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Portfolio Solutions Group

Portfolio Solutions Group. December 2018. Susan Spence. Vice-President & Portfolio Manager (PSG). Brandon Hutchison. Assistant Vice-President & Portfolio Manager (PSG). By the numbers. Source: GLC │As at December 31, 2018. GLC Asset Management Group Ltd. is a

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Portfolio Solutions Group

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  1. Portfolio Solutions Group December 2018 Susan Spence Vice-President & Portfolio Manager (PSG) Brandon Hutchison Assistant Vice-President & Portfolio Manager (PSG)

  2. By the numbers • Source: GLC │As at December 31, 2018 GLC Asset Management Group Ltd. is a leading investment management firm with one focus: To provide our clients with strong long-term investment performance $51.9 5 75+ 50+ 75+ 15+ billion assets under management investment management divisions unique investment mandates years of investment history team members years of avg. investment experience

  3. GLC’s Investment Divisions top-down/ bottom-up all-cap growth quantitative fundamental factor modeling bottom-up concentrated large-cap deep fundamental analysis fixed income multi-factor absolute and relative performance objectives forward-looking asset allocation risk and target date defined independent analysis and oversight

  4. Meet the PSG team Experience: Experience: 24 years investment industry experience with multi-asset funds and international, U.S. and Canadian equity mandates. 14 years investment industry experience in research, analysis and portfolio management focused on multi-asset funds. Igor Ivanic, CFA Justin Truong Susan Spence, CFA Brandon Hutchison, CFA Vice-President & Portfolio Manager Assistant Vice-President & Portfolio Manager Senior Analyst Analyst Experience: Experience: 2 years of investment experience specializing in performance analysis and client management 6 years investment industry experience specializing in data management and analysis.

  5. PSG’s Investment Solutions Target Risk Target Date Asset Class Managed Fund Solutions A customized investment solution based on an investor’s risk tolerance A long-term investment solution tailor-made to meet a future financial goal A multi-manager approach focused on a single asset-class A diversified investment solution with a selection of fixed-income to equity allocations to choose from A core building block when creating a customized investment solution Core Target Risk Core Managed Income Target Risk Partner Managed

  6. PSG’s 5 core investment principles Multi-level active management adds value A tailored approach to portfolio construction improves investor outcomes Each component is a building block Direct and ongoing access to managers Broad access to investment options enhances opportunity

  7. PSG’s investment process

  8. Portfolio construction Underlying fund selection We seek out: • Drive stronger returns? and/or • Does it dampen volatility? and/or • Does it create opportunities to enhance the benefits of active management? (e.g. adds the ability to strategically align the portfolio to current market views through adjustments to duration, regional exposure, etc.) concentrated portfolios style-specific approaches process driven active managers proven track record We don’t look at a fund in isolation. It must add value to the portfolio as a whole.

  9. Portfolio constructiona tailored approach to meeting clients needs The best approach to allocating risk and opportunity can, and should, differ across the spectrum of risk tolerances and time horizons.

  10. Investment process A proprietary, disciplined investment process designed to deliver added value within each core element. Investment Process • portfolio construction • active management • rigorous oversight

  11. Disciplined rebalancing Target and drift methodology Asset mix: • fixed income / equity split allowed to drift +/- 2 percentage points Individual fund: • fixed income funds +/- 10% of target allocation • equity funds +/- 20% of target allocation Daily cash flows used to offset market movements: • reduces frequency and cost of rebalancing When rebalancing is triggered, all underlying funds brought back to target weights

  12. Asset Allocation: Target Risk Funds Strategic Asset Mix * For strategic asset allocation purposes, Real Estate is classified as Canadian Equity Fixed income benchmark: 100% FTSE Canada Universe Index Equity benchmark: 40% S&P/TSX Composite Index, 60% MSCI World (CAD) Real Estate benchmark: 100% S&P/TSX Composite Index

  13. Portfolio Solutions Group Positioning & Outlook

  14. Current positioning • general preference for higher yield/income-oriented mandates across the portfolios • overweight position in corporate bonds and international bonds • a short duration position relative to the FTSE Canada Universe Bond Index • preference for US over EAFE within foreign equity allocations moderating • maintain exposure to infrastructure at the conservative end • maintain exposure to emerging markets, resources and smaller cap at the aggressive end

  15. Target risk funds • Overall goals • funds are optimally diversified by asset class, region, style and manager • underlying mandates are consistent with stated style • underlying mandates have a skilled investment team, with a strong, repeatable process • funds are constructed with sufficient levers in place to accommodate tilting between reprofilings • Fixed income • broad range of fixed income mandates at the conservative end giving the investor exposure to the different sectors/credit qualities of the market • more conservative choice of fixed income mandates at the aggressive end to offset some of the higher equity market risk

  16. Target risk funds • Equities • linear transition of the value growth score from ~100 at the conservative end to ~190 at the aggressive end (all scores still within core V-G box) • linear transition of the size score with larger cap exposure at the conservative end declining to a more all-cap exposure at the aggressive end • greater emphasis on the more stable dividend paying/income oriented stocks at the conservative end to align with the investors’ lower risk tolerance • optimal real estate allocations of 6%, 8%, 10%, 10%, 10% in the respective target risk funds (conservative – aggressive)

  17. PSG outlook comments – Q4 2018 • Stock market losses in the fourth quarter highlighted ongoing risks including trade uncertainty between the US and key trading partners, the approaching end of accommodative monetary policy, the impending deadline for Brexit negotiations and our position in the business cycle. We see these issues taking time to play out, with near term market reactions difficult to discern. Balancing these risks are positives including, notably, still supportive economic growth and some progress in trade negotiations. • We are maintaining a balanced approach in our funds from both an asset class and regional perspective, as we weigh the less synchronized but continued growth in the global economy and an attractive equity risk premium with the risks mentioned above. The equity risk premium is now more appealing given the correction in equity valuations and simultaneous decline in fixed income yields. Earnings are expected to continue growing, albeit at a slower pace. While the end of the business cycle is a more common point of discussion than in the past and the interest rate curve is flatter than it has been this cycle, immediate recession risks remain muted. • Both the Bank of Canada and Federal reserve raised their policy rates by 0.25% in the quarter. Meanwhile, the European Central Bank confirmed its asset purchase program end date of December 2018. Key questions for 2019 will ask how close are we to neutral monetary policy, how much tightening can economies and markets used to a long period of easing bear and what effect do asset prices have on central bankers’ actions.

  18. PSG outlook comments – Q4 2018 • Within fixed income allocations our key positioning themes remain being short duration, overweight credit and overweight international exposure. Our credit overweight primarily consists of investment grade bonds, with some select exposure to high yield debt. Having a shorter duration protects against rising interest rates, while overweight credit positioning offers enhanced yield and an unhedged international bond allocation helps to diversify the sources of risk and return in the portfolio. • Equity allocations in the more aggressive or longer-dated asset allocation funds continue to have some strategic, dedicated exposure to emerging markets. Emerging markets stocks are a more volatile asset, but the higher associated risk is well reflected in valuations and the diversification potential that emerging markets offer is compelling. • We expect market volatility to remain elevated going forward, but the sophisticated construction of the asset allocation funds, including our use of real estate, should help to smooth the ride for investors.

  19. Current positioning – fixed income Statistics are based on data as at 12/31/2018 Source: FTSE and fund managers

  20. Current positioning – equity *Blended benchmark is 40% S&P/TSX Composite Index, 60% MSCI World Index (CAD) Statistics are based on data as at 12/31/2018 Source: Morningstar Direct and fund managers

  21. Current positioning – fixed income Statistics are based on data as at 12/31/2018 Source: FTSE and fund managers

  22. Current positioning – equity *Blended benchmark is 40% S&P/TSX Composite Index, 60% MSCI World Index (CAD) Statistics are based on data as at 12/31/2018 Source: Morningstar Direct and fund managers

  23. Current positioning – fixed income Statistics are based on data as at 12/31/2018 Source: FTSE and fund managers

  24. Current positioning – equity *Blended benchmark is 40% S&P/TSX Composite Index, 60% MSCI World Index (CAD) Statistics are based on data as at 12/31/2018 Source: Morningstar Direct and fund managers

  25. Current positioning – fixed income Statistics are based on data as at 12/31/2018 Source: FTSE and fund managers

  26. Current positioning – equity *Blended benchmark is 40% S&P/TSX Composite Index, 60% MSCI World Index (CAD) Statistics are based on data as at 12/31/2018 Source: Morningstar Direct and fund managers

  27. Portfolio Solutions Group Target weights

  28. Current target weights – LL Profile

  29. Current target weights – GWL Portfolio

  30. Current target weights – CL Allocation

  31. Current target weights – Quadrus Folio

  32. Current target weights – Quadrus Folio

  33. Portfolio Solutions Group Performance

  34. London Life Profile funds 5-year Standard Deviations (%) 31 Dec 18 5-year Gross Returns (%) 31 Dec 18 Fund Fund Benchmark Benchmark Source: Morningstar Direct, SFFS │ Figures are annualized

  35. London Life Profile funds Source: Morningstar Direct, SFFS │ 5-year data for the period ended 12/31/2018, monthly periods

  36. GWL Portfolio funds 5-year Standard Deviations (%) 31 Dec 18 5-year Gross Returns (%) 31 Dec 18 Fund Fund Benchmark Benchmark Source: Morningstar Direct, SFFS │ Figures are annualized

  37. GWL Portfolio funds Source: Morningstar Direct, SFFS │ 5-year data for the period ended 12/31/2018, monthly periods

  38. Canada Life Allocation funds 5-year Standard Deviations (%) 31 Dec 18 5-year Gross Returns (%) 31 Dec 18 Fund Fund Benchmark Benchmark Source: Morningstar Direct, SFFS │ Figures are annualized

  39. Canada Life Allocation funds Source: Morningstar Direct, SFFS │ 5-year data for the period ended 12/31/2018, monthly periods

  40. Quadrus Folio funds 5-year Standard Deviations (%) 31 Dec 18 5-year Gross Returns (%) 31 Dec 18 Fund Fund Benchmark Benchmark Source: Morningstar Direct, SFFS │ Figures are annualized

  41. Quadrus Folio funds Source: Morningstar Direct, SFFS │ 5-year data for the period ended 12/31/2018, monthly periods

  42. Quadrus Diversified Fixed Income Folio Asset mix as at December 31, 2018 CORE PLUS BOND (PORTICO) CORE BOND (PORTICO) CORPORATE BOND (PORTICO) SHORT TERM BOND (PORTICO) INTERNATIONAL BOND (CLI) LONG TERM BOND (PORTICO) UNCONSTRAINED FIXED INCOME (MACKENZIE) REAL RETURN BOND (PORTICO) Source information and disclaimer can be found on the last page. Portfolio attributes reflect the portfolio strategy used by the Quadrus fund shelf.

  43. LL Diversified Fixed Income Asset mix as at December 31, 2018 CORE PLUS BOND (PORTICO) CORE BOND (PORTICO) MORTGAGE (PORTICO) CORPORATE BOND (PORTICO) INTERNATIONAL BOND (BRANDYWINE) UNCONSTRAINED FIXED INCOME (MACKENZIE) LONG TERM BOND (PORTICO) REAL RETURN BOND (PORTICO) SHORT TERM BOND (PORTICO) Source information and disclaimer can be found on the last page. Portfolio attributes reflect the portfolio strategy used by the London Life fund shelf.

  44. GWL Diversified Fixed Income Asset mix as at December 31, 2018 CANADIAN BOND (PORTICO) CORE BOND (PORTICO) COMMERCIAL MORTGAGE (PORTICO) INTERNATIONAL BOND (BRANDYWINE) BOND (MACKENZIE) UNCONSTRAINED FIXED INCOME (MACKENZIE) CORPORATE BOND (PORTICO) LONG TERM BOND (PORTICO) REAL RETURN BOND (PORTICO) SHORT TERM BOND (PORTICO) Source information and disclaimer can be found on the last page. Portfolio attributes reflect the portfolio strategy used by the Great-West Life fund shelf.

  45. Where to find more information Check out our website: https://www.glc-amgroup.com/ Follow us on social media: LinkedIn: GLC LinkedIn page Twitter: @GLCasset Subscribe to our podcasts by following GLC Asset Management: Apple iTunes Google Play Music Spotify Watch our video: An introduction to Portfolio Solutions Group

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