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TOUGHER ROAD AHEAD: FOCUS ON DIVIDEND GROWTH, NOT JUST YIELD. Hangover from the global financial crisis A TIMELINE: THE MELTDOWN AND RECOVERY MSCI World Price Index, local currency Lehman Bros. bankruptcy Bernanke talks of tapering QE 1 QE 2 QE 1.5 QE 1 ends QE 2 ends Draghi defends Euro Fed intervenes to save Bear Sterns Bernanke signals a gradual reduction in stimulus QE 3 Rescue package for Fannie Mae & Freddie Mac Bernanke Jackson Hole comments ECB 3 yr LTRO Operation Twist March 9th, market bottoms China announces 4 trillion yuan stimulus package Source: MSCI, FactSet, Greystone Five years of interest rate manipulation RISING VOLATILITY AND UNCERTAINTY DURING FINANCIAL CRISIS CBOE Volatility Index (VIX), daily Six standard deviation event! 80 70 60 VIX Average 50 40 30 20 10 0 2006 2007 2008 2009 2010 2011 2012 2013 Volatility spike leads investors to risk aversion Source: CBOE, S&P, FactSet, Greystone CANADIAN MUTUAL FUND NET SALES: GLOBAL FIXED INCOME ($M) Safety first! Fixed-income funds attract significant inflows Source: IFIC, Scotiabank GBM LOW INTEREST RATES PUSHED SAVERS TO LOOK ELSEWHERE Government of Canada 10-year bond yield (Jan 2004 – Aug 2013) % Source: Bloomberg EARNINGS DISAPPOINT DURING CRISIS MSCI World Index last 12 month earnings per share (EPS), USD Volatility leads investors to favour income over earnings growth Source: MSCI, FactSet, Greystone CANADIAN MUTUAL FUND NET SALES ($M): DIVIDEND AND INCOME EQUITY 800 600 400 200 0 -200 -400 2009 2010 2011 2012 2013 Income-related equity funds benefitted from the search for yield Source: IFIC, Scotiabank GBM Pitfalls ahead … but all is not lost BREAK EVEN RETURN ANALYSIS ON A U.S. 10-YEAR TREASURY U.S. 10 year Treasuries have declined nearly 11% since rates bottomed in 2012 “No Mr. Bond, I expect you to die!” Source: BofA Merrill Lynch, Greystone VALUATION ON YIELD RELATIVELY EXPENSIVE Relative valuation: 12M trailing P/E S&P/TSX Utilities to S&P/TSX Composite Rise in rates has recently taken some of the steam out of traditional yield sector valuations Investing for yield becoming more challenging Source: S&P/TSX, Greystone QE MAY BE REDUCED, BUT RATE HIKES NOT EXPECTED Consensus expectation for first future Fed Funds rate hike Expectation for first rate hike remains 2015 Low rates and ample global liquidity remains despite taper talk Source: BofA Merrill Lynch, Bloomberg LOWER RATES HAVE REDUCED THE PRESSURE OF DEBT SERVICING U.S. Net Interest Expense as a % of Total Federal Outlays The U.S. government can’t afford higher rates! Source: U.S. Office of Management & Budget, Greystone NOT EVERYBODY IS A LOSER WITH HIGHER RATES S&P 500, GAAP Pension Costs & Funded Status As rates rise, reduced costs Better funded status too Higher yields also help corporate pension funding status Source: ISI Group, company filings & ISI Group estimates, includes mark-to-market impact RETIREES AS A PROPORTION OF THE POPULATION ON THE RISE Percentage of Canadian population, 65 years and above Baby boomers that are entering retirement will require income Source: BMO Economics, StatsCan, Greystone; projections/estimates are from Statistics Canada OPPORTUNITIES EXIST IN THIS ENVIRONMENT Opportunities exist in this environment EQUITIES MORE ATTRACTIVE THAN BONDS S&P/TSX Dividend Yield & Canadian Long corporate AA bond yield (Jun 1994 – Aug 2013) Dividends now offer a greater yield over corporate bonds – with potential for capital appreciation Source: BofA Merrill Lynch, S&P/TSX, Bloomberg EMPIRICAL DATA CONFIRMS “GROWERS” FAVOURED OVER “PAYERS” Returns based on monthly equal-weighted geometric average of total returns of S&P 500 component stocks, with components reconstituted monthly Non Dividend-Paying Stocks Gain per Annum = 1.7% ($100 Grows to $197) Dividend Payers w/No Change in Dividends Gain per Annum = 7.2% ($100 Grows to $1645) Dividend Growers & Initiators Gain per Annum = 9.6% ($100 Grows to $4031) Source: Ned Davis Research Group GROWERS EXHIBIT THE LEAST AMOUNT OF HISTORICAL VOLATILITY Return vs. Risk, equal-weighted geometric average of total returns of S&P 500 component stocks, with components reconstituted monthly Higher return, Lower risk Lower return, Higher risk Dividend cutters or eliminators experienced high volatility Source: Ned Davis Research Group ENERPLUS - HIGH YIELD ALONE DOES NOT MERIT INCLUSION Enerplus Corp - daily closing share price ($Cdn), Jun 30/11 to Aug 31/13 Nov-2011: Decision point 30 Jun-2012: Distribution cut from $2.16 to $1.08 20 10 Jun-11 • • • • Dec-11 Jun-12 Dec-12 Jun-13 1st decile quant rank based on 8.1% expected dividend yield Business model not sustainable: natural gas prices moving below $4 and costs were escalating Negative growth: cash flow and earnings are lower now than in 2009 Financial leverage and cash flow payout ratios were high Qualitative work kept stock out of portfolio Source: Price history - IDC / Exshare DIVIDEND GROWTH PROTECTS YOUR PURCHASING POWER S&P 500 dividend growth & U.S. inflation (CPI) growth, 10 year rolling CAGR, 1881 - 2012 Dividends provide an inflation hedge over the long term Source: Robert Shiller, http://www.econ.yale.edu/~shiller/data.htm CI U.S. Dividend Growth Fund OUR INCOME AND GROWTH PHILOSOPHY We believe: • Superior income gap relative to broad market • Lower volatility portfolio • Potential for capital growth over the cycle A proven foundation for adding value OUR EQUITY PROCESS: CI CANADIAN U.S. GROWTH FUND Quantitative screens Qualitative analysis Investable Universe 2000 Screened Universe 200 Portfolio Team decision making 25 CI U.S. DIVIDEND GROWTH FUND Annualized returns As at August 31, 2013 CI U.S. Dividend Growth Fund YTD 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr Inception Inception date 20.6% 22.5% 18.9% 13.6% 10.8% 4.5% 2.5% 2.8% 3.9% 6/14/2006 Calendar year returns 2012 2011 2010 2009 2008 2007 CI U.S. Dividend Growth Fund 8.3% 1.0% 9.4% 0.0% -17.1% -6.7% • Ability to add value in up and down markets • Philosophy leads to a low volatility experience • Five year annualized standard deviation: CI U.S. Dividend Growth Fund 10.5% vs. S&P 500 12.4% CONOCOPHILLIPS ConocoPhillips - Daily closing share price ($U.S.), Jun 30/11 to Aug 31/13 65 Bought Apr-2011 60 55 50 45 Jun-11 • • • • Dec-11 Jun-12 Dec-12 Jun-13 Significantly better than market yield supported by strong balance sheet Margin expansion being driven by production mix shift Raised production guidance for 2013 due to better asset performance Exploration has the potential to drive better than expected growth Focusing on higher-margin, lower-risk operations Source: Price history - IDC / Exshare AVOID U.S. MARKET TORPEDOES, LIKE EXELON Exelon Corp. - Daily closing share price ($U.S.), Jun 30/11 to Aug 31/13 Oct-2012: Warns on a possible dividend cut 45 Feb-2013: Cuts dividend 35 25 Jun-11 • • • Dec-11 Jun-12 Dec-12 Jun-13 Gross margins suffering from weak power market conditions With earnings pressured, rising leverage and declining interest coverage Cut its dividend 41% in February 2013 due to shrinking cash flow Yield is not enough Source: Price history - IDC / Exshare YIELD COMPARISON Greystone S&P 500 3.5 2.5 1.5 2005 2006 2007 2008 2009 2010 2011 2012 2013 Positive dividend yield gap over the broad market Source: Greystone U.S. Income & Growth Fund, S&P 500, Computerized Portfolio Management Services, June 30, 2013 LOOKING FURTHER INTO YIELD Combined dividend & buyback yield, S&P 500, quarterly data Adding buybacks to dividends gives stocks a further yield advantage Source: BMO Economics, S&P, Greystone RISING PAYOUT RATIOS SUPPORTIVE OF HIGHER DIVIDENDS Dividend payout ratio, S&P 500, yearly data, 1871 - 2012 Payouts remain low relative to history Source: Robert Shiller, http://www.econ.yale.edu/~shiller/data.htm HIGH IMPACT CHARACTERISTICS – GREYSTONE’S U.S. INCOME & GROWTH PORTFOLIO Aug-13 latest data/ Aug-12 actual Actual/expected % of analysts with up revisions, minus % with down revisions prior 90 days Stock picking process leads to strong overall characteristics Source: Computerized Portfolio Management Services, August 31, 2013, characteristics are ex-cash. CI Canadian Dividend Growth Fund OUR INCOME AND GROWTH PHILOSOPHY We believe: • Superior income gap relative to broad market • Lower volatility portfolio • Potential for capital growth over the cycle A proven foundation for adding value OUR EQUITY PROCESS: CI CANADIAN DIVIDEND GROWTH FUND Quantitative screens Qualitative analysis Investable Universe 700 Screened Universe 140 Portfolio Team decision making 30 CI CANADIAN DIVIDEND GROWTH FUND Annualized returns As at August 31, 2013 YTD 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr Inception Inception date CI Cdn Dividend Growth Fund 1.9% 7.4% 2.9% 5.6% 7.8% 2.1% 1.9% 3.1% 6.1% 2/1/2005 Calendar year returns 2012 2011 2010 2009 2008 2007 2006 CI Cdn Dividend Growth Fund 4.9% -2.1% 18.7% 24.9% -26.0% 0.7% 16.1% • Ability to add value in up and down markets • Philosophy leads to a low volatility experience • Five year annualized standard deviation: CI Canadian Dividend Growth Fund 12.7% vs. S&P/TSX Index 16.5% CINEPLEX – EXECUTING THE PLAN Cineplex Inc - Daily closing share price ($Cdn), Jun 30/11 to Aug 31/13 38 Bought, Mar-12 34 30 26 22 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 • Rank supported by rising earnings estimates amid cuts for most stocks • Growth driven by greater 3D offerings – 40% of screens have 3D capacity • Recently announced acquisition of 26 Empire theatres – national market share now 78% Stable earnings and dividend growth since IPO in 2004 Source: Price history - IDC / Exshare CONSTELLATION SOFTWARE Constellation Software - Daily closing share price ($Cdn), Jun 30/11 to Aug 31/13 Bought, Mar-13 • Proven M&A strategy has created significant earnings growth • Management believes that there are over 10,000 acquisition targets • 3% dividend yield: $4.00 payout vs. $0.22 three years ago Self-funded accretive strategy Source: Price history – IDC / Exshare YIELD COMPARISON: GREYSTONE’S CANADIAN EQUITY INCOME & GROWTH FUND VS. S&P/TSX % Positive yield gap over the broad market Source: Greystone Canadian Equity Income & Growth Fund, S&P/TSX, Computerized Portfolio Management Services, June 30, 2013 HIGH IMPACT CHARACTERISTICS – GREYSTONE’S CANADIAN EQUITY INCOME & GROWTH PORTFOLIO Aug-13 latest data/ Aug-12 actual Actual/expected Aug-13 estimates/ May-13 estimates Stock picking process leads to strong overall characteristics Source: Computerized Portfolio Management Services, August 31, 2013, characteristics are ex-cash Thank you FOR ADVISOR USE ONLY Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. 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