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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
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