Select 40i60e Managed Portfolio Portfolio Review – Fourth Quarter 2014 Q4 Select 40i60e Managed Portfolio Portfolio Review – Fourth Quarter 2014 as at December 31, 2014 Market Overview Underlying Fund Allocations Overall, the global economic expansion moved cautiously forward in 2014, with stock market gains in North America generally outperforming those of other developed and emerging markets. The final quarter of the year was marked by significant stock market volatility as investors took note of surprisingly weak economic data from Germany, which is regarded as the stronger of the Eurozone nations, and then responded to declining oil prices by selling off stocks of energy-producing companies. Oil-producing nations and regions that were significantly impacted were Canada, Russia, South America and many Middle East countries. Concerns about oversupply in the energy market caused a sharp drop in the price of oil and other commodities. The price per barrel dropped to US$53 at the end of the year, the lowest since 2009. CI Income Fund Select U.S. Equity Managed Fund Select International Equity Managed Fund Select Canadian Equity Managed Fund Harbour Corporate Class Cash Canada’s commodity-heavy S&P/TSX Composite Index was particularly volatile in the fourth quarter. The Canadian index finished the three-month period with a loss of 1.5%, but registered a respectable gain of 10.6% for the year. The falling price of oil also caused the Canadian dollar to lose value relative to the U.S. dollar. The loonie finished the year at 86.2 cents U.S. Meanwhile, the FTSE TMX Canada Universe Bond Index, a measure of Canadian government and investment-grade corporate bonds, gained 2.7% in the fourth quarter. The MSCI World Index, which measures large and midcap equities across 23 developed markets, gained 1.1% for the quarter in U.S. dollar terms and 5.5% for the year. These gains were magnified to 4.7% and 15.1%, respectively, for Canadian investors. In the U.S., the benchmark S&P 500 Index benefited from strong U.S. economic trends, growing consumer and business confidence and healthy corporate profits, adding 13.7% for the year and 4.9% for the fourth quarter. In Canadian dollars, the index gained 24% in 2014 and 8.6% for the quarter. 22 Portfolio Select Series 38.5% 22.2% 17.4% 16.4% 4.0% 1.5% Top Ten Holdings U.S. Treasury Note 1.5% 30Nov19 Apple Inc. CGI Group Inc. Microsoft Corp. Canadian Natural Resources Ltd. Citigroup Inc. Empire Co. Ltd. UnitedHealth Group Inc. Toronto-Dominion Bank Bank of Nova Scotia 1.2% 0.8% 0.7% 0.7% 0.7% 0.7% 0.6% 0.6% 0.5% 0.5% Select 40i60e Managed Portfolio Portfolio Review – Fourth Quarter 2014 as at December 31, 2014 Portfolio Performance (Class A) 1 Month 3 Months 6 Months 1 Year 3 Years 5 Years 10 Years Since Inception -0.4% 1.6% 2.4% 7.3% 11.5% 7.9% N/A 3.9% (November 2006) Asset Allocation Overview and Activity Different types of investments will respond differently to the markets, reinforcing the importance of a multi-level diversification strategy. A balanced asset mix ensures that investors are not dependent on any one asset class or security type to provide returns. CI Investment Consulting combines its portfolio construction expertise with ongoing comprehensive research and recommendations from State Street Global Advisors, a world leader in asset allocation, to create portfolios designed to capture evolving opportunities in the various asset classes. This report is designed to provide you with an up-to-date portfolio overview of the Select 40i60e Managed Portfolio, including the allocations across asset class, geographic region, equity sector and market capitalization. The arrows indicate whether the allocation for each category has increased or decreased since the previous quarter-end. Geographic Regions Asset Class 24.0% 19.9% 14.0% 11.4% 11.1% 10.0% 5.1% 3.1% 1.4% — — — — — — — — — ▲ ▲ ▼ ▼ ▲ ▲ ▲ ▲ ▼ 34.0% 30.5% 18.5% 3.9% 3.3% 3.2% 2.4% 2.1% 1.3% 0.8% U.S. equity Canadian equity Canadian bond Cash European equity Foreign bond Asian equity Emerging markets equity Other equity Equity Industry Sector Equity Market Cap 83.4% 24,0 % 14.7% 19,9 % 1.9% 14,0 % 11,4 % 11,1 % 10,0 % 5,1 % 3,1 % 1,4 % — ▲ Large-cap — ▼ Mid-cap — — ▲ Small-cap — — — — — — — — ▲ ▼ ■ 27.6% 34,0 % 12.9% 11.5% 30,5 % 10.6% 18,5 % 10.5% 3,9 % 8.2% 3,3 % 7.2% 3,2 % 4.9% 2,4 % 3.8% 2,1 % 2.5% 1,3 % 0.3% 0,8 % ▲ ▼ ■ —▲ —▲ —▼ —▼ —▼ —▲ —▲ —▼ —▲ —▲ Canada U.S. Cash & Other countries Japan U.K. Emerging markets France Switzerland Germany Ireland — ▲ —▲ — — —▼ — —▼ — —▲ — —▲ — ▼ — — ■ — — ▲ — — ▲ —▲ — Financial services Information technology Energy Industrials Consumer discretionary Consumer staples Health care Materials Telecommunication services Utilities Other — Portfolio Select Series 23 Select 40i60e Managed Portfolio Portfolio Review – Fourth Quarter 2014 as at December 31, 2014 Portfolio Commentary The portfolio gained 1.6% during the quarter, underperforming its benchmark (40% FTSE TMX Canada Universe Bond Index, 24% S&P/TSX Composite Index, 18% MSCI World Index C$, 18% MSCI World Index local currency), which rose 2.2%. The equity section underperformed, due largely to the U.S. and international holdings. Asset allocation had a positive effect, with an overweight position in U.S. equities adding value over the quarter. The income component’s underweight position in government bonds detracted from relative performance, while exposure to U.S dollars, dividend-paying equities and global bonds made positive contributions. During the quarter, worries over stalling global economic growth and a downturn in commodity markets caused investors to avoid riskier assets. Lower demand for oil from weaker economies, together with an increase in supply, drove crude prices sharply lower. Weaker commodity process pushed down the Canadian stock market and the dollar. In the United States, continued economic expansion boosted equity markets and the value of the U.S. dollar. Overseas equities, particularly in Europe, declined, as Germany experienced slower economic growth and declining inflation. In fixed-income markets, global economic weakness combined with low inflation helped government bonds continue their rally. In the portfolio’s income portion, our globally diversified basket of income-generating equities contributed to performance, led by real estate securities. The target allocation is 20% in each of Canadian government bonds, foreign government bonds, investment-grade corporate bonds, high-yield corporate bonds, and high-yielding equities. We added modestly to stocks and high-yield bonds over the three-month period, while reducing our exposure to the U.S. dollar. We continued to maintain a large cash position, which helped to protect the portfolio during the period’s heightened market volatility. 24 Portfolio Select Series The portfolio’s interest rate risk is reduced through exposure to bonds with shorter maturities and cash. We expect to maintain our underweight position in Canadian government bonds as long as they continue to be priced at a premium, and will favour income securities that offer more attractive returns, including corporate bonds and certain high-quality, dividend-paying equities. Having a diversified and flexible framework allows us to take advantage of changes in valuations in the market and continue providing steady income returns. We continue to adjust our bond weightings to manage downside risk and volatility. Our portfolio is invested diversely in corporate bonds, global bonds, currencies and highquality, dividend-paying equities. The portfolio’s equity portion benefited from a positive contribution from its Canadian component, but this was offset by underperformance by its U.S. and international holdings. The sector allocation of the portfolio’s overall equity portion is more diversified than that of the Canadian economy and the S&P/TSX Composite Index, which has 70% of its value concentrated in three sectors: energy, materials and financials. We continue to focus on company fundamentals and valuations to add value and avoid undue concentration in any one sector. From a regional perspective, we continued to have an overweight position in the United States, an underweight allocation to Canada and a neutral position in international equities. The U.S. market is supported by a diverse economy, with large exposure to global markets and strong representation in all major industrial sectors, making it an attractive asset class on a risk-adjusted basis. Select 40i60e Managed Portfolio Portfolio Review – Fourth Quarter 2014 as at December 31, 2014 Select Canadian Equity Managed Fund is positioned quite differently from its benchmark, the S&P/TSX Composite Index. The fund has underweight allocations to the resources and financials sectors, and overweight positions in other areas such as information technology, consumer staples and consumer discretionary – positioning that we believe enhances risk-adjusted return potential. The fund outperformed the benchmark, due to the portion managed by Cambridge Global Asset Management. Its holdings in financials and an overweight position in the consumer sectors added value. Select U.S. Equity Managed Fund underperformed its benchmark, the S&P 500 Index. The portion managed by Tetrem Capital Management detracted from relative performance due to its overweight allocation to and stock selection in the energy sector. The fund favours areas of the market that are tied to economic growth, while maintaining underweight positions in defensive sectors. Hedging a portion of our U.S.-dollar exposure hampered performance, but nonetheless this added relative value, because we hedged less than our benchmark for this segment of the portfolio. Hedging a portion of our overseas currency exposure added value as the yen depreciated against the Canadian dollar following the announcement of additional stimulus measures in Japan. Indications of slower growth in China and the strength of the U.S. dollar held back emerging markets during the quarter. Our long-term outlook remains favourable for these countries, particularly in the Asia-Pacific region, where economic fundamentals are relatively robust and equity market valuations appear attractive. We continue to have a modest allocation to emerging market equities to balance our objectives of reducing risk while increasing potential returns for investors. Alfred Lam, CFA, Vice-President and Portfolio Manager Yoonjai Shin, CFA, Director Marchello Holditch, CFA, Senior Analyst Lewis Harkes, CFA, Senior Analyst Andrew Ashworth, Analyst Select International Equity Fund underperformed the MSCI EAFE Index. The portion managed by Signature Global Asset Management detracted from performance due to its holdings in financials and its exposure to emerging markets. The fund had overweight allocations to information technology and consumer discretionary, with underweight positions in materials and utilities. Geographically, we had overweight positions in emerging markets, mainly in Asia and Latin America, and underweight allocations to the U.K., Australia, France and the peripheral European countries. Portfolio Select Series 25 Portfolio Select Series Portfolio Management Teams Altrinsic Global Advisors, LLC follows a fundamental value approach in which the team seeks out high-quality undervalued companies worldwide. Founded by John Hock and associates, Altrinsic is based in Greenwich, Connecticut. Cambridge Global Asset Management is led by Co-Chief Investment Officers Alan Radlo and Brandon Snow and Chief Market Strategist Robert Swanson. They invest in companies building long-term economic value. Cambridge is a division of CI Investments and has offices in Boston and Toronto. CI Investment Consulting is the portfolio management team responsible for over $25 billion of assets in CI’s managed solutions and oversight of all CI funds. Led by Portfolio Manager Alfred Lam, the team’s mandate is centred on asset allocation, manager oversight and selection, and risk management. Epoch Investment Partners, Inc. is a New York-based investment management firm founded by Wall Street veteran William Priest and associates. Epoch uses a value-based approach that focuses on companies with superior shareholder yield. Harbour Advisors, a division of CI Investments, is led by Portfolio Managers Stephen Jenkins and Roger Mortimer. Harbour’s approach entails buying high-quality businesses at a sensible price, and following a patient, long-term outlook. Marret Asset Management Inc. focuses on fixed-income investing and alternative strategies on behalf of institutional, high net worth and retail clients. The firm is led by Chief Investment Officer Barry Allan. QV Investors Inc. is a Calgary-based firm that follows a value-based approach. It is led by Chief Investment Officer Joe Jugovic. Signature Global Asset Management is among the largest portfolio management teams in Canada, managing a full range of global and Canadian income, equity and balanced mandates. Chief Investment Officer Eric Bushell was named Morningstar Fund Manager of the Decade in 2010. Picton Mahoney Asset Management is led by David Picton and Michael Mahoney and uses quantitative analysis as the foundation of its approach. Tetrem Capital Management, led by Chief Investment Officer Daniel Bubis, is based in Winnipeg and has an office in Boston. Tetrem uses a disciplined approach to invest in undervalued Canadian and U.S. companies. For more information on Portfolio Select Series, please contact your CI Sales Representative or visit www.ci.com/portfolioselect. All commentaries are published by CI Investments Inc., the manager of all the funds described herein. They are provided as a general source of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in the commentaries is accurate at the time of publication. However, CI Investments Inc. cannot guarantee their accuracy or completeness and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise indicated and except for returns for periods less than one year, the indicated rates of return are the historical annual compounded total returns including changes in security value. All performance data assume reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer and there can be no assurances that the CI Money Market Funds will maintain its® net asset value per security at a constant amount or that the full amount of your investment in these funds will be returned to you. CI Investments, the CI Investments design, Synergy Mutual Funds, Harbour Advisors, Harbour Funds, Cambridge and American Managers are registered trademarks of CI Investments Inc. ™Portfolio Select Series, Portfolio Series, Signature Funds and Signature Global Asset Management are trademarks of CI Investments Inc. Cambridge Global Asset Management is a business name of CI Investment Inc. used in connection with its subsidiary, CI Global Investments Inc. Certain portfolio managers of Cambridge Global Asset Management are registered with CI Investments Inc. Morningstar Awards© Morningstar Inc. All Rights Reserved. Published January 2015. 2 Queen Street East, Twentieth Floor, Toronto, Ontario M5C 3G7 I www.ci.com Head Office / Toronto 416-364-1145 1-800-268-9374 Calgary 403-205-4396 1-800-776-9027 Montreal 514-875-0090 1-800-268-1602 Vancouver 604-681-3346 1-800-665-6994 Client Services English: 1-800-563-5181 French: 1-800-668-3528 1501-0027_E (01/15)
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