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MCGILL AUS INVESTMENT INITIATIVE

MCGILL AUS INVESTMENT INITIATIVE. PRESENTED BY: JAMES CHAN FINANCIAL ADVISOR TO THE VICE-PRESIDENT, FINANCE SAMUEL HIGGS VICE-PRESIDENT, FINANCE. PRESENTATION OUTLINE. Current Investment Strategy / Disadvantages The new “AUS Investment Initiative” Criteria of Investment Selection

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MCGILL AUS INVESTMENT INITIATIVE

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  1. MCGILL AUS INVESTMENT INITIATIVE • PRESENTED BY: • JAMES CHAN • FINANCIAL ADVISOR TO THE VICE-PRESIDENT, FINANCE • SAMUEL HIGGS • VICE-PRESIDENT, FINANCE

  2. PRESENTATION OUTLINE • Current Investment Strategy / Disadvantages • The new “AUS Investment Initiative” • Criteria of Investment Selection • The Pillars of the “Initiative” • “Check and Balance” Mechanism • Reinvestment into existing AUS Funds

  3. CURRENT INVESTMENT STRATEGY • Real % returns = Guaranteed Investment Certificates (GICs) Rate - Inflation Rate = - 5.573%

  4. ALTERNATIVE INVESTMENT STRATEGY: LARGE-CAP CANADIAN EQUITY • Real % returns = Dividend Yield - Inflation rate = +14.29%

  5. ALTERNATIVE INVESTMENT STRATEGY: U.S. BLUE CHIP • Real % returns = Dividend Yield - Inflation rate = +35.14%

  6. INFLATION FORECASTS: 2014 -15 • Projected Average Real % Return = GIC Rate - Projected Inflation Rate = - 0.778%

  7. “AUS INVESTMENT INITIATIVE”

  8. INITIAL CAPITAL = CAD$55,000 Active Portfolio “AUS INVESTMENT INITIATIVE” Passive Portfolio

  9. Investment Objective • Hold for Long-term • Returns in the form of Dividend Yields • Disregard short -term share price fluctuations (<30%) PASSIVE MANAGEMENT (80%)

  10. Selection Criteria • Dividend yield > 5% • Current Ratio >1.5 • Long-term debt % capitalization < 50% • 0.5< Beta Value < 1 • Bollinger Bandwidth < 8 • US blue-chip equities / Canadian large-cap equities • Fund reference: BMO USD Dividend Fund, BMO Monthly High-Income fund PASSIVE MANAGEMENT (80%)

  11. BETA VALUE • Degree of Correlation between equity and benchmark market index (e.g. TSX/S&P, S&P 500, Dow Jones, etc.)

  12. BOLLINGER BANDS • A measure of short-term volatility • SD (σ) = Standard Deviation over Last n Periods Typical Price (TP) = (HI + LO + CL) / 3 BOLU = MA(TP, n) + m * σ[TP, n] BOLD = MA(TP, n) - m * σ[TP, n]

  13. Investment Objective • Hold for short to middle-term • Realized gain from share price changes • Higher degree of monitoring ACTIVE MANAGEMENT (20%)

  14. Selection Criteria • Current Ratio >1.5 • Long-term debt % capitalization < 50% • Canadian small-mid cap Equities • Fund reference: BMO Canadian Small Cap Equity Fund ACTIVE MANAGEMENT (20%)

  15. PILLARS OF THE INVESTMENT INITIATIVE Transparency AUS Investment Funds Sustainability Accountability

  16. TRANSPARENCY • Vice-President, Finance’s monthly report to the AUS Council • Transactions (e.g. name, net amount,etc.) occurred during the period • Realized/Unrealized gain (loss) accrued

  17. ACCOUNTABILITY AUS Council Vice-President, Finance AUS Investment Committee Ethical Investments Audit (Tentative) Department of Internal Audit

  18. ACCOUNTABILITY AUS Investment Committee Compilation of “Prohibited Investments List” Research unethical practices of potential investees Ethical Investments Audit (Tentative)

  19. ACCOUNTABILITY AUS Council Sets guidelines for ethical investments Reports infringement of ethical investment policy Ethical Investments Audit (Tentative)

  20. ACCOUNTABILITY AUS Investment Committee Appropriate handling of investment funds Monthly audits to ensure legitimate rationale behind each transaction Department of Internal Audit

  21. ACCOUNTABILITY AUS Council Introduces new criteria for sound investment selection Reports infringement of sound investment policy Department of Internal Audit

  22. ACCOUNTABILITY Vice-President, Finance Realized/unrealized Gains (Losses) Submits monthly investment reports New transactions for the period AUS Investment Committee

  23. ACCOUNTABILITY AUS Council Realized/unrealized Gains (Losses) Monthly Investment Reports New transactions for the period Vice-President, Finance

  24. SUSTAINABILITY • Annual Executive Committee Turnover • Investment Committee Turnover • “Management gap” of Investment funds

  25. Active Portfolio Passive Portfolio ACTIVE VS. PASSIVE MANAGEMENT

  26. Passive Portfolio INVESTMENT COMMITTEE PRE-TURNOVER “EXIT PROCEDURE” • PASSIVE PORTFOLIO (80%): • HOLD FOR DIVIDEND YIELDS

  27. Active Portfolio Passive Portfolio ACTIVE VS. PASSIVE MANAGEMENT

  28. Active Portfolio INVESTMENT COMMITTEE PRE-TURNOVER “EXIT PROCEDURE” • ACTIVE PORTFOLIO (20%): • SELL OFF HOLDINGS W/ (+) RETURNS

  29. Active Portfolio INVESTMENT COMMITTEE PRE-TURNOVER “EXIT PROCEDURE” • ACTIVE PORTFOLIO (20%): • KEEP • HOLDINGS W/ (-) RETURNS

  30. REINVESTMENT INTO THE AUS COMMUNITY

  31. REFERENCE • Yahoo! Finance: U.S. and Canadian equities monthly closing prices • Bank of Canada Monetary Policy Summary Report, October 2013 • Bank of Canada: 10-year lookup of Canadian interest rates and monetary policy variables • RBC Royal Bank: 1-year cashable GIC rate paid at maturity • Statistics Canada: Annual change on consumer price index (CPI) • Graystone Consulting, a business of Morgan Stanley: Investment Policy for Nonprofit Organizations

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