2006 Annual Report
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Table of Contents
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Schedule H - Report of Eckler Partners Ltd. Activities
Investment Summary as at March 31, 2006
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 are derived from the TD quarterly statements and have not been independently verified
- 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 06 |
Mar 05 |
| |
|
|
|
|
|
| Fund |
Portfolio |
Strategy |
Bench- mark |
Value |
Asset Alloc |
Fund Alloc |
Value |
Asset Alloc |
Fund Alloc |
| Long Term |
Real Return Bonds |
Passive |
80.0% |
725,815 |
83.0% |
|
676,470 |
83.5% |
|
| |
Universe Bonds |
Index |
6.0% |
41,791 |
4.8% |
|
41,930 |
5.2% |
|
| |
Canadian Equity |
Index |
7.0% |
63,069 |
7.2% |
|
53,264 |
6.6% |
|
| |
US Equity |
Index |
3.5% |
18,212 |
2.1% |
|
17,234 |
2.1% |
|
| |
EAFE Equity |
Index |
3.5% |
25,143 |
2.9% |
|
21,432 |
2.6% |
|
| |
Cash |
|
0.0% |
26 |
0.0% |
|
86 |
0.0% |
|
| |
|
|
100% |
874,055 |
100.0% |
75.2% |
810,417 |
100.0% |
72.6% |
| Short Term |
|
|
|
|
|
|
|
|
|
| |
Short Term Bonds |
Index |
|
67,013 |
|
|
77,878 |
|
|
| |
Cash |
|
|
28 |
|
|
20 |
|
|
| |
|
|
|
67,041 |
|
5.8% |
77,897 |
|
7.0% |
| |
|
|
|
|
|
|
|
|
|
| Total Invested Assets * |
941,097 |
|
81.0% |
888,315 |
|
79.6% |
| Provinces Notional Assets (net of prepayments) |
220,759 |
|
19.0% |
227,986 |
|
20.4% |
| Total Assets |
1,161,856 |
|
100.0% |
1,116,301 |
|
100.0% |
| |
|
|
|
|
|
|
| * Total Invested Assets includes prepayments from Alberta and Ontario |
|
|
|
| Split of Invested Assets between: |
|
|
|
|
|
|
|
| |
Long Term Fund |
92.9% |
|
|
91.2% |
| |
Short Term Fund |
7.1% |
|
|
8.8% |
| |
Total Invested Assets |
100.0% |
|
|
100.0% |
Totals may not add due to rounding
Comments on Asset Summary
As of March 31, 2006
- Weighting for real return bonds is currently 3% above their benchmark of 80% of the Long Term Fund
- This is largely unchanged from March 31, 2005 (3.5% above benchmark)
- Universe bonds are 1.2% below their benchmark of 6%
- Weighting has dropped slightly since last year
- Equities are below their benchmark by 1.8%.
- In 2005 they were 2.7% below their benchmark – Canadian Equity weighting has increased.
- 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 91.2% to 92.9%, while the Short Term Fund has decreased from 8.8% to 7.1% during the fiscal year
Asset Development ($,000's)
| |
Invested Assets 1 |
|
|
| |
|
|
|
| |
Real Return Bond Fund |
Other Long Term Funds |
Short Term Fund |
Invested Assets |
Provinces' Notional Assets 1 |
Total Assets |
| Initial, at April 1, 2005 |
676,547 |
133,870 |
77,897 |
888,314.65 |
227,986 |
1,116,301 |
| Investment Income (realized and unrealized) |
70,278 |
22,375 |
2,068 |
94,720.44 |
6,310 |
101,031 |
| Inflow: Recoveries from Provinces |
- |
- |
13,546 |
13,545.91 |
(13,537) |
9 |
| Outflow: Benefit Payments |
- |
- |
- 50, 215 |
- 50, 214.61 |
- |
(50,215) |
| Expenses |
- |
- |
- 5,270 |
- 5,269.78 |
- |
(5,270) |
| Transfers between funds |
- 20,994 |
- 8,021 |
29,015 |
- 0.00 |
- |
- |
| |
|
|
|
|
|
|
| Closing, at March 31, 2006 |
725,832 2 |
148,224 2 |
67,041 |
941,096.61 |
220,759 |
1,161,856 |
| |
|
|
|
|
|
|
| 1. Invested Assets include PT prepayments; Provinces' Notional Assets are net of prepayments |
|
| 2. These figures differ slightly from those on page 3 because of allocation of cash balances |
|
| 3. Based on Royal Trust statements |
|
Totals may not add due to rounding |
|
Comments on Asset Development
- Total invested assets (i.e. excluding PT assets) have increased over the year to March 31, 2006 by $52.8m
- As a result of investment returns exceeding the “federal” 8/11ths share of the total payouts
- The notional PT assets have decreased by $7.2m
- 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 $45.6m
- 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 $29m
- $21m from real return bonds in June and December 2005
- $8m from other long term funds - $6.0m in January 2006 and the balance spread over the fiscal year
Expansion of PT Assets ($,000's)
| |
Less: Prepayments |
| |
|
| |
Gross PT Assets |
Ontario |
Alberta |
Net PT Assets |
| Initial, at April 1, 2005 |
230,873 |
9 |
2,878 |
227,986 |
| Interest Credits |
6,364 |
0 |
54 |
6,310 |
| Additional Prepayments |
- |
- |
- |
- |
| 3/11th share of benefits/expenses |
(15,230) |
(9) |
(1,684) |
(13,537) |
| |
|
|
|
|
| Closing, At March 31, 2006 |
222,008 |
0 |
1,248 |
220,759 |
- Ontario’s initial prepayments were largely used up by August 2002. Ontario 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 opening pre-payment balance should have been zero, but prior to fiscal year 2006, about $9,000 was charged directly to Ontario, rather than to the pre-paid account. In 2006, this error was corrected, and Ontario’s ending prepayment balance is zero.
- Alberta continues to use its prepaid balance to cover its share of benefits/expenses.
Totals may not add due to rounding
Investment Returns
| |
|
Fiscal Year ending |
Quarterly Returns Fiscal 2006 |
| |
|
|
|
| Fund |
Portfolio |
2003 |
2004 |
2005 |
2006 |
|
|
|
|
| Long Term |
Real Return Bonds |
19.7% |
14.6% |
10.4% |
10.5% |
4.6% |
4.4% |
2.7% |
-1.6% |
| |
Universe Bonds |
9.2% |
10.6% |
5.0% |
4.9% |
4.5% |
0.1% |
0.7% |
-0.5% |
| |
Canadian Equity |
-17.0% |
37.5% |
13.9% |
28.7% |
3.6% |
11.6% |
2.9% |
8.2% |
| |
US Equity |
-30.9% |
20.2% |
-2.1% |
7.4% |
2.5% |
-1.9% |
2.7% |
4.0% |
| |
EAFE Equity |
-29.5% |
40.5% |
5.9% |
20.1% |
0.4% |
4.6% |
4.8% |
9.2% |
| |
|
|
|
| |
Total |
12.6% |
16.4% |
9.9% |
11.5% |
4.4% |
4.5% |
2.7% |
-0.5% |
| |
|
|
|
|
|
|
|
|
|
| Short Term |
Short Term Bonds |
7.0% |
8.1% |
3.0% |
2.3% |
2.3% |
-0.3% |
-0.2% |
0.5% |
| Total Invested Assets |
|
11.7% |
15.3% |
9.1% |
10.8% |
4.2% |
4.1% |
2.5% |
-0.4% |
| Notional PT Assets |
|
2.6% |
2.9% |
2.2% |
2.9% |
0.6% |
0.6% |
0.7% |
0.8% |
| Total Assets |
|
9.4% |
12.4% |
7.7% |
9.2% |
3.5% |
3.5% |
2.2% |
-0.2% |
Notes:
- Quarterly returns for the component portfolios for the fiscal years 2003 onwards 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 years 2003 to 2006 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 9.2% for fiscal 2006 is the result of positive returns from all the component portfolios
- Again, Canadian equity was the best performing category, with strong results from EAFE equity as well
- U.S. equity return improved substantially over the negative return in 2005, but was adversely affected by the strengthening of the Canadian dollar
- 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 2006, as in prior years, these rates were significantly lower than the returns on the invested assets
Tracking Error
| |
|
Fiscal Year ending |
4 Years |
Target tracking error |
| |
|
|
|
|
|
| |
|
2003 |
2004 |
2005 |
2006 |
2003-2006 |
1 Year |
4 Years |
| Universal Bonds |
Actual |
9.2% |
10.6% |
5.0% |
4.9% |
7.36% |
|
|
| |
Index |
9.1% |
10.8% |
5.0% |
4.9% |
7.42% |
|
|
| |
t/e |
0.1% |
-0.2% |
0.0% |
0.0% |
-0.06% |
0.20% |
0.10% |
| |
|
|
|
|
|
|
|
|
| Canadian Equity |
Actual |
-17.0% |
37.5% |
13.9% |
28.7% |
13.70% |
|
|
| |
Index |
-17.6% |
37.7% |
13.9% |
28.7% |
13.58% |
|
|
| |
t/e |
0.6% |
-0.20% |
0.0% |
0.0% |
0.12% |
0.30% |
0.15% |
| |
|
|
|
|
|
|
|
|
| US Equity |
Actual |
-30.9% |
20.2% |
-2.1% |
7.4% |
-3.35% |
|
|
| |
Index |
-30.8% |
20.4% |
-2.1% |
7.4% |
-3.25% |
|
|
| |
t/e |
-0.1% |
-0.2% |
0.0% |
0.0% |
-0.10% |
0.30% |
0.15% |
| |
|
|
|
|
|
|
|
|
| EAFE Equity |
Actual |
-29.5% |
40.5% |
5.9% |
20.1% |
5.96% |
|
|
| |
Index |
-29.2% |
40.8% |
5.9% |
20.0% |
6.07% |
|
|
| |
t/e |
-0.3% |
-0.3% |
0.0% |
0.1% |
-0.11% |
0.60% |
0.30% |
| |
|
|
|
|
|
|
|
|
| Short Term Bonds |
Actual |
7.0% |
8.1% |
3.0% |
2.3% |
5.05% |
|
|
| |
Index |
7.0% |
8.3% |
2.9% |
2.3% |
5.09% |
|
|
| |
t/e |
0.0% |
-0.2% |
0.1% |
0.0% |
-0.04% |
0.20% |
0.10% |
- Actual returns for the fiscal years 2003 - 2006 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 reportd by TD Asset Management
- The annualized returns for the '4 years 2003 - 2006' are calculated by EPL, based on the annual returns shown above
Comments on Tracking Error
- Canadian Equity had a positive tracking error outside the 1 year target range for fiscal 2003, but is inside the 4 year target range for the four years ending 2006
- All other portfolios meet their tracking error target over both one and four years
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