currently 3.5% above their benchmark of 80% of the Long Term Fund
- This is largely unchanged from March 31, 2004 (3.1% above benchmark)
- Universe bonds are slightly below their benchmark
- Equities are below their benchmark by 2.7%.
- In 2004 they were also 2.7% below their benchmark
- PT Notional Funds are net of prepayments by Alberta and Ontario
- As a percentage of the Invested Assets, the Long Term Fund has increased from 87.9% to 91.2%, while the Short Term Fund
has decreased from 12.1% to 8.8% during the fiscal year
Asset Development ($,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, 2004 |
632,304 |
128,170 |
104,625 |
865,099 |
240,086 |
1,105,185 |
Investment Income |
64,618 |
9,401 |
2,677 |
76,696 |
5,173 |
81,869 |
(realized and unrealized) |
|
|
|
|
|
|
Inflow: Recoveries from Provinces |
- |
- |
17,273 |
17,273 |
(17,273) |
- |
Outflow:Benefit Payments |
- |
- |
(65,111) |
(65,111) |
- |
(65,111) |
Expenses |
- |
- |
(5,642) |
(5,642) |
- |
(5,642) |
Transfers between funds |
(20,375) |
(3,701) |
24,076 |
- |
- |
- |
Closing, at March 31, 2005 |
676,5472 |
133,8702 |
77,897 |
888,315 |
227,986 |
1,116,301 |
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, 2005 by $23.2m
- As a result of investment returns exceeding the “federal” 8/11ths share of the total payouts
- The notional PT assets have decreased by $12.1m
- 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 $11.1m
- 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 $24.1m
- $20.4m from real return bonds in June and December 2004
- $3.7m from other long term funds spread relatively evenly over the fiscal year
Expansion of PT Assets ($,000's)
| |
Less: prepayments |
Gross PT Assets |
Ontario |
Alberta |
Net PT Assets |
Initial, at April 1, 2004 |
244,842 |
9 |
4,747 |
240,086 |
Interest Credits |
7,117 |
0 |
84 |
5,173 |
Additional Prepayments |
- |
- |
- |
- |
3/11th share of benefits/expenses |
(19,226) |
- |
(1,954) |
(17,273) |
Closing, At March 31, 2005 |
230,873 |
9 |
2,878 |
227,986 |
- 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 |
2002 |
2003 |
2004 |
2005 |
|
Long term |
Real Return Bonds |
2.3% |
19.7% |
14.6% |
10.4% |
1.6% |
2.4% |
4.9% |
1.2% |
|
Universe Bonds |
5.1% |
9.2% |
10.6% |
5.0% |
-2.1% |
2.8% |
3.1% |
1.1% |
|
Canadian Equity |
5.0% |
-17.0% |
37.5% |
13.9% |
0.0% |
1.9% |
7.2% |
4.3% |
|
US Equity |
1.2% |
-30.9% |
20.2% |
-2.1% |
3.7% |
-7.4% |
3.3% |
-1.2% |
|
EAFE Equity |
-7.0% |
-29.5% |
40.5% |
5.9% |
2.3% |
-5.8% |
9.1% |
0.8% |
|
|
|
Total |
2.3% |
12.6% |
16.4% |
9.9% |
1.4% |
1.9% |
5.0% |
1.3% |
| |
|
|
|
|
|
|
|
|
|
Short Term |
Short Term Bonds |
5.9% |
7.0% |
8.1% |
3.0% |
-1.2% |
1.6% |
1.9% |
0.6% |
Total Invested Assets |
|
3.5% |
11.7% |
15.3% |
9.1% |
1.1% |
1.9% |
4.7% |
1.2% |
Notional PT Assets |
|
3.5% |
2.6% |
2.9% |
2.2% |
0.5% |
0.5% |
0.6% |
0.6% |
Total Assets |
|
3.6% |
9.4% |
12.4% |
7.7% |
0.9% |
1.6% |
3.8% |
1.1% |
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 7.7% for fiscal 2005 is the result of positive returns from all the component portfolios except US
Equities
- The negative US equity returns were largely the result of the strengthening of the Canadian dollar
- While Canadian equity was the best performing category, overall equity returns were down compared to 2004
- Real Return Bonds have continued to show very good returns, as a result of continued falls in real return bond yields
- The PT notional fund is charged interest at the 3 month T-bill rate; in 2005, as in 2003 and 2004, these rates were significantly
lower than the returns on the invested assets
Tracking Error
|
|
Fiscal Year ending |
4 years |
Target tracking error |
|
|
2002 |
2003 |
2004 |
2005 |
2002 - 2005 |
1 year |
4 years |
Universe Bonds |
Actual |
5.1% |
9.2% |
10.6% |
5.0% |
7.4% |
|
|
|
Index |
5.1% |
9.1% |
10.8% |
5.0% |
7.5% |
|
|
|
t/e |
0.0% |
0.1% |
-0.2% |
0.0% |
-0.1% |
0.2% |
0.1% |
Canadian Equity |
Actual |
5.0% |
-17.0% |
37.5% |
13.9% |
8.1% |
|
|
|
Index |
4.9% |
-17.6% |
37.7% |
13.9% |
7.9% |
|
|
|
t/e |
0.1% |
0.6% |
-0.2% |
0.0% |
0.2% |
0.3% |
0.2% |
US Equity |
Actual |
1.2% |
-30.9% |
20.2% |
-2.1% |
-4.8% |
|
|
|
Index |
1.4% |
-30.8% |
20.4% |
-2.1% |
-4.6% |
|
|
|
t/e |
-0.2% |
-0.1% |
-0.2% |
0.0% |
-0.2% |
0.3% |
0.2% |
EAFE Equity |
Actual |
-7.0% |
-29.5% |
40.5% |
5.9% |
-0.6% |
|
|
|
Index |
-7.3% |
-29.2% |
40.8% |
5.9% |
-0.5% |
|
|
|
t/e |
0.3% |
-0.3% |
-0.3% |
0.0% |
-0.1% |
0.6% |
0.3% |
Short Term Bonds |
Actual |
5.9% |
7.0% |
8.1% |
3.0% |
6.0% |
|
|
|
Index |
5.8% |
7.0% |
8.3% |
2.9% |
6.0% |
|
|
|
t/e |
0.1% |
0.0% |
-0.2% |
0.1% |
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 2003, but is inside the 4 year
target range for the four years ending 2005
- All other portfolios meet their tracking error target over both one and four years
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