The Renaissance
Advisor
QUARTERLY FUND PROFILES / PRACTICE MANAGEMENT / OUTLOOK / OPINION
2013 Global Infrastructure Report Stable Road Ahead ALSO INSIDE:
Communicate to Clients in 3-Dimensions! Get Ready to Ride
Q1 – MAR. 31, 2013
TO DEFEND OUR EMPIRE, LET’S BUILD A SMALL FENCE.
GREAT LEADERS MAKE STRONGER PLANS: TODAY’S INCOME DECISION.
INCOME DECISION
TOOLKIT
It’s a tough decision, but it’s time to make it. We have reached a fork in the road. The flight to “safer” assets in the face of volatile markets may have worked until now, but record low yields are proving to be a threatening force. Now is the time to plan for the future.
Renaissance is committed to going further for you. We have actionable tools, solutions and key support to make today’s income decision easier. New and updated Income Decision tools now available. Visit incomedecision.ca or call 1-888-888-FUND (3863).
TO DAY ’ S I N C O M E S O LU T I O N S Short-Term Income Fund
Optimal Income Portfolio
Millennium High Income Fund
Optimal Inflation Opportunities Portfolio (inflation mitigation)
7th Century BC China decides to build a Great Wall.
®Renaissance Investments is offered by and is a registered trademark of CIBC Asset Management Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the Renaissance Investments family of funds simplified prospectus before investing.
PAGE
In this issue
8 K A V
O G
6 14
RENAISSANCE INVESTMENTS
Tax and Estate Americans in Canada: Tax Problems Grow
3
Economic Outlook North America: Soft Patch
4
Back of the Napkin Communicating in 3-Dimensions!
6
2013 Global Infrastructure Report
8
Solution Highlight Access the Infrastructure Advantage Now
12
Thanks to Our Supporters Portfolio Design is Critical
13
Get Ready to Ride
14
Brain Calisthenics
16
Letter from the National Sales Manager
Spring’s Hope Can Nurture Client Relationships Welcome to Spring. This is the time of year where hope comes to the forefront for all of us in our personal lives and business ambitions. The warm weather, green grass and blue water make the world seem a better place. Thank goodness for Spring, as often times we need it. The Winter extends for what seems like forever (although statistics show that it usually follows the same patterns year-in and year-out) and we are ready for vacation. Now is when we make personal plans and look forward to family and friends getting together. Whatever is going on in our business and personal lives, the outlook is a little better this time of year. We are feeling good. So, if this is what we as advisors are thinking about, is anything different with our clients? Absolutely not. It is simply human nature that they are feeling the same kind of hope and optimism. So perhaps this is the time of year – after RSP season, after tax season, after financial planning for the new year – that we make sure we plan events with our clients and talk to them about everything non-business. Help clients with their travel ideas, with baseball equipment for their kids, a new skateboard park fundraiser or a seniors program for the Summer. Add to their optimism this season by reassuring them about their financial future and listening to their excitement for the Spring and Summer and their personal plans. Your client relationships will be solidified and you will learn much more about the human side of the people you work with. Be sure you take the time to be personal with all of your clientele this Spring. Perhaps do the same with your teams. Although we can have the ability to convert interest income to capital gain taken from us and our clients, Spring and the hope it brings will return every year. Guaranteed. As always, we will strive to earn your business and become your trusted business partner. Any comments or ideas that you have, please feel free to call me. Happy Spring!
Sincerely,
Dave Wahl National Sales Manager Renaissance Investments 416-943-6959
Americans in Canada: Tax Problems Grow TAX AND ESTATE
For the estimated one million U.S. citizens living in Canada, owning Canadian mutual funds can cause a tax headache. The United States is the only country that requires its citizens to file a tax return and report their worldwide income, no matter where in the world they might live or how many other citizenships they might hold. This differs from most other countries, like Canada, which bases its taxation system primarily on residency. The problem with Canadian mutual funds for U.S. tax filers is that under U.S. tax law, they are considered to be Passive Foreign Investment Companies (PFICs) and as such, are governed by draconian U.S. tax rules and convoluted and complex annual reporting. For example, under the PFIC rules, investors who dispose of Canadian mutual funds or who receive certain types of distributions from these funds are taxed on their U.S. returns at the rates that apply to earned income as opposed to the preferential tax rates that apply to capital gains. In addition, depending on the timing of the distributions and/or dispositions, punitive interest charges can also be imposed. The PFIC rules themselves are extremely complex and require specialized U.S. tax reporting including the filing of Form 8621, “Information Return by a Shareholder of a Passive Foreign Investment Company” for each PFIC owned. The form is three pages long and has six parts. According to the form’s instructions, the estimated time to properly comply with the PFIC rules is over 31 hours, which includes: 11 hours to learn about the law or form, 15 hours or recordkeeping and just over 20 hours to prepare and send in the form. And that’s just for one PFIC. It’s therefore no wonder U.S. tax preparers are discouraging their clients from owning Canadian mutual funds in the first place, since it’s challenging for them to recoup the fees they would have to charge their clients for the professional time involved to do the recordkeeping and fill out the forms necessary to comply with the U.S. laws.
Recently, the Investment Funds Institute of Canada (IFIC) which represents a large segment of Canada’s investment funds industry, called on the U.S. government to exclude Canadian mutual funds from the PFIC rules. Its submission was made to two Congressional committees: the Financial Services Working Group Committee on Ways & Means and the International Tax Reform Working Group. In its submission, IFIC suggested that an administrative solution could be negotiated to exclude Canadian mutual funds from the PFIC Rules through “exchanging letters of understanding” between the Canada Revenue Agency and the Internal Revenue Service. As IFIC president and CEO Joanne De Laurentiis stated, “There is sufficient similarity between the treatment (for income tax purposes) of mutual funds in Canada and the U.S. to support the exclusion of Canadian mutual funds from the PFIC rules.”
Jamie Golombek is Managing Director, Tax and Estate Planning with CIBC Private Wealth Management. He works closely with advisors to help them provide integrated financial planning solutions for their high-net-worth clients. Jamie is frequently quoted in the media as an expert on taxation. Follow @JamieGolombek www.advisor.ca/togo Podcast > 2013 Budget: Not Much Good Tax News www.renaissanceinvestments.ca/en/jamie_golombek/
RENAISSANCE INVESTMENTS 3
North America: Soft Patch ECONOMIC OUTLOOK
It appears that the key focus in the market now is on the health of the U.S. recovery. While things are not as bad as suggested by some of the headline numbers, we are entering a period in which the market might have to lower expectations regarding U.S. growth. All recent indicators have shown consistent signs of weakness. The manufacturing sector showed a weakerthan-expected reading while consumer confidence is softening a bit. Add to that the disappointing labour market numbers of late and the picture that is emerging is consistent with our view that the strong growth in the first quarter will give way to a weaker second quarter. While it was clear that the strong showing of the first quarter is unsustainable, the question is to what extent the current softening in U.S. activity is temporary or a sign of future activity. At this point it is very reasonable to assume that the coming two quarters might see economic growth of less than 2% – not a disaster but clearly weaker than the estimated 3.4% growth in the first quarter. In Canada, things are starting to make more sense. The 54,500 drop in payroll employment in March was simply a reversal of the unexplainable 50,700 increase we saw in February. Beyond the monthly volatility, we have been creating, on average, only 10,000 new jobs a month over the past six months.
What’s worrying is that despite the relatively strong U.S. economy in the first quarter, Canadian trade has disappointed in the first two months of the year with the trade deficit actually widening. Given that the U.S. economy is slowing this means that the trade performance will, in fact, worsen from this point. As for the Canadian consumer, with the job market slowing down, real disposable income per capita actually fell in the last six months of 2012. No surprise then that growth in real retail sales in Canada is in negative territory. While better auto sales might have worked to lift activity in January, this remedy might be short-lived with auto sales already back to their pre-recession levels. It’s difficult to see what will turn things around in the near future. Wage increases since the beginning of the year were uninspiring at best, while the labour market is widely expected to come down from the clouds with job losses in the public sector and construction leading the way. Stagnating Income – Real household disposable income per capita 28,400
($)
28,000
Canadian Employment Slowing 2.00
27,600
% chg y/y
1.60
27,200
1.20
26,800
0.80
Source: Statistics Canada, CIBC.
4 RENAISSANCE INVESTMENTS
Mar. 2013
Jan. 2013
Nov. 2012
Sep. 2012
Jul. 2012
May 2012
Mar. 2012
Jan. 2012
0.00
Q4 2012
Q3 2012
Q2 2012
Q1 2012
Q4 2011
Q3 2011
Q2 2011
Q1 2011
26,400 0.40
Source: Statistics Canada, CIBC.
Dismal income growth in Canada also means that the widely watched debtto-income ratio will continue to set record highs in the coming quarters. Real
household credit is now rising slower than during the 2007 recession and with the exception of the near-recessionary period of 1995-96, it is now rising at the slowest pace seen in any non-recessionary period over the past three decades. Simply put, short of a major shock to the system, it is unrealistic to expect household credit expansion to decelerate further to meet the weak performance of income growth. At this point, the rise in the debt-to-income ratio is no longer about debt, it’s all about income. What does all this mean for the market? Despite the gross underperformance of the TSX versus the S&P 500, many Canadian stocks have done quite well. Of the 10 major sectors in the index, one has essentially kept pace with the S&P 500 and three (health care, information technology and industrials) have nicely outpaced it. The lagging TSX pace owes to sectors that, unfortunately, include some of the most heavily weighted in the basket. Why is the TSX Sucking Wind? – Year-to-date Appreciation (%) 15
%
TSX S&P 500
10 5
Bay Street’s energy stocks, while ahead on the year, have underperformed their Wall Street counterparts, hurt by concerns over future pipeline capacity and competition from growing U.S. production. The other major divergence has been in financials. U.S. banking stocks are benefiting from revived housing and consumer demand, and the perception that the legacy of the financial crisis is fading into the background. In contrast, Canada’s financials, while still gaining some attraction as dividend payers are seen as past their glory days of domestic credit demand, and therefore fated to tamer earnings growth. What could turn the tables? Global growth. An overweight position in energy and industrial materials would be to the TSX’s advantage if, as we expect, 2014 brings better growth in the U.S. and Asia, and at least the end of recession in Europe. Gold might not get a similar lift on the commodity price front, and will need to prove to investors that they can do better in containing costs and meeting production targets. For now, with interest rates so low, TSX stocks could still outperform fixed income. With 2013 economic news still muted, investors will be more reliant on dividends than capital gains to deliver near-term performance. But late this year, as eyes turn to improved global growth prospects in 2014, the tables could turn, allowing Toronto to take the lead from New York in terms of the pace of improvement.
0 -5 -10 -15 Total
Energy
Financials
Materials
Source: CIBC.
Resources are not surprisingly part of the problem, facing a global economy that has yet to gather speed. Although utilities stocks have ceded a bit of ground, the heaviest casualty has been materials stocks, plagued by poor operating performance in mining and disappointments in commodity prices. U.S. materials stocks also trail the S&P 500, but are still in positive territory.
Benjamin Tal is Deputy Chief Economist for CIBC. Described as one of Canada’s leading experts on the real estate market by the International Monetary Fund, he is responsible for analyzing economic developments and their implications for North American fixed income, equity, foreign exchange and commodities markets. www.advisor.ca/togo Podcast > Canadian Economy is in Transition www.renaissanceinvestments.ca/en/economy/
RENAISSANCE INVESTMENTS 5
Communicating in 3-Dimensions! BACK OF THE NAPKIN
The ability to connect with clients and prospects is critical to the success of an advisory practice. But sometimes we get so stuck in our preferred ways of communicating, that we run the risk of missing out on some very big opportunities. Consider this for a moment… We all experience the world through our five senses. Everything we know, learn and feel is the result of information that comes to us through one or more of those senses. We either see it, hear it, feel it, smell it or taste it – and we do so through the following sensory-based channels: Visual (sight), Auditory (hearing), Kinesthetic (touch)… and to a lesser degree… Olfactory (smell) and Gustatory (taste).
V
So how can this basic understanding help us in the context of investor communication? The reality is, we are all wired a little differently and we absorb and process information in different ways. Some people are primarily “visual” learners… some are “auditory” learners… while still others learn best by “doing” or experiencing “kinesthetically.” In the absence of a controlled scientific study, it would be difficult to substantiate a population breakdown between the three learning styles. But simply knowing they exist provides us with some very powerful information. From a functional standpoint, a “visually-dominant” learner will typically respond best when presented with pictures, charts, graphs and other visuals. In contrast, an “auditory” learner will need few (if any) graphics, but may be captivated by a verbal description or explanation. The “kinesthetic” learner will seek to understand a concept by touching it, feeling it, or sensing it on some level.
K A
meanings to each experience. Naturally, the meanings we attach to a particular event will largely depend on our unique set of values and beliefs, but will also be heavily influenced by our past experiences of a similar nature.
O G
Sensory-Based Channels
Have you ever come away from a meeting with a client or prospect and wondered what went wrong? Perhaps you felt that you did a fantastic job of delivering a powerful message, but were all too aware that you were simply not getting through to your audience. At the time, you may have even felt that it was as though you were speaking a different language. You may, in fact, have been communicating in a “foreign language” (for them) given their unique internal wiring.
Although smell and taste may contribute greatly to our experience under certain conditions, it’s really the first three channels of VAK that stand out as the primary modalities that will dominate and feed our experience of life.
Imagine what happens when we deliver an auditory (or purely verbal) recommendation to an ultra-visual client. Even if we mindfully employ descriptive anecdotes and a poetic choice of words, our visual listener will spend most of their time desperately trying to make “pictures” of what we’re saying.
The VAK(OG) are also sometimes called “representational systems” because they are the mechanisms that carry information from the outside world to our brain. Ultimately, as human beings, we simply try to make sense of the incoming information by rapidly interpreting the data, and then applying our own personal
Now, I’m not suggesting that a mismatch of learning styles should be viewed as a deal-breaker by our clients, but I do believe we can take some important steps to ensure that we are consistently creating and delivering messages in the most resourceful way.
6 RENAISSANCE INVESTMENTS
It would be extremely helpful if we knew an investor’s preferred representational system in advance, so we could simply tailor our messages accordingly. In practice, however, we will seldom be given the chance to profile and classify our audience ahead of time. So, what’s the solution? Learn to Communicate in 3-Dimensions: By following this simple step-by-step process, you will be able to create messages that possess a strong appeal for ANY audience – regardless of their preferred learning style. Step 1: Identify your own dominant learning style first
Finally, consider adding a kinesthetic component to your message by incorporating an interactive demonstration on your computer, handing some materials to your client, or by asking them how this idea “feels” to them so far.
Putting it all together: By understanding and respecting our different pathways to learning, we’re able to approach our own communication model from a fresh perspective. And, with a simple strategic change to our messaging procedure, we can begin to create a richer and more captivating experience for our clients and prospects.
By this point you may have already determined your most dominant learning style. If not, simply ask yourself whether you learn best visually, auditorily, or kinesthetically. Think back to your days in school, or how you prefer to be entertained, or how you remember information best. You may discover that there’s just one clear winner from the three sensory choices, or perhaps you may even find some degree of balance between two or more. Either way, simply make note of your discovery. Step 2: Determine how your own preference may be limiting your effectiveness Now that you’ve gained some clarity around your preferred representational system(s), ask yourself how this personal bias may be influencing the way you communicate with your clients and prospects. If you happen to be geared more toward auditory, do you find yourself doing a lot of talking in your meetings, but showing very few visuals? As a visual, do you try to convey your thoughts using spreadsheets and charts, while offering little in the way of explanation? Or, maybe you prefer to tell emotional stories or provide hands-on demonstrations to convey your ideas kinesthetically, while neglecting other important mediums. Regardless of where your bias may be, we now know that a percentage of your audience will not be able to comprehend, retain, or recall your information in the most optimal way… for them. Step 3: Construct and deliver all future messages in 3-Dimensions! (VAK)
VISUAL
AUDITORY
KINESTHETIC
Slides
Verbal Descriptions
Physical Object
Charts
Explanations
Demonstration
Graphs
Stories
Hands-on Training
Spreadsheets
Metaphors
Interactive Session
Pictures
Life Lessons
Role Play
Drawings
Audio CDs
Constructing
Videos
MP3s
Feelings-based
Contact your Renaissance representative to gain access to client-facing VAK tools around “Today’s Income Decision” and other topics.
You have a tremendous opportunity to create ultra-rich, three-dimensional messages so that your clients can align themselves with the dimension that suits them best. Here’s a simplified way to think about this process… Your ultimate goal is to employ the full suite of VAK by: showing them, telling them, and involving them. When constructing your investor-facing content, start by compiling and incorporating a collection of attention-grabbing visual aids, graphics, pictures, diagrams and charts. Each of your chosen pieces should tell a compelling story, or make a powerful statement, without much need for verbal assistance. Now create the auditory “scripts” that will explain, describe and expand upon your visuals. The key here is to describe the graphics as effectively as you would need to, if the graphics were not even being shown during the meeting. In other words, your verbal descriptions should essentially stand alone – with or without the visual aids being present. Remember, your auditory client will also be listening closely to your volume, pitch and tone, so your delivery will be crucial.
Grant Shorten is Director of Strategic Insights at Renaissance Investments. He offers insights and approaches that will work with your clients and have an immediate impact on your practice. www.advisor.ca/togo Podcast > A Checkup for Your Practice www.renaissanceinvestments.ca/en/practicemanagement/
RENAISSANCE INVESTMENTS 7
2013 GLOBAL
INFRASTRUCTURE
Steady income, strong diversification, stable growth and an advantage in a rising inflation environment. Global infrastructure is tailor-made for today’s long-term investor.
8 RENAISSANCE INVESTMENTS
REPORT Find out why today’s infrastructure opportunity is just as much about towers to service our insatiable appetite for mobile communication, as it is about essential utilities.
No matter what twists and turns markets and economies take, investors can gain an advantage by diversifying their portfolio into the global infrastructure space. Infrastructure, which now comprises about six percent of Canada Pension Plan, is an asset class lowly correlated to Canada’s benchmark S&P/ TSX Composite Index, and other staples of Canadians’ portfolios. For insight on what is driving this unique asset class in 2013 and beyond, we spoke with Nick Langley, Director & Senior Portfolio Manager with RARE Infrastructure Limited (RARE). Based in Sydney, Australia, RARE is one of the world’s most prolific global infrastructure firms focused solely on listed infrastructure.
A Global Road for Cautious Investors Many Canadians are risk averse and hesitant to invest outside our borders, and infrastructure offers an excellent opportunity for global exposure with less volatility, says Langley. “It provides better capital protection in falling markets and a reasonable share of the upside in rising markets.” With the predictable income distributions and natural inflation hedge from infrastructure companies, RARE targets long-term stable returns. “Overall, returns are attractive compared with global equity indices and comparisons,” he says.
RARE’S TOP 3 REGIONS
RARE’S TOP 3 SECTORS
DRIVING INFRASTRUCTURE GROWTH
DRIVING INFRASTRUCTURE GROWTH
North America Can quickly move through the recession and back into growth mode, spurred by extensive help from the U.S. Federal Reserve.
U.S. Rail Exposed and leveraged to rising GDP growth in the U.S. as U.S. rail firms move goods around the economy.
Asia (excluding China and Japan) Strong population and income growth, alongside stable governments, have provided a haven for the liquidity generated in developed markets.
U.S. Wireless Towers Indirectly exposed to growth in smartphone subscribers and wireless data downloads.
Central and South America Same as Asia above, although process in Central and South America’s is a little longer, with some governments, such as Brazil’s tinkering with regulation to try and capture a greater proportion of the wealth.
Global Ports Poised to benefit from increased global and intra-regional trade, especially ports with emerging markets exposure.
RENAISSANCE INVESTMENTS 9
U.S. Wireless Towers – Tech Infrastructure Not traditionally thought of as an infrastructure sector, U.S. wireless towers have many features that make the space particularly attractive right now, says Langley. “Consumers have identified handheld wireless smartphones and tablets as their preferred operating devices going forward. The increased functionality of these devices requires greater wireless coverage and bandwidth. U.S. wireless carrier providers must now upgrade their networks, which requires new equipment to be placed on the sites of the tower operators. Carrier providers are now in the process of rolling out the next generation in networks known as Fourth Generation (4G) or Long-Term Evolution, and this additional equipment means higher revenues for tower companies that charge the wireless providers on the size and weight of the equipment they place on the tower.”
“The wider market has not yet identified the opportunity that the tower market provides within the broader technology thematic.” Nick Langley, Director & Senior Portfolio Manager, RARE Infrastructure “Provisions for establishing new tower sites are very limited, putting a premium on existing tower space and providing a quasi-monopolistic market for the existing operators. The opportunity for RARE is, as the rollout of 4G will take some time, the wider market has not yet identified the opportunity that the tower market provides within the broader technology thematic. Finally, a number of the tower companies are also in the process of changing their structures to that of a real estate investment trust – enabling them to eliminate corporate tax liabilities and pushing their dividend yields up as they are then required to distribute 90 percent of what would be taxable income to investors.” A Natural Inflation Hedge With utility rates, tolls or project costs that increase with inflation, infrastructure is a practical investment in times of rising prices. Langley says that most of RARE’s portfolio holdings have direct or indirect links to inflation. “Utilities in the U.K., Australia and South America (currently 21 percent) have their prices adjusted by inflation each year and, in addition, their asset bases are adjusted to ensure their returns are protected from increased inflation. Many of RARE’s toll-road exposures (currently 10 percent) have tolls adjusted by inflation quarterly or annually. For example, Transurban is an international toll-road developer and its key asset in Australia has a quarterly adjustment of the larger of inflation or one percent (and therefore has a minimum of four percent per annum price increases).”
10 RENAISSANCE INVESTMENTS
“North American utilities (currently 20 percent of the portfolio) have an indirect link to inflation, in that state-based regulators provide a target nominal return on equity (invested in their asset bases), therefore, as inflation increases so do their return on equity targets. We call it an indirect exposure because the regulatory “resets” take place on an ad-hoc basis, and so it takes a year or more for these adjustments to be made and hence the companies’ have a lagged inflation protection.” “As such, the returns for over half the portfolio have medium to strong links to inflation over time. A further 23 percent (airports, satellite communications and some rail assets) have a portion of their assets repriced by inflation each year and the remaining 19 percent (ports, U.S. rail and U.S. towers in particular) have negotiated pricing that is referenced to inflation or nominal return targets over time.” Rising Interest Rate Protection Langley says that RARE considers the interest rate exposure in terms of real rates plus inflation. “The portions of the portfolio protected from real rates are generally the utilities. They are protected in that their return targets are “reset” on regular bases (between four- and eight-year cycles for the U.K., Australia and Brazil) or on an ad-hoc basis (for U.S. utilities).” “The portfolio is exposed to the impact of real rates on a number of infrastructure stocks (toll roads, airports, ports, rail companies, and other “GDP leveraged” companies) that do not have interest rate pass-through mechanisms in their concession contracts. If real rates begin to rise as a result of recovery in the global economy, then these companies are best positioned to benefit from their exposure to GDP growth. It is worth noting that many of these companies have inflation protection.”
“RARE’s portfolio companies have not cut dividends during the period that they’ve been in the portfolio.” Nick Langley, Director & Senior Portfolio Manager, RARE Infrastructure
“As a result, if the increase in interest rates occurs as a result of an increase in inflation then the majority of the portfolio is protected. If the increase arises from movements in real rates then approximately half of the portfolio is exposed, however, it would benefit from the improvement in global GDP growth.” Steady Income Langley says that RARE's portfolio generally yields in the high three percent to low six percent range throughout the economic cycle.
“Early in the cycle, as the economy is coming out of recession (the point we believe we are at now) is generally the low point for the dividend yield, because the portfolio is weighted toward infrastructure companies that have a higher capital growth component to their total return. These companies also have the strongest dividend growth profiles as earnings recover from the recession.” Emphasizes Langley, “RARE’s portfolio companies have not cut dividends during the period that they’ve been in the portfolio. Income is a critical portion of the long-term returns RARE expects from infrastructure and, as such, companies are assessed for dividend stability and growth potential.”
Infrastructure Complements “Today’s Income Decision” In today’s low-yield environment, investors seeking additional income and steady growth are wise to consider broadening their portfolio outside of Canada to help meet their investment goals.
Video > Global Infrastructure: Stable Road Ahead
A Better Diversifier than Global Equities Correlation with S&P/TSX Composite Index
Podcast > Infrastructure: Global Growth Stocks to Drive 2013 Markets
A Less Volatile Global Investment 5 Year Standard Deviation (as at March 31, 2013) 14
1.0 Renaissance Global Infrastructure Fund MSCI World Index
0.9
13
Renaissance Global Infrastructure Fund MSCI World Index
0.8 0.7
Correlation
0.6
12
Lower correlation means better diversification properties
11
0.5
10
0.4
9
0.3 8 0.2 7
0.1 0
6
Source: Bloomberg, CIBC Asset Management
Source: Bloomberg, CIBC Asset Management
See the next page for the Renaissance solutions that provide your clients access to the global infrastructure advantage.
Look for yours in this magazine
Use the New Income Decision Poster as a conversation starter. Show clients why it’s time to look beyond traditional income for the additional yield they need.
RENAISSANCE INVESTMENTS 11
Access the Infrastructure Advantage Now SOLUTION HIGHLIGHT
5.9% 5.7%
STEP 1 Choose to reduce portfolio risk and enhance returns by adding infrastructure
3-yr Total Return
+30% Infrastructure/70% S&P/TSX Composite Index 5.5% +20% Infrastructure /80% S&P/TSX Composite Index
5.3%
More Return
5.1%
Less Risk
4.9%
100% S&P/TSX Composite Index
4.7% 4.5% 9.5%
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
3-yr Standard Deviation Source: Morningstar Direct as at December 31, 2012.
STEP 2 Select from two stellar solutions
Diversified Access: Renaissance Optimal Income Portfolio
Morningstar Rating
1 yr
2 yr
3 yr
5 yr
Since Inception2
★★★★
8.2%
6.0%
7.4%
4.7%
4.3%
1
1
1
1
n/a
11.1%
4.2%
3.3%
1
1
n/a
Quartile1 Pure Play Access: Renaissance Global Infrastructure Fund
★★★★★
Quartile1
18.2% 10.2% 1
1
Performance as at March 31, 2013. Source: Morningstar Direct.
STEP 3 Leave it to the experts
Z
• 100% focus on listed global infrastructure (infrastructure specialists managing funds, not fund managers managing infrastructure) • Over 70 years combined infrastructure experience • Seek to replicate risk-return profile of unlisted infrastructure • Active management to adjust portfolio ahead of business cycles
For more information on how to put these solutions to work for your clients, please speak to your Renaissance Investments representative.
1
Source: Morningstar, for the period specified ending March 31, 2013 for Class A units of the Funds. ©2013 Morningstar Research Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Quartile rankings are determined by Morningstar Research Inc., an independent research firm. Quartile rankings are comparisons of the performance of a fund to other funds in a particular category and are subject to change monthly. 2 Renaissance Optimal Income Portfolio inception date November 13, 2007. Renaissance Global Infrastructure Fund inception date October 20, 2010. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the Renaissance Investments family of funds simplified prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
12 RENAISSANCE INVESTMENTS
Portfolio Design is Critical THANKS TO OUR SUPPORTERS
Without the support of advisors like you, Renaissance Investments would not enjoy the privilege of helping so many Canadians realize their investment goals. Here is one of the outstanding professionals we are so very proud to work with. What do you love about the business? The private client investment business continues to fascinate me after all these years in the business for two reasons. It allows me to support interesting people with their varied goals in life. Each client has a unique personal situation, which offers its own challenges and opportunities to be researched and presented in a way that is clear to the client. Also, the investment environment is always evolving. Some solutions that were prudent at one time are no longer appropriate and there are new products and services to be learned. Boredom is never a problem!
balanced portfolios have already moved to hold more equities. In this move, selection of the equities is a key consideration to maintain the overall risk at a level appropriate for the clients. What are your thoughts on including infrastructure as an asset class in your client portfolios? Infrastructure has become a key holding in client portfolios as the overall equity position has increased, for two main reasons: stable cash flows and low correlation with other asset classes. Research in this asset class and implementation selection is as critical as everywhere else. Looking at index performance and correlation statistics is only relevant if they can be replicated. Finding a fund where infrastructure investments are in hard assets, as well as tradable securities, is important in building a truly diversified and lower-risk portfolio. Best tip for gaining new clients: Work with centres of influence at every opportunity, starting with your clients.
What are you doing to combat low yield for clients?
Favourite hobbies:
Certainly a current challenge is that of today’s low yields. Traditional solutions of laddered bond portfolios and high-quality government bond portfolios are no longer adequate for many clients. There are three directions to go with this situation. Increasing capital through saving more or working longer. Alternately, investment portfolios need to use more “risk” assets. Dividend income from stocks can be higher than yields on bonds. This is not the usual historical situation, but today, a well-designed stock portfolio can generate higher cash flow than a fixed income portfolio. However, risk must always be thoroughly discussed and understood. This is where portfolio design is critical and diversification is not just holding more securities, but holding non-correlated securities with appropriate quality.
Sailing and music.
With talk of a “great rotation,” do you plan to allocate more assets toward equities? Adding more equities to client portfolios is a slippery slope and one that must be carefully researched and presented. I use a cash flow methodology with a bottom-up portfolio design process that involves matching client expense needs with investment income. The current low fixed income yields have already tilted client portfolios towards more equity holdings than in the past and my
One item I can’t be without: My cell phone – how did we ever survive before?
Ann E. Martin, CFA Firm: TD Wealth Private Investment Advice, Oakville ON Years in Business: 26 Team Members: 2
RENAISSANCE INVESTMENTS 13
From country roads to city trails – the signs of cycling’s growing popularity in Canada are everywhere. There’s no reason you shouldn’t join in the fun this spring.
14 RENAISSANCE INVESTMENTS
Cycling Canada reports that the number of licensed cyclists in Canada grows about 10 percent a year. In fact, a 2012 Globe and Mail article ran with the headline: “Cycling is the new golf.” There are many factors driving the popularity of cycling: boomers seeking a lower-impact activity than running; a growing media profile of the sport (Ryder Hesjedal of British Columbia won the Giro d’Italia last year); a surge in cycling-related charity events; and biking becoming a more viable option for commuters (bike lanes, better equipment, cost of gas). Maybe you haven’t hopped on a bike since you were a kid. Now is a good time to get back in the saddle. The first thing you’re going to need is a bike, which raises several questions: • How much will it cost? From under $100 for a used bike on eBay, to over $2,500 for a top road bike, your possible price points are endless. • How will I use my bike? Whether you intend to enter races, ride trails or commute to work will have a big say in the type of bike you need. • What accessories do I need? Helmets, gloves, glasses, clothing, lights, computers – there is an endless supply of cool bike gear to spend your money on. Depending on your needs, there’s something to satisfy everyone. Find a reputable bike shop that can help with your selection. Remember when you bought your dream car, you took the time to ensure it was the perfect ”fit.” It’s the same with a bike. Ideally choose a frame that fits your leg length. Be sure to take a few test rides.
Awesome Accessories blessthisstuff.com released its top nine bicycle accessories in 2012. The list included: • A leather bicycle wine rack that supports a bottle of vino on your frame. • A “horn” iPhone bicycle amplifier so you can listen to your playlist on the move. • A commuter trailer attachment that carries office gear and groceries. • A no-button automatic bike light that senses when you’re moving, and when it’s dark enough to turn on. www.blessthisstuff.com
A cyclist’s perspective… We spoke with Ed Veal, a category one road cyclist and the current Ontario Cup Champion,for some practical and helpful insights. Ed is coach and owner of Real Deal Racing (www.realdealracing.ca). How fit do you need to be to begin cycling? “Not fit at all. Don’t wait to be whatever your idea of ‘fit’ is to begin having fun on a bike. The sooner you begin, the quicker you’ll become ‘cycling fit.’ Sweating and being a little winded can be quite enjoyable if you choose to embrace the feeling.” What are some do’s and don’ts in cycling? “Some people focus too much on training. Make sure you enjoy being outdoors and seeing the sights you might not see in a car. Travel some unfamiliar roads and explore a bit. Biking can be so enjoyable and sometimes that is lost in the chase for speed and fitness. I still ride for fun – jump a curb, ride through a puddle and swerve back and forth (when it is safe).” What advice can you offer someone who wants to get involved in racing? “For starters, ease into riding with others. Get out with a friend and practise riding close and drafting [advanced technique to ride inches apart in a straight line to reduce wind] with someone you trust. Then add in a second and third rider, once you are more comfortable. Take the back roads to start and then work your way on to the highway when you have more experience. There is a lot of skill involved when riding in a pack. It does not come overnight. Make sure you work on cornering, bike handling and riding with others before you enter any event.” What are some of the advantages of joining a cycling group? “There are too many to list. Some of the clubs these days are incredible and offer many different rides and activities all year. Cycling is very social, so meeting and riding with others who enjoy the same things would be my number-one reason for joining a club.” What cycling activities or events are fun for the whole family? “Any weekly mountain bike series would be perfect. An eight-hour event where you set up a camp and ride as much or as little as you like, and just hanging around the camp enjoying the outdoors – this could be the ultimate family cycling activity.” Overall, it doesn’t matter what age you are or if you’re in top shape – cycling is an activity everyone can enjoy. You may even want to join or start a cycling group in your community. To get you on the right path, there are numerous resources on cycling – here are a few to help you get started on your journey today: www.canbike.net, www.cyclingcanada.ca, and www.tourducanada.com. Enjoy the ride!
RENAISSANCE INVESTMENTS 15
brain calisthenics Word scramble – Unscramble the following letters to spell words from the article on pages 8-11:
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Sudoku – Complete the Sudoku puzzle so that each and every row, column and 3x3 box contains the numbers one through nine only once.
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Spot the difference – Can you spot the five differences between the pictures below?
Check your answers at www.renaissanceinvestments.ca/magazine/answers/
16 RENAISSANCE INVESTMENTS
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