Two funds managed by Terry Thib – IA Clarington North American Opportunities Class and IA Clarington Growth & Income Fund – just marked their third anniversary, and there is much to celebrate. The funds have overall Morningstar ratings of four and five stars1, respectively, which reflect their impressive risk-adjusted performance compared to peer groups.
|1-year return||2-year return||3-year return||Since Inception||3-year standard deviation||3-year Sharpe ratio||3-year upcapture ratio (%)||3-year downcapture ratio (%)|
|IA Clarington North American Opportunities Class, Series F||9.2||11.0||8.5||8.5||7.7||1.0||76.1||68.4|
|Peer group: Canadian Focused Small/Mid Cap Equity||9.5||12.0||6.8||6.8||9.9||0.7|
|IA Clarington Growth & Income Fund, Series F||6.1||12.1||8.1||8.1||5.7||1.3||75.8||51.0|
|Peer group: Canadian Equity Balanced||6.9||9.4||5.5||5.5||6.2||0.8|
Source: Morningstar, as at December 31, 2017. Inception date: December 22, 2014. Capture ratios are based on the funds’ respective bechmarks: 50% S&P/TSX Composite Index, 50% S&P 1500 Index for IA Clarington North American Opportunities Class Series F; 30% Credit Suisse Leveraged Loan Index, 35% S&P/TSX Composite Index and 35% S&P 1500 Index for IA Clarington Growth & Income Fund Series F. Peer groups are based on Morningstar categories for the respective funds.
Source: Morningstar Direct, as at December 31, 2017. Inception date: December 22, 2014. *The Peer group is the Canadian Focused Small/Mid Cap Equity Morningstar category.
Source: Morningstar Direct, as at December 31, 2017. Inception date: December 22, 2014. *The Peer group is the Canadian Equity Balanced Morningstar category.
TWO UNIQUE MANDATES
Terry’s unique, difficult-to-replicate approach assesses opportunities across the full market-cap spectrum. He tends to focus on assets that are less widely known by the broader market and, in some cases, much less efficient than the securities to be found in a typical portfolio. Terry’s high-conviction, actively managed funds include holdings in small- and mid-cap stocks, senior loans, high-yield bonds and options (covered calls and written puts), making them a differentiated source of value for a wide range of investors.
As the charts below make clear, adding Terry’s funds to traditional balanced portfolios has delivered enhanced risk-adjusted returns over the past three years and offers potential for attractive long-term outcomes.
For illustrative purposes only. Sharpe ratio measures excess return over a risk-free rate divided by standard deviation (volatility). Sortino ratio measures excess return over a
risk-free rate divided by downside deviation (downside volatility).
For illustrative purposes only.
Terry expects the synchronized global economic recovery to continue through 2018, which bodes well for corporate earnings and, in turn, equity prices. However, with many sectors and markets becoming more expensive, combined with the anticipated withdrawal of central bank liquidity, the difference between winners and losers is likely to become more pronounced, offering a clear advantage for Terry’s active, benchmark-agnostic approach.
The below table provides a snapshot of how Terry’s security selection decisions create significant upside potential for IA Clarington North American Opportunities Class and the equity component of IA Clarington Growth & Income Fund.
|Company||Current valuation||Catalyst||% upside||Fund weighting||Portfolio impact|
|Geodrill Ltd.||EV/EBITDA ('18) 2.8x||Dividend, share buybacks, discovered by market||140%||2.10%||294 bps|
|Intertain Group Ltd.||EV/EBITDA ('18) 4.1x||Reduction in leverage||130%||1.70%||221 bps|
|DIRTT Environmental Solutions||EV/EBITDA ('18) 8.1x||Continued earnings momentum, margin expansion||90%||1.75%||158 bps|
|Company||Current valuation||Catalyst||% upside||Fund weighting||Portfolio impact|
|Tricon Capital Group||EV/EBITDA ('18) 6.6x||Simplification of business, further acquisitions||160%||2.10%||336 bps|
|Sir Royalty Income Fund||EV/EBITDA ('18) 7.2x||New restaurant openings, AB recovery, renovations||60%||1.20%||72 bps|
|Crius Energy Trust||EV/EBITDA ('18) 3.9x||Integration of acquisition, solar growth||40%||1.50%||60 bps|
Source: Bloomberg and IA Clarington Investments Inc. % upside is based on the portfolio manager’s fair valuation estimates.
In an environment of rising yields and monetary policy normalization, fixed-income investing remains challenging for traditional bondholders. To reduce interest rate sensitivity, the fixed-income component of IA Clarington Growth & Income Fund has a low duration compared to typical investment grade fixed income.
For more information about the funds managed by Terry Thib, speak with your iA Clarington sales representative or visit iaclarington.com
|A $CDN||1250||1251||1252||F $CDN||1258|
|E $CDN||1260||–||–||EF $CDN||3229|
|Purchase Options||Front||Back||Low||Purchase Options||Fee-based|
|A $U.S.||1264||1265||1266||F $U.S.||1272|
|A $CDN||1140||1141||1252||F $CDN||1258|
|E $CDN||1150||–||–||F5 $CDN||3229|
|E5 $CDN||1151||–||–||EF $CDN||3217|
|T5 $CDN||1143||1144||1145||EF5 $CDN||3218|
|Purchase Options||Front||Back||Low||Purchase Options||Fee-based|
|A $U.S.||1155||1156||1157||F $U.S.||1163|
|E $U.S.||1165||–||–||F5 $U.S.||1164|
- Active management – Uses research and analysis to select stocks or other securities with the goal of outperforming a designated index or benchmark.
- Benchmark agnostic – An approach to asset allocation that is not tied to benchmark weightings.
- Covered call – Involves writing call options on securities an investor already owns. Typically, an investor will do this when he or she believes those securities are unlikely to rise meaningfully during the period in which the option is valid.
- Current valuation – How much a company is valued relative to its current earnings. For example, a valuation of 2.8x means that the company is trading at 2.8x its current earnings level.
- Down capture – The amount of downside a mutual fund experiences relative to a benchmark.
- Duration – Measures the sensitivity of fixed-income securities to changes in interest rates. A higher duration means an investment is more sensitive to interest rate volatility. When interest rates fall (rise) a higher duration means a greater increase (decrease) in the price of the security.
- EBITDA – Earnings before interest, taxes, depreciation, and amortization.
- EV – Enterprise value.
- High-yield bond – A fixed-income security with higher risk and higher yield than investment grade bonds. High-yield bonds are rated below BBB (S&P) or Baa (Moodys).
- Inefficient – A market or asset that is mispriced due to a relative lack of investor attention or interest.
- Interest rate sensitive – The degree to which the price of a security fluctuates with interest rate fluctuations.
- Investment grade – A high-quality bond with a low risk of default. Ratings for investment grade bonds are BBB and above.
- Large-cap – Large-cap companies have a market capitalization of more than $5 billion.
- Market capitalization – The total value of a company’s outstanding shares. Can also refer to the total value of a market relative to other markets.
- Mid-cap – A mid-cap company has a market capitalization value between $2 billion and $5 billion.
- Monetary policy normalization – An effort by central banks to return interest rates to their normalized level.
- Options – A financial instrument that allows investors to enter into an agreement where one person has the right to buy (sell) a security at a specified price and the other person is obligated to sell (buy). These investors agree on the terms of the option, including the price and time period during which the option is valid. Some options can be exercised within a specific time period (American options), while others are exercised only on a particular date (European options).
- Put option – A financial instrument that allows the purchaser of the option to sell a security at a specified price to the person who sold the option. Typically, investors purchase put options as insurance against the possibility that the stock market could fall. A purchaser of put options who exercises the options in a down market is usually selling securities to the put option seller for a price that exceeds the current market price of the securities being sold.
- Risk-adjusted returns – The amount of return generated by an investment per unit of risk.
- Senior loans – In a senior loan arrangement, the lender has first claim on the borrower's assets in the event of bankruptcy. These loans have floating rates that are reset at regular intervals.
- Sharpe ratio – Measures excess return over a risk-free rate divided by standard deviation (volatility).
- Small-cap – Small-cap companies have a market capitalization value of $300 million to $2 billion.
- SMID – A mid-cap company has a market capitalization value between $2 billion and $5 billion.
- Sortino ratio – Measures excess return over a risk-free rate divided by downside deviation (downside volatility).
- Standard deviation – A measure of historical volatility and the most common measure of risk in the investment industry. In general, the higher the standard deviation, the higher the risk associated with an investment.
- Up capture – The amount of upside a mutual fund experiences relative to a benchmark.
1Morningstar ratings are for IA Clarington North American Opportunities Fund, Series F and IA Clarington Growth & Income Fund, Series F. Morningstar Ratings are based on fund returns for periods ending December 31, 2017, and are subject to change monthly. Morningstar Star Ratings are assigned based on the ranked Morningstar Risk-Adjusted Return of each fund compared to other funds in the same Morningstar Category. As at December 31, 2017, there were 133 funds with at least a 3-year performance history in the Canadian Equity Balanced Morningstar category and 423 funds in the Canadian Focused Small/Mid Cap Equity Morningstar category. Morningstar calculates ratings for the three-, five- and ten-year periods and then the Overall Morningstar Rating is based on a weighted average of Morningstar Ratings for available time periods. Morningstar calculates ratings for categories with at least five funds. If a fund scores in the top 10% of its category, it receives five stars; if it falls in the next 22.5%, it receives four stars; the next 35% earns a fund three stars; those in the next 22.5% receive two stars; and the lowest 10% receive one star. For greater detail, see morningstar.ca. 2Morningstar Direct, as at December 31, 2017. Return figures are annualized and all figures are since inception of IA Clarington North American Opportunities Class, Series F (12/22/2014). A blend of 35% S&P/TSX Canadian Dividend Aristocrats Total Return index, 35 S&P/TSX Composite Total Return index and 30 iShares Core Canadian Universe Bond ETF was used to represent 100% of the core portfolio. A blend of 30% S&P/TSX Canadian Dividend Aristocrats Total Return index, 30 S&P/TSX Composite Total Return index and 25% iShares Core Canadian Universe Bond ETF was used to represent 85% of the core portfolio. The performance data comparison presented is intended to illustrate the Fund’s historical performance as compared with historical performance of a theoretical core portfolio made up widely quoted market indices and the iShares Core Canadian Universe Bond Index ETF. There are various important differences that may exist between the Fund and the stated indices/ETF that may affect the performance of each. The core portfolio is a blend of S&P/TSX Composite Index (35%), S&P/TSX Canadian Dividend Aristocrats Total Return Index (35%) and the iShares Core Canadian Universe Bond Index ETF (30%). The S&P/TSX Composite Index is the premier indicator of market activity for Canadian equity markets, with 95% coverage of Canadian-based, TSX-listed companies. The index includes common stock and income trust units and is designed to offer the representation of a broad benchmark index while maintaining the liquidity characteristics of narrower indices. The S&P/TSX Canadian Dividend Aristocrats Total Return Index measures the performance of companies included in the S&P/TSX Composite Index that have a market capitalization of at least C$300 Million, have followed a policy of consistently increasing dividends every year for at least five years. The company's security must be a common stock or an income trust listed on Toronto Stock Exchange. The iShares Core Canadian Universe Bond Index ETF seeks to provide income by replicating, to the extent possible, the performance of the TSE TMX Canada Universe Bond Index (the “Index”), net of expenses. Under normal market conditions, the fund will primarily invest in Canadian fixed income securities. The Index is a market capitalization-weighted index consisting of a broadly diversified range which may include any or all of federal, provincial, corporate and municipal bonds. The investment strategy of the fund is to invest in a regularly rebalanced portfolio of bonds, selected by BlackRock from time to time, that closely matches the characteristics of the Index. The performance comparison is for illustrative purposes only and does not imply future performance. SMID = Small and Mid-Cap equities. 3Morningstar Direct, as at December 31, 2017. Return figures are annualized and all figures are since inception of IA Clarington Growth & Income Fund, Series F (12/22/2014). SMID = Small and Mid-Cap equities. SSL= Senior Secured Loans. Commentaries are provided by the portfolio manager or sub-advisor responsible for the management of the fund’s investment portfolio, as specified in the applicable fund’s prospectus (“portfolio manager”). Statements by the portfolio manager represent their professional opinion, do not necessarily reflect the views of iA Clarington, and should not be relied upon for any other purpose. Information presented should not be considered a recommendation to buy or sell a particular security. Specific securities discussed are for illustrative purposes only. Mutual funds may purchase and sell securities at any time and securities held by a fund may increase or decrease in value. Past investment performance of a mutual fund or individual security may not be repeated. The information provided herein does not constitute financial, tax or legal advice. Always consult with a qualified advisor prior to making any investment decision. The historical risk level of the stated fund, index or peer group category is based on the standard deviation of its investment returns. The use of standard deviation as a measurement tool allows for a reliable and consistent quantitative comparison of historical relative volatility and related risk. Standard deviation is widely used to measure volatility of return and represents the historical level of volatility in returns over set measurement periods. A lower standard deviation means the returns have historically been less volatile and vice-versa. Historical volatility may not be indicative of future volatility. There are other types of risks associated with the investments presented. Please read each fund's prospectus for further information on the specific risks related to the fund. Statements that pertain to the future represent the portfolio manager’s current view regarding future events. Actual future events may differ. iA Clarington does not undertake any obligation to update the information provided herein. Trademarks displayed herein that are not owned by Industrial Alliance Insurance and Financial Services Inc. are the property of and trademarked by the corresponding company and are used for illustrative purposes only. The iA Clarington Funds are managed by IA Clarington Investments Inc. iA Clarington and the iA Clarington logo are trademarks of Industrial Alliance Insurance and Financial Services Inc. and are used under license.