Student Investment Advisory Service (SIAS)- One of the largest student-run funds in North America
May 13th, 2020 Presentation (December 31st 2019 – March 31st 2020)
Agenda
1. SIAS Compliance/Risk Update2. Macro & Asset Allocation Update3. Canadian Fixed Income Update4. Canadian Equity Update5. United Sates Equity Update6. ESG Update7. SIAS Operations Update8. Appendix
Compliance and Risk UpdateAdam Saad | CCO & [email protected]
10-Year Historical Performance
10-Year Cumulative Return
Year End Market Value (in millions)
* End of Q1, 2020
$10.5 $10.6 $11.4 $13.2 $14.7 $15.6 $16.7 $18.2 $18.6 $20.7 $18.4
$- $5.0
$10.0 $15.0 $20.0 $25.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
0.0% 1.0%8.6%
25.7%
40.0%48.6%
59.0%
73.3% 77.1%
97.1%
75.2%
0.0% -1.0%7.3%
24.5%
39.8%45.2%
58.7%
73.1%68.5%
98.9%
74.9%
-10.0%
10.0%
30.0%
50.0%
70.0%
90.0%
110.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
SIASBenchmark
Based on Year-end values
4
Trailing 12 Month – SIAS Outperformed by 0.33%
Percentage Difference
SIAS Cumulative Return vs. Benchmark
HIGHLIGHTSMar 2019 -Apr
2020—————Beginning
ValueCA$ 19.4 mmEnding ValueCA$ 18.4 mm
—————SIAS Return
-4.06%Benchmark
Return -4.39%
—————Active Return
0.33%Tracking Error
2.71%Information
Ratio0.05
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
SIAS
Benchmark
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
Data: Trailing 12 Months Ending March 31, 2020
5
Benchmark Weight
Portfolio CompositionSIAS Portfolio Weight
*Total AUM: $18.4 Million as of March 31st 2020
Performance, Compliance,
and Risk• Monitoring• Trade Approval• Risk Metrics• Periodic Reporting• Attribution Analysis
Global Equity: 36.3%
(1.3% overweight)
Style: Semi-ActiveApproach: HybridNo. of Holdings: 35Benchmark: MSCI WorldBenchmark Weight: 35%
Canadian Equity:
32.7% (2.3%
underweight)
Style: ActiveApproach: Bottom-UpNo. of Holdings: 41Benchmark: S&P TSX Capped Total Return Composite IndexBenchmark Weight: 35%
Fixed Income: 28.2%
(0.2% overweight)
Style: ActiveApproach: Top-DownNo. of Holdings: 34Benchmark: FTSE TMXCanada Universe Bond IndexBenchmark Weight: 28%
Cash: 2.8%
(0.8% overweight)
Benchmark: FTSE TMXCanada 91 Day T-bill IndexBenchmark Weight: 2%
6
SIAS Fund Overview Q1 2020
SIAS Total PortfolioBegin Value: $20,748,264End Value: $18,404,489
Portfolio*Vol: 33.63%
Return: -11.30%Sharpe: -1.05
Benchmark*Vol: 42.14%
Return: -11.41%Sharpe: -1.00
Active Return: 0.11%*Tracking Error: 4.17%
Canadian EquityEnd Value: $6,017,602
Portfolio*Vol: 55.99%
Return: -19.97%Sharpe: -0.96
Benchmark*Vol: 58.23%
Return: -20.72%Sharpe: -0.95
Active Return: 0.75%*Tracking Error: 5.13%
Canadian Fixed IncomeEnd Value: $5,189,898
PortfolioDuration: 8.17Return: 2.02% Sharpe: 0.83
BenchmarkDuration: 7.93Return: 1.40%Sharpe: 0.52
Active Return: 0.62%Active Duration: 0.24
Global EquityEnd Value: $6,684,215
Portfolio*Vol: 42.04%
Return: -12.89%Sharpe: -0.93
Benchmark*Vol: 45.91%
Return: -13.12%Sharpe: -0.84
Active Return: 0.22%*Tracking Error: 5.60%
U.S. EquityEnd Value: 3,984,396
Portfolio*Vol: 53.72%
Return: -11.62%Sharpe: -0.59
Benchmark*Vol: 56.32%
Return: -11.58%Sharpe: -0.54
Active Return: -0.04%*Tracking Error: 6.59%
ROW EquityEnd Value: 2,699,818
Portfolio*Vol: 30.71%
Return: -15.30%Sharpe: -1.56
Benchmark*Vol: 33.7%
Return: -15.68%Sharpe: -1.44
Active Return: 0.38%*Tracking Error: 5.52%*Annualized
**ETF NAV tracking error in 3rd week of March – See appendix
7
Data: Q1 2020 utilizing Brinson-Fachler Model
Attribution of Portfolio Returns
Portfolio Weights
Note: all calculations use beginning portfolio weights, chart is included in appendix
-.04%
.08%
-.65%
.45%
.08%
.26%.17%
.02%.01%
-.01% -.03%
.04%.04%
.33%
-.51%
.51%
-1%
-1%
0%
0%
0%
0%
0%
1%
Global Equity Canadian Equity Fixed income Cash
AllocationSelectionInteractionTotal
Contribution to Active Return (0.11%)
38%34%
23%
5%
36%33%
28%
3%
35% 35%
28%
2%
0%
10%
20%
30%
40%
Global Equity Canadian Equity Fixed income Cash
BeginEndBenchmark
8
IPS Breach
9
Q1 2020 Compliance Issues
Other
▪ Canadian Equity fell below 30% min. asset allocation range• Due to high market volatility
▪ Canadian Equity top 15 holdings breached 70% rule• Due to high market volatility
▪ Settlement exceeded T+2• All settlement inputs occurred within adequate
timeframe• New traders were not familiar with specific
details of procedures• Incorrect inputs lead to discrepancy between
Broker and Custodian records
Resolution Resolution
▪ Improvements to handbook with specific instructions
▪ Additional review process during trades to ensure custodian is reporting settled trades
▪ Trader and Compliance meetings after every missed trade to review opportunities for improvement
▪ Continued monitoring of portfolios on a daily basis.
Note: Further Details in appendix
Completed
▪ Updated fund performance calculations• Calculations are now transaction based utilizing Bloomberg for more accurate calculations
▪ Initial meetings with industry mentors
▪ Further improved operating procedures for trading and compliance
10
In Progress
Process Improvements
▪ Continued work on Operations Handbook• Include plan for transition to new cohort
▪ Automatic daily updates to Bloomberg Portfolios• Daily upload of transactions including transactions in cash account• Will lead to improved accuracy of performance presentation and improved decision making• Improved accessibility of information to Portfolio Managers• Improved consistency of reporting for performance reviews
Economic Outlook and Asset Allocation UpdateHerby Desriveaux | Portfolio [email protected]
Macro Economic Outlook
Current stage of the business cycle
Global Market Outlook
12
Negative Exogenous Shocks: COVID-19 and Oil
Originated from China around January 2020 and was declared a global pandemic on March 11th 2020 by the World Health Organization (WHO)
COVID-19 (Demand Shock)
Panic in markets as investors concerned about economic impact
Oil Price War (Supply Shock)
• Fall in demand in an already weak global demand environment led Saudi Arabia to push for large production cuts by OPEC members to support oil prices
• Russia’s refusal to participate in production cuts triggered an oil price war. Saudi Arabia increased production in retaliation
13
S&P 500: January 2020 – March 2020
High: February 19th 2020 – 3386.15Bottom: March 23rd 2020 – 2584.59
S&P 500 P/E Ratio: 20.3x
2000
2200
2400
2600
2800
3000
3200
3400
3600
12-3
1-19
1-2-
201-
4-20
1-6-
201-
8-20
1-10
-20
1-12
-20
1-14
-20
1-16
-20
1-18
-20
1-20
-20
1-22
-20
1-24
-20
1-26
-20
1-28
-20
1-30
-20
2-1-
202-
3-20
2-5-
202-
7-20
2-9-
202-
11-2
02-
13-2
02-
15-2
02-
17-2
02-
19-2
02-
21-2
02-
23-2
02-
25-2
02-
27-2
02-
29-2
03-
2-20
3-4-
203-
6-20
3-8-
203-
10-2
03-
12-2
03-
14-2
03-
16-2
03-
18-2
03-
20-2
03-
22-2
03-
24-2
03-
26-2
03-
28-2
03-
30-2
0
S&P 500
14
WTI: January 2020 – March 2020
High: January 6th 2020 – $63.27Bottom: March 30th 2020 – $20.09
15
18
23
28
33
38
43
48
53
58
63
68
WTI
Economic Conditions in the United Sates and Canada
▪ Jobless claims in the USA: More than 30 Million
▪ Unemployment rate USA: 14.7%
▪ Interest rates in the USA: 0.25%
▪ USA GDP fell 4.8% in the 1st
quarter
▪ Jobless claims in CAN: More than 5 Million
▪ Unemployment rate CAN: 13.0%
▪ Interest rates in CAN: 0.25%
16
Benchmark Weight
Portfolio Composition – March 31st 2020
SIAS Portfolio Weight *Total AUM: $18.4 Million as of Mar. 31st 2020
Asset Allocation
Global Equity:
36.32%
Style: Semi-ActiveApproach: HybridBenchmark: MSCI WorldBenchmark Weight: 35%
Canadian Equity:
32.70%
Style: ActiveApproach: Bottom-UpBenchmark: S&P TSX CappedTotal Return Composite IndexBenchmark Weight: 35%
Fixed Income:
28.20%
Style: ActiveApproach: Top-DownBenchmark: FTSE TMXCanada Universe Bond IndexBenchmark Weight: 28%
Cash:
2.79%
Benchmark: FTSE TMXCanada 91 Day T-bill IndexBenchmark Weight: 2%
17
Short and Mid Term Market Expectations
▪ Negative economic forecast most likely already priced in equity markets
▪ Lowest market point reached on March 23rd 2020
▪ Controlled inflation, coordinated efforts of central banks around the world coupled with depressed oil prices.
Possible
Unlikely
Probable
18
Benchmark Weight
Recommended Portfolio Composition for 2020 (COVID-19)
SIAS Portfolio Weight *Total AUM: $18.4 Million as of Mar. 31st 2020
Recommended Asset Allocation
Global Equity:
36.32%
Style: Semi-ActiveApproach: HybridBenchmark: MSCI WorldBenchmark Weight: 35%
Canadian Equity:
36.0%
Style: ActiveApproach: Bottom-UpBenchmark: S&P TSX CappedTotal Return Composite IndexBenchmark Weight: 35%
Fixed Income:
26.0%
Style: ActiveApproach: Top-DownBenchmark: FTSE TMXCanada Universe Bond IndexBenchmark Weight: 28%
Cash:
2.0%
Benchmark: FTSE TMXCanada 91 Day T-bill IndexBenchmark Weight: 2%
19
Canadian Fixed Income UpdatePaapa Kwabena Essel | Portfolio [email protected]
SIAS Fixed Income – Positive Active Return
• Relative outperformance due to underweight on credit risk and overweight duration in Q1
Portfolio vs. Benchmark Total Return(2)
0.62%
Ending Value(1)
$5,189,898
Relative Return
(1) Canadian Fixed Income Benchmark(2) Ending value as of March 31,2020
21
0
1
2
3
4
5
6
7
8
Jan-20 Jan-20 Jan-20 Jan-20 Jan-20 Feb-20 Feb-20 Feb-20 Feb-20 Mar-20 Mar-20 Mar-20 Mar-20
Total Return (P) Total Return (B)
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Lower Dollar Weights in Corporate
4.75 mm 4.76 mm
March 30, 2019 December 31, 2019 March 31, 2020
Raise Dollar weights in the fixed income
portfolio
-----------------
Raise weights in L-T Government
bonds
---------------
Lower dollar weights in
corporate bond exposure
------------------
Government
Corporate
59.25 60.95
40.75 39.05
P O R T F O L I O B E N C H MA R K
22
61.89 60.68
38.11 39.32
P O R T F O L I O B E N C H MA R K
62.2 61.8
37.8 38.2
P O R T F O L I O B E N C H MA R K
5.21mm
Lower Duration Weights in Corporate
-0.74 -0.48
March 31, 2019 December 31, 2019 March 31, 2020
Raise Government
Duration weights in the fixed
income portfolio
-----------------Lower duration
weights in corporate bond
exposure
------------------Individual Corporate
duration weights underweighted (exception of
communications and consumer)
Government
Corporate
23
0.24
73.8 70.7
26.2 29.3
P O R T F O L I O B E N C H M A R K
79.670.6
20.329.4
P O R T F O L I O B E N C H M A R K
79.972.03
20.127.9
P O R T F O L I O B E N C H M A R K
Duration Analysis - Higher Portfolio Duration
Duration Analysis (Dec 1, 2019)
Contribution to Active Duration
Duration Analysis (Mar 31, 2020)
Dec 1, 2019
Corporate -0.7
Federal 1.66
Provincial -1.5
Mar 31, 2020
Corporate -0.58
Federal 1.82
Provincial -1.00
24
8.17
0.24
7.93
PORTFOLIO BENCHMARK
7.58
-0.54
8.12
PORTFOLIO BENCHMARK
Performance Breakdown
Positive activereturn was
largely due to positive
selection effects
---------------Widening
spreads during the month of
March was one of the biggest
contributions to the unusually high returns---------------
Underweight on corporates and Overweight on Government
contributed to positive active
returns
Return of the portfolio Duration of the portfolio
Active Return Breakdown
25
8.17
0.24
7.93
PORTFOLIO BENCHMARK
-0.8
-0.4
0
0.4
0.8
1.2
1.6
CurveChange(shift)
Curve Change(twist)
Curve Change(Convexity)
Allocation Selection Curve Carry Active Return
2.010.62 1.39
PORTFOLIO BENCHMARK
Segment Attribution Breakdown
Positive active return mostly
came from the L-T bucket
-----------------
Poor selection effects led to
negative active returns within the M-T class---------------
This was due to our overweight in government
and underweight corporates inL-T bucket.---------------
Overweighting corporates inM-T bucket
impacted returns negatively
Active Return
Segment Attribution Breakdown
26
-8 -6 -4 -2 0 2 4 6
0-1 yrs
1-3 yrs
3-5 yrs
5-7 yrs
7-10yrs
10+ yrs
Portfolio
10+ yrs
3 - 5 yrs
1 - 3 yrs
0 - 1 yrs
5 - 7 yrs
Active Return Curve Carry Curve Change Allocation Selection
Corp AA Bond G-Spread
Spread Change
Provincial AA Bond G-Spread
Corp KRD (Portfolio – Benchmark) Provincial KRD (Portfolio – Benchmark)
Corp. Spread went up ,
underweight improved the
return
-------------Relative
underweight in provincial L-T
had contributed some positive
return
----------------Overall less
sensitivity L-T corporates
compared to benchmark
raised return
27
-4
-3
-2
-1
0
1
2
6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
-4
-3
-2
-1
0
1
6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
0
50
100
150
200
3M 6M 1Y 2Y 3Y 4Y 5Y 7Y 8Y 9Y 10Y 20Y 30Y
01/01/2020 03/31/20
0
50
100
150
200
250
3M 6M 1Y 2Y 3Y 4Y 5Y 7Y 8Y 9Y 10Y 20Y 30Y
01/01/2020 03/31/20
Future Outlook - More Focus on L-T & M-T Provincials
Main Factors to Investigate
• Possibility of a provincial bond purchase program.
• 10bps rate cut in July
• downside virus impacts affecting supply chains, slowing growth as a result of lockdown
Possible Future Strategy
• Maintain positive active duration
• Purchasing L-T provincials given the likelihood of a provincial bond purchase.
• Underweighting L-T corporates due to lasting effects from global economic lockdowns. Maintaining defensive positioning in corporates.
Key Rate Duration
28
-1
-0.5
0
0.5
1
6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
Canadian EquityOliver Zhao | Portfolio [email protected]
Outperformance at the end of Q1 2020
Canadian Equity Performance
-19.97%
-20.72%
0.75%
5.13%0.75%Ending Value(1)
$6,017,602Relative Return Tracking Error
(1) Ending Value as of March 31st 2020(2) Performance Benchmark: S&P/TSX Composite Index(3) Performance Period: Dec. 31st 2019 – Mar. 31st 2020
-35.0%-30.0%-25.0%-20.0%-15.0%-10.0%
-5.0%0.0%5.0%
Portfolio Benchmark
-1.0%
-0.5%
0.0%
0.5%
1.0%
Portfolio vs. Benchmark Total Return(2)(3)
30
Active Return ContributionReturn Summary (%)Portfolio Return -19.97
Benchmark Return -20.72
Active Return 0.75
Active Return Attribution Summary (%)Active Return 0.75
Allocation 0.41 Currency -0.07
Selection 0.41
Ending Value as of March 31st 2020Proxy Benchmark : iShares Core S&P/TSX Capped Composite Index ETF
Financials
Utilities
Consumer Staples
Industrials
Information Technology
Energy
Health Care
Real Estate
Materials
Consumer Discretionary
Communication Services
Active Weight
Financials
Utilities
Consumer Staples
Industrials
Information Technology
Energy
Health Care
Real Estate
Materials
Consumer Discretionary
Communication Services
Active Return
31
Portfolio Characteristics & Sector WeightsAs of Mar. 31st 2020
Portfolio Characteristics Portfolio Benchmark
Dividend Yield 3.65% 3.87%
Price/Book 1.5x 1.44x
Price/Earnings(trailing) 12.57 13.26
Debt/Equity 141.28% 160.11%
Return on Equity 14.66 13.48
# of Holdings 41 234
32
0%
5%
10%
15%
20%
25%
30%
35%
Sector Weight
Portfolio Benchmark
33
In the period between Dec. 31st to Mar. 31st 2020
Transactions
Date Company Name Buy/Sell # of Shares
Fill Price
Total Amount
2020/03/12 ISHARE S&P/TSX CAPPED UTILITIES INDEX ETF BUY 5,000 $26.41 $132,040.00
Increase the exposure to Utilities Sector; increase dividend yield of the portfolio
2020/03/12 ISHARE S&P/TSX GLOBAL GOLD INDEX ETF BUY 3,000 $16.11 $48,330.00
Increase the exposure to gold price; diversify in Materials Sector
2020/03/20 EMPIRE COMPANY LTD BUY 4,000 $27.27 $109,080.00
Overweight Consumer Staples Sector; Lower the portfolio beta
2020/03/30 ISHARE S&P/TSX COMPLETION INDEX ETF BUY 5,000 $18.92 $94,581
Reduce the concentration risk; increase exposure to mid-cap and small cap companies
Updates on previous plan and steps forward
Feedback and Forward Plan
▪ Reduce No. of holdings
• As IPS suggested
▪ Apply Better ESG Incorporation
• MSCI ESG Manager
• Stranded Asset Report
Forward Plan
▪ Connection to Professionals
• Meeting with mentors
▪ Analysts’ Research
• Updated sector reports
Feedback
34
Reflection on a regular basis
Industry MentorsTeam
Professional insights and tutoring
35
Global Equity (US + ROW) Rishi Mehta| Portfolio [email protected]
36
US/Global Portfolio for Q1 2020Ending Value(1) Relative Return Tracking Error
5.60%0.22%$6,684,215Portfolio vs. Benchmark Total Return(2)
(1) Ending value as of March 31st 2020– Port Beta – 0.96 (Ex-Ante)(2) US Equity Benchmark (iShares MSCI WORLD ETF
-12.89
-13.12
-25
-20
-15
-10
-5
0
5
10
Dec-19 Jan-20 Jan-20 Jan-20 Jan-20 Feb-20 Feb-20 Feb-20 Feb-20 Mar-20 Mar-20 Mar-20 Mar-20 Mar-20
Total Return (P) Total Return (B)
Total Return (D)
37
Performance Attribution – Global EquityReturn Summary (%)
Portfolio Return -12.89
Benchmark Return -13.12
Active Return 0.22
Active Return Attribution Summary
Active Return 0.22
Allocation 0.28 Currency -0.52
Selection 0.53 Interaction -0.08
Source: Bloomberg Ending value as of March 31st,2020.
4.83%
0.74%
0.30%
0.29%
0.13%
0.01%
-0.52%
-5.70%
Eastern Europe
Asia Pacific
South and Central America
Africa/Middle East
Central Asia
Not Classified
Western Europe
North America
Relative Allocation
-0.32%
0.14%
-…
-0.08%
-0.03%
0.04%
0.76%
-0.23%
Eastern Europe
Asia Pacific
South and Central America
Africa/Middle East
Central Asia
Not Classified
Western Europe
North America
Performance Attribution
38
US Portfolio – Characteristics and Weight AllocationsCharacteristics Portfolio Benchmark
Dividend Yield 3.36 2.90
P/E Ratio 15.07 17.40
P/CF Ratio 10.47 10.97
P/B Ratio 2.13 2.19
Total D/E Ratio 129.82 142.95
Current Ratio 1.23 1.20
-0.23%-2.08%
-0.24%
0.48%
-0.26%
2.44%-6.13%
-2.69%
5.84%
-9.09%
3.64%8.32%
Not Classified - ETFs
Materials
Energy
Real Estate
Utilities
Industrials
Health Care
Financials
Consumer Staples
Information Technology
Communication Services
Consumer Discretionary
Sector Allocation till 31/12/2019
0.00%
-2.01%
-0.03%
-0.31%
-0.61%
1.51%
-4.72%-0.10%
5.16%
-11.94%
3.99%
9.01%
Not Classified - ETFs
Materials
Energy
Real Estate
Utilities
Industrials
Health Care
Financials
Consumer Staples
Information Technology
Communication Services
Consumer Discretionary
Sector Allocation till 31/03/2020
Strategy Update – Reduce Growth and Increase Value
• Effect of COVID-19 sent ripples across every industry.
• To reduce to effect of this impact, our strategy was to first reduce our exposures to growth and cyclical stocks.
• Within consumption exposure, consumer staples companies have historically been relatively immune to big shocks, although they will still feel an impact.
• Any unexpected event like this viral outbreak is a test to a business’s resiliency.
Reducing Exposures Increasing Exposures
39
Trades Executed
Effects of COVID-19 appear in market. Defensive Strategy in playSell –HOME DEPOTAMGNAMZN
Buy-ABBV
Buy ABBV on dips.
Dow Jones sheds 1300 points.Effects of COVID-19 fully reflected in asset prices.
Sell-AMZNDISNEYCOCA COLA3M
Buy-ABBVFBJPMWMT
Sell VISARebalance.
21st January 2020
12th February 2020
2nd March 2020
18th March 2020Forward – 27th
April 2020Match strategy with Macro for Q2 –Aggressive with more exposure to US-Growth
Sell-AMZNCISCOEMERSONMSFTXLE
Buy-ANETBOEINGSPYXLU
40
Research Methodology Checklist to Navigate Uncertainty
QUANTITATIVE INVESTINGModified inputs and stress testing scenarios
OPTIMIZATIONSSmart beta investing
MENTORSHIPLeverage Mentor –
Mentee relationships
STRICT IPS ADHERENCE
Total focus on IPS constraints.
41
42
The Way Ahead
Avoiding Value Trap
Stocks
Continued Coverage
Strong Balance Sheets
Analysts Accountability
and Mentorships
Heavy Bottom-
Top Analysis
ESG UpdateGosheealee Sewruttun| ESG [email protected]
ESG Overview
Highlights
• Onboarded MSCI ESG Manager to help overcome data gap• Prepared a report on the impact of stranding and carbon risk for the Canadian
Energy Sector • Ongoing Proxy Voting & Shareholder Engagement
ESG Integration
• ESG Model: SASB, Sustainability reports & MSCI ESG Manager• Combine qualitative & quantitative factors to screen major risk exposure of securities
Going Forward
• Continue our work on the risk of stranded asset on other sectors• Testing the impact of adding securities on our portfolio rating• Monitor the portfolio’s carbon footprint to help the university’s objective of 45 by 25
44
Lack of standardised data across companies
& industriesNon/poor disclosure on
traditional platforms
Increasing need to quantify ESG process for more objectiveness
& transparency
45
MSCI ESG Manager
ESG Overview
Onboard MSCI ESG Manager
46
MSCI ESG Pillars MSCI ESG Key Issue Hierarchy
Pillars 10 Themes 37 ESG Key Issues
Environmental
Climate Change Carbon Emissions Financing EnvironmentalImpact
Natural Resources Product Carbon Footprint Climate Change VulnerabilityWater Stress Raw Material Sourcing
Pollution & WasteBiodiversity & Land Use
Toxic Emissions & Waste Electronic WastePackaging Material & Waste
EnvironmentalOpportunities
Opportunities in Clean Tech Opp’s in Renewable EnergyOpportunities in Green
Building
Social
Human Capital Labor Management Human Capital DevelopmentHealth & Safety Supply Chain Labor Standards
Product LiabilityProduct Safety & Quality Privacy & Data Security
Chemical Safety Responsible InvestmentFinancial Product Safety Health & Demographic Risk
Stakeholder Opposition Controversial Sourcing
Social Opportunities Access to Communications Access to Health CareAccess to Finance Opp’s in Nutrition & Health
Governance
Corporate Governance Board OwnershipPay Accounting
Corporate Behavior Business Ethics Corruption & Instability
Anti-Competitive Practices Financial System InstabilityTax Transparency
47
Quantifying ESG Performance – Canadian Equity
ESG Ratings Momentum
Upward momentum 4.4% under benchmarkDownward momentum 4.0% over benchmark
PORFOLIO ESG RATING SUMMARY
ESG Quality Average2.5% below benchmark
ESG Ratings Distribution
Leaders 6.6% under benchmarkLaggards 2.7% under benchmark
LAGGARD AVERAGE LEADER
-0.46 -0.11
ESG Quality Score 5.64 5.78
ESG Rating BBB A
Benchmark - ESG Laggards 3.18% 5.84%Benchmark Adjustment Total -7.58% -1.83%
A
Score Adjustment
- ESG Trend Negative 12.01% 8.03%
6.10 5.89
Adjustment
+ ESG Trend Positive 7.61% 12.04%
MSCI ESG RATINGSHow the MSCI ESG Rating is calculated Distribution of MSCI ESG Fund Ratings Universe
Portfolio Colored bars correspond to portfolio and benchmark ESG Quality Scores
CE Portfolio
BBB
Portfolio Benchmark
Weighted Avg ESG Score
15.8%
22.4%
69.3%
69.8%
3.2%
5.8%
Portfolio
Benchmark
ESG RATINGS DISTRIBUTION
Leader Average Laggard Not Covered
7.6%
12.0%
67.6%
77.4%
12.0%
8.0%
ESG RATINGS MOMENTUM
Upward Stable Downward Not Rated
0.00520.0608
0.1818 0.33140.3236
0.0926
0.0046
CCC B BB ABBB AA AAA
SIAS CE Portfolio
SIAS CE Benchmark
48
ESG Risk Exposure
Quantifying ESG Performance – Canadian Equity
Portfolio Benchmark
ESG RATING DISTRIBUTION
16%
49%
9%11%
3%5%
AAA AA A BBB BB B CCC NotRated
LEADER AVERAGE LAGGARD
1%
22%
37%
20%
13%
5%
1%2%
AAA AA A BBB BB B CCC NotRated
LEADER AVERAGE LAGGARD
SIAS Canadian Equity vs Benchmark
49
Quantitative Lens: Canadian Equity vs Benchmark
ESG Performance by sector
0.00 2.00 4.00 6.00 8.00
Overall
Environmental
Social
Governance
SIAS CE Portfolio Benchmark
0.00 0.50 1.00 1.50 2.00
Communication Services
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Real Estate
Utilities
SIAS CE Portfolio Benchmark
50
Quantifying ESG Performance – US Equity
ESG Ratings Momentum
Upward momentum 5.0% over benchmarkDownward momentum 1.5% under benchmark
PORFOLIO ESG RATING SUMMARY
ESG Quality Leader16.9% above benchmark
ESG Ratings Distribution
Leaders 6.8% over benchmarkLaggards 6.8% under benchmark
LAGGARD AVERAGE LEADER
1.32 0.49
ESG Quality Score 7.46 6.38
ESG Rating AA A
Benchmark - ESG Laggards 0.54% 7.32%SIAS US Benchmark Adjustment Total 21.57% 8.37%
A
Score Adjustment
- ESG Trend Negative 0.37% 1.82%
6.13 5.89
Adjustment
+ ESG Trend Positive 22.49% 17.51%
MSCI ESG RATINGSHow the MSCI ESG Rating is calculated Distribution of MSCI ESG Fund Ratings Universe
Portfolio Colored bars correspond to portfolio and benchmark ESG Quality ScoresSIAS US Portfolio
AA
Portfolio Benchmark
Weighted Avg ESG Score
32.1%
25.3%
67.3%
67.0%
0.5%
7.3%
Portfolio
Benchmark
ESG RATINGS DISTRIBUTION
Leader Average Laggard Not Covered
22.5%
17.5%
77.0%
79.7%
0.4%
1.8%
ESG RATINGS MOMENTUM
Upward Stable Downward Not Rated
0.00520.0608
0.1818 0.33140.3236
0.0926
0.0046
CCC B BB ABBB AA AAA
51
ESG Risk Exposure
Quantifying ESG Performance – US Equity
Portfolio Benchmark
ESG RATING DISTRIBUTION
10%
22%
18%
28%
21%
0% 0% 0%
AAA AA A BBB BB B CCC NotRated
LEADER AVERAGE LAGGARD
8%
17%
25%
26%
16%
6%
1%0%
AAA AA A BBB BB B CCC NotRated
LEADER AVERAGE LAGGARD
SIAS US Equity vs Benchmark
52
Quantitative Lens: US Equity vs Benchmark
ESG Performance by sector
0.00 2.00 4.00 6.00 8.00
Overall
Environmental
Social
Governance
SIAS US Portfolio Benchmark
0.000 0.500 1.000 1.500 2.000
Communication Services
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Real Estate
Utilities
SIAS US Portfolio Benchmark
▪ Stranded assets are investments that may lose economic value ahead of their expected life because of changes in regulation, market forces, environmental concerns, societal norms and innovation associated with the transition to a low carbon economy.
▪ Analysis by Carbon tracker in a 2017 paper indicates that US$2.3trn – around one third – of potential capex to 2025 should not be deployed in a 2-degree Celsius (2D) carbon budget scenario compared to business as usual expectations.
▪ For the period 2017-2035, the International Energy Agency (IEA) estimates a total carbon budget for oil and gas of 320Gt of CO2, split 59% for oil and 41% for gas, leaving approximately 80% in unburnt reserves.
53
Report: Impact of Stranding & Carbon Risk on CE Energy
Regulations put a price on carbon emissions
Revenue generation from cleaner & cheaper sources of energy
54
Carbon Budget vs CO2 Emissions Potential
Source: www.carbontracker.org
Revenue without stranding
55
Scenario - 80% decrease in EBIT fading in from 2020 and peaking in 2035: Prompt Decarbonization
Scenario Analysis – Upstream, Midstream & Integrated
Revenue with stranding
Free Cash Flows with stranding Share Price
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000 Canadian NaturalResources
Parex Resources
Enbridge
TC Energy
Cenovus
Husky
Suncor
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000Canadian NaturalResources
Parex Resources
Enbridge
TC Energy
Cenovus
Husky
Suncor
05,000
10,00015,00020,00025,00030,00035,00040,00045,00050,000
Canadian NaturalResourcesParex Resources
Enbridge
TC Energy
Cenovus
Husky
Suncor
- 10.00 20.00 30.00 40.00 50.00 60.00 70.00
Current With Stranding
56
Summary of Proxy Voting & Shareholder ProposalsRecord date Company Name Status*
13-Jan-2020 THE WALT DISNEY COMPANY Voted
07-Feb-2020 THE TORONTO-DOMINION BANK Voted
11-Feb-2020 ROYAL BANK OF CANADA Voted
12-Feb-2020 CANADIAN IMPERIAL BANK OF COMMERCE Voted
27-Feb-2020 SANDSTORM GOLD LTD. Voted
24-Feb-2020 NEWMONT CORPORATION Voted
28-Feb-2020 TECK RESOURCES LIMITED Voted
24-Feb-2020 THE COCA-COLA COMPANY Voted
24-Feb-2020 LOCKHEED MARTIN CORPORATION Voted
26-Feb-2020 AT&T INC. Voted
09-Mar-2020 CHOICE PROPERTIES REAL ESTATE INV. TRUST Voted
27-Feb-2020 THE BOEING COMPANY Voted
06-Mar-2020 CANADIAN NATIONAL RAILWAY COMPANY Voted
02-Mar-2020 CENOVUS ENERGY INC. Voted
10-Mar-2020 HUSKY ENERGY INC. Voted
09-Mar-2020 CAMECO CORPORATION Voted
16-Mar-2020 TC ENERGY CORPORATION Voted
09-Mar-2020 ENBRIDGE INC. Voted
13-Mar-2020 SUN LIFE FINANCIAL INC. Voted
09-Mar-2020 SUNCOR ENERGY INC. Voted
20-Mar-2020 NUTRIEN LTD. (THE "CORPORATION") Voted
11-Mar-2020 MANULIFE FINANCIAL CORPORATION Voted
16-Mar-2020 BCE INC. Voted
18-Mar-2020 CANADIAN NATURAL RESOURCES LIMITED Voted
* Voted as at 3rd May 2020
57
Shareholder Proposals & Proxy Voting Guidelines
Director Nomination
Ratification of appointment of
independent auditors
Advisory approval of executive compensation
Improve diversity on board
Disclosure of director skills, ideological
perspectives, experience & minimum director
qualifications
Stockholder Proposal to adopt stockholder action
by written consent
Mandatory Retention of Significant Stock by
Executives
Discourage CEO duality to avoid competing interests & conflicts of interestVote against a director nominee who is not considered independent.
Auditors should be free from conflicts of interest of the company.Vote against the appointment of the outside auditor where the non-audit
fees are majority and larger than audit fee.
Management compensation should have performance-based pay.Vote for resolutions that have at least 50% of management’s compensation based on companies’ and their performance.
Important that directors are diversified by skills, experience, gender, ethnicity and age to build a well-functioning board.
Vote for resolutions that support or increase the board diversity
To perform their functions, the board of directors must be composed of members who are competent, skilled, accountable and independent.
Vote for full disclosure of the board members’ qualifications and expertise.
Taking action by written consent in place of a meeting is a means shareholders can use to raise important matters outside the normal
annual meeting cycle like the election of a new director. Vote for proposals increasing shareholders’ rights
Equity based compensation plans can benefit shareholders by encouraging executives to own stock in the company, thereby aligning
executives’ interests with shareholders’ interests.
Way Forward
Quantitative Analysis
• Continue monitoring our ESG Performance across Canadian Equity Portfolio & US Equity Portfolio
• Test the ESG performance/rating of the portfolio before adding new securities• Highlight major controversies & their impact on the financials of the company
when screening a security and building buy/sell report
Carbon Footprint and Proxy Voting
• Monitor carbon footprint of the portfolio• Assess the potential impact of stranded asset on the material sector• Ongoing Proxy voting season – April – June• Active shareholder engagement
Maintain record for upcoming cohorts
• Proxy Voting is backed by a report for each company that details proposals voted for and is available on SharePoint
• Continue to maintain SharePoint as a central point of information for ESG reports for transparency behind decision-making for future reference
58
Operations UpdateHoa Nguyen | Operations [email protected]
Operations Update
Work to do from last presentation
• General email will be able to receive reports from the custodian banks –Provide PMs and other teams with intra-day holding balance of securities and cash, facilitating checking securities and cash process of PMs
• Operation team build steps to perform reconciliation tasks – ensure proper holding of securities and cash
• Document management: Vault or SharePoint
Implemented
• General email has been received reports from custodian banks, then forward reports to PMs at the end of the day
• Perform daily securities and cash reconciliations
• Chose SharePoint to manage documents
60
Operations Update
61
Mentors
• The operation process is pretty similar to funds without subscription/redemption
• Currently implemented large parts of the process
Differences
• No system to maintain dependent records of portfolio, NAV to reconcile
Record by excel
• Maintain portfolio record independently to the custodian bank
• Reconcile securities, cash, NAV on daily basis• Inform PMs any discrepancy
BAU - Reconciliations
62
The process of reconciliations
Maintain independent securities, cash, and NAV records
Reconcile with data from custodian bank
Inform PMs and custodian bank if any discrepancy
Documents saved on SharePoint
BAU - Reconciliations
63
Purpose
Provide PMs with intra-day holding balance of securities and cash, facilitating transaction process of PMs.
Ensure proper holding of securities, cash and NAV reports
Overview for incoming members of SIAS Fund about fund administration and operations tasks - career orientation
64
Thank You!
Appendix
Compliance and Risk AppendixAdam Saad | CCO & [email protected]
66
URTH – Global Equity Benchmark
67
NAV Discrepancy
XIC – Canadian Equity Benchmark
0
20
40
60
80
100
120
NAV Last Price
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
Period: Dec 31, 2019 – March 31, 2020
0
5
10
15
20
25
30
35
NAV Last Price
-0.1
-0.08
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
XBB – Fixed Income Benchmark
68
Period: Dec 31, 2019 – March 31, 2020
NAV Discrepancy
XSB – Cash Benchmark
27
28
29
30
31
32
33
34
35
NAV Last Price
-2.5
-2
-1.5
-1
-0.5
0
0.5
24
24.5
25
25.5
26
26.5
27
27.5
28
28.5
NAV Last Price
-2.5
-2
-1.5
-1
-0.5
0
0.5
Calculation Breakdown using Brinson-Fachler Model
69
Attribution to Active Return
Portfolio Value Weights Returns Attribution
Portfolio Name
StartMarketValue
End Market Value
Start % Wgt
(P)
End % Wgt
(P)BmarkWeight Tot Rtn (P) Tot Rtn (B) Tot Rtn (D) Allocation Selection Interaction Total
CONSOLIDATED PORTFOLIO 21,074,844 18,404,489 100% 100% 100% -11.3% -11.4% 0.11% -0.16% 0.54% 0.00% 0.37%
Global Equity:OVERWEIGHT 7,800,997 6,684,215 37% 36% 35% -12.9% -13.1% 0.23% -0.03% 0.08% 0.00% 0.05%
Canadian Equity: UNDERWEIGHT 7,089,861 6,017,602 34% 33% 35% -20.0% -20.7% 0.75% 0.13% 0.26% -0.01% 0.38%Fixed Income: UNDERWEIGHT -> NEUTRAL 4,756,392 5,189,898 23% 28% 28% 2.0% 1.4% 0.62% -0.70% 0.17% -0.03% -0.56%
Cash: OVERWEIGHT 1,101,013 512,774 5% 3% 2% 3.4% 2.2% 1.18% 0.44% 0.02% 0.04% 0.50%
Risk Attribution
Risk OverviewData: 12 Month Horizon Starting March 31, 2020
37.20%
7.60%
6.50%
24.20%
9.90%
5.60%
4.70%
2.50%
1.00%
1.00%
Consumer Stap
Consumer Disc
Utilities
Energy
Financials
Healthcare
Industrials
Technology
Communication
Materials
Underweight
14.50%
2.20%
0.70%
0.40%
0.04%
54.80%
12.90%
2.20%
0.20%
Profit
Value
Div Yield
Leverage
Size
Volatility
Growth
Momentum
Earn. Varib
StyleIndustry
Overweight
Underweight
Overweight
70
IPS Breach
▪ February 3, 2020 – Global Equity portfolio exceeded 35 holding maximum• Discussed during previous performance review• Caused by a delay in reporting by custodian data
▪ March 9, 2020 – Canadian Equity portfolio top 15 holdings exceeded 70% maximum• Resolution: March 11, 2020 - Buy XGD and XUT ETFs to increase weight and rebalance portfolio• Reported to client: March 26, 2020
▪ March 16, 2020 – Canadian Equity portfolio top 15 holdings exceeded 70% maximum• Resolution: March 18, 2020 – BUY EMP.A to increase weight and rebalance portfolio• Reported to client: March 26, 2020
▪ March 23, 2020 – Canadian Equity portfolio allocation fell below 30% minimum• Market volatility brought portfolio back in to compliance the following day – no urgent action taken• March 26, 2020 – BUY XMD to increase weight and rebalance portfolio• Converted $75,000 USD to CAD to give future flexibility for Canadian portfolios.• Reported to Client: March 26th
71
Details of Compliance Breach
Trade Settlement
▪ March 4, 2020 – 1 Global Equity trade• Cause: difficulties accessing new accounts on NEXEN platform• Settlement due: March 4, 2020• Resolution: attempted to manually settle by fax on March 4th, missed cut-off• Fax received and trades settled on March 5th • Reported to Client: March 5th
▪ March 11, 2020 - 3 fixed income trades• Cause: settlement dates input incorrectly, settlement due March 11, 2020• Resolved: March 11, 2020 – no compliance breach
▪ March 20, 2020 – 8 US Equity trades• Cause: Incorrect inputs in settlement instructions• Alerted by custodian on March 23rd after cut-off• Resolved March 25th
• Reported to Client: March 26th
72
Details of Compliance Breach
Appendix: Canadian Fixed IncomePaapa Essel | Portfolio [email protected]
SIAS Fixed Income – Positive Active Return (1-year period)• Relative outperformance due to underweight on credit risk and overweight duration in Q1
Portfolio vs. Benchmark Total Return(2)
0.59 0.610.21
Ending Value(1)
$5,208,644
Relative Return Tracking Error Information Ratio
(1) Canadian Fixed Income Benchmark(2) Ending value as of March 31,2020
74
0
2
4
6
8
10
12
14
Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20
Return (Portfolio) Return (Benchmark)
-0.6
-0.4
-0.2
0
0.2
0.4
Performance Breakdown (1-year period)
Positive activereturn was largely
due to positive selection effects
---------------Yield Curve
Volatility in the curve reduced relative return
---------------
Underweighting duration for a
large part of the year contributed to negative curve change effects
Return of the portfolio Duration of the portfolio
Active Return Breakdown
75
7.07
0.21
6.86
PORTFOLIO BENCHMARK
8.17
0.24
7.93
PORTFOLIO BENCHMARK
-1
-0.5
0
0.5
1
1.5
CurveChange(shift)
Curve Change(twist)
Curve Change(Convexity)
Allocation Selection Curve Carry Active Return
Chart Title
Segment Attribution Breakdown (1-year period)
Positive active return largely
due to positive returns in L-T
securities -----------------
Poor selection effects led to
negative active returns within the M-T class---------------
Underweighting M-T combined
with higher downward shift in yield curve contributed to negative curve
effects
Active Return
Segment Attribution Breakdown
76
Portfolio
10+ yrs
7 - 10 yrs
3 - 5 yrs
1 - 3 yrs
0 - 1 yrs
5 - 7 yrs
Total Return Curve Carry Contribution Curve Change Contribution Allocation Effect Selection Effect
Portfolio
10+ yrs
7 - 10 yrs
3 - 5 yrs
1 - 3 yrs
0 - 1 yrs
5 - 7 yrs
Portfolio dollar-based active weights vs. DEX Universe
22%
36%
28%
9%2% 4%
34%29%
24%
7%1%
6%
AAA AA A BBB NR NOT CLASSIFIED
Sector Allocation(1)
Maturity Allocation (1)
Rating Allocation (1)
BenchmarkSIAS FI
(1) Dollar weights as of March 31th 2020
0% 2.1
3%
0% 7
.11
%
2.2
2% 1
6.0
4%
61
.89
%
2.1
7%
8.4
4%
0.0
7%
2.3
3%
1.5
2%
1.6
4%
3.7
1% 13
.54
%
68
.91
%
1.8
4%
6.3
9%
B A S I C M A T E R I A L S C O M M . C O N S ( C Y C L I C A L ) C O N S . ( N O N - C Y C L I C A L ) E N E R G Y F I N G O V T . I N D . U T I L I T I E S
10
.07
14
.75
15
.98
9.6
4 16
.31
33
.25
0.0
9
24
.37
20
.47
11
.53
12
.71
30
.82
0 - 1 Y R 1 - 3 Y R S 3 - 5 Y R S 5 - 7 Y R S 7 - 1 0 Y R S 1 0 + Y R S
77
Transactions
Settlement Description Sell/Buy Amount Price
04/08/2019 FTSCN 2.85 12/12/23 Buy 90,000 100.40
04/08/2019 FTSCN 2.85 12/12/23 Sell 90,000 100.75
5/31/2019 SOUCOA 4.65 06/20/41 Buy 100,000 125.70
9/03/2019 ONT 5.85 03/08/33 Buy 100,000 139.37
10/21/2019Q 4.5 12/01/20 Buy 60,000 103.64
12/12/2019CAN 3.5 12/01/45 Sell 100,000 137.12
12/11/2019SOUCOA 4.65 06/20/41 Buy 150,000 131.25
12/12/2019BRCOL 6.35 06/18/31 Buy 100,000 141.38
78
Transactions
Settlement Description Sell/Buy Amount Price
05/03/2020 CAN3.5 12/01/45 CORP BUY 60,000 149.2
05/03/2020 GE 4.6 26/01/22 BUY 60,000 105.26
05/03/2020 Q 4.5 12/01/20 SELL 60,000 102.35
05/03/2020 TCN 5.15 11/26/43 BUY 100,000 124.55
11/03/2020RY 2.74 07/25/29 BUY 100,000 101.65
11/03/2020HYDONE 4.4 06/01/20 SELL 90,000 100.64
11/03/2020CAN 3.5 12/01/45 BUY 100,000 167.20
79
Target Q2 –Term Structure Modeling/Forecasts
80
Fixed Income Tools - 2020Fixed Income Portfolio Analytics Streamlined Corporate Credit Model
• A new analytics tools has been introduced for sensitivity analysis in the portfolio
• Scenarios can be constructed using yield curve Bloomberg-enabled and can provide useful insights for future strategy
• Expanding model by incorporating flattening scenarios.
• Yield curve forecasting model
• Current Portfolio Analytics
• Bloomberg-macro enabled credit analysis
• Both issuer and issue analysis has been streamlined
• Can provide credit-scores based on fundamental analysis on TSX constituents
• For different issues, can generate spread analysis
• Incorporating into role of analysts next quarter to enable efficient report generation and faster decision making
81
Fixed Income: Market Risk
-7.12%
-3.68%-2.85%
3.05%3.95%
8.21%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Up 100 bps Up 50 bps Up 25 bps Down 25 bps Down 50 bps Down 100 bps
P/L (%) of Fixed Income Portfolio As on 31st March,2020
Scenarios Duration
Stressed MV (in Million CAD)
IPS Weight
Violation (Y/N)
Up 50bps 7.12 4.708 No
Up 25 bps 7.2 4.748 No
Down 25 bps 8.1 5.037 No
Down 50 bps 8.2 5.081 No
Bond Sectors
Contribution to Total Risk
of Bond Portfolio (%)
1 Day 95%
VaR (%)
% Change
in Weight (Up 50 bps)
% Change
in Weight (Down 50 bps)
Agency 0.19 0.01 3.03 -3.31
Financial Institutions 4.84 0.022 2.4 -2.39
Industrial 12.17 0.056 0.34 -0.45
Local Authority 43.54 0.198 -0.08 0.07
Treasury 38.19 0.171 -3.34 3.47
Utility 0.66 0.005 2.97 -2.99
82
Fixed Income: Credit Risk
83
Appendix: Canadian EquityOliver Zhao | Portfolio [email protected]
Supply▪ Saudi-Russia Price War
In April, Saudi Arabic announced its production to 12.3 million barrel/day.
Russia has announce its production to 11.8 million barrel/day.
▪ Ceasefire Agreement
On April 12, OPEC+ and Russia struck a historic deal to slash production by 10 million barrels per day –about 23% of their production level - in May and June, in an attempt to rescue oil prices from the depths of the current oil price crash.
DemandHuge shrinkage due to global pandemic
▪ Airlines
▪ Automobiles
▪ Industrials
85
The decrease in demand outweigh that of in supply.
Expectation on Energy Sector
86
Oil price is slowly recovering from the crush, but remains highly volatile.
Expectation on Energy Sector
0
10
20
30
40
50
60
70
Western Canada Select WTI Crude Future Jun20
$24.59
$19.79
87
Upstream and Integrated companies are more sensitive to oil price change
Expectation on Energy Sector
Subsector Company 2 Yr Beta against WTI
Upstream
Canadian Natural Resources 0.827
Parex Resources 0.574
Cameco Corp 0.267
Integrated
Cenovus Energy 0.959
Husky Energy 0.721
Suncor Energy 0.698
MidstreamEnbridge 0.221
TC Energy 0.210
88
Recognizing ESG leaders are crucial.
Expectation on Energy Sector
Subsector Company ESG Ratings Governance Risk
Upstream
Canadian Natural Resources B Average
Parex Resources BBB Leader
Cameco Corp A Average
Integrated
Cenovus Energy A Leader
Husky Energy BBB Laggard
Suncor Energy A Leader
MidstreamEnbridge A Average
TC Energy BBB Average
Source: MSCI ESG Manager
Underweight the sector▪ Revenue decline in the Q1 & Q2 may not be compensated by the potential recovery in Q3
▪ Concern on fixed costs and stranded assets may drag the earning performance
Adjust the holdings▪ Reduce exposure to oil price changes
• Shift more weights to Midstream
▪ Concentrate weights on holdings with• Better ESG performance • Solid Fundamentals
89
Expectation on Energy Sector
Fundamentals
Risk
ESG
As of Mar. 31st 2020
Portfolio Holdings
Company/Sector Name # of Shares Price Market Value % of Total
Financials $1,836,448 30.52%
BROOKFIELD ASSET MANAGEMENT - CLASS A 4,000 $62.38 $249,520 4.15%
CANADIAN IMPERIAL BANK OF COMMERCE 2,000 $82 $164,000 2.73%
GOEASY LTD 1,500 $36.39 $54,585 0.91%
IGM FINANCIAL INC 1,200 $23.35 $28,020 0.47%
MANULIFE FINANCIAL CORP 11,750 $17.67 $207,623 3.45%
ONEX CORPORATION 1,900 $51.51 $97,869 1.63%
ROYAL BANK OF CANADA 4,500 $87.17 $392,265 6.52%
SUN LIFE FINANCIAL INC 6,000 $45.27 $271,620 4.51%
TORONTO-DOMINION BANK 6,200 $59.83 $370,946 6.16%
Energy $701,415 11.66%
CAMECO CORP 5,300 $10.73 $56,869 0.95%
CANADIAN NATURAL RESOURCES 4,300 $19.25 $82,775 1.38%
90
Portfolio Holdings
Company/Sector Name # of Shares Price Market Value % of Total
CENOVUS ENERGY INC 6,600 $2.84 $18,744 0.31%
ENBRIDGE INC 3,000 $40.98 $122,940 2.04%
HUSKY ENERGY INC 5,924 $3.54 $20,971 0.35%
PAREX RESOURCES INC 7,500 $11.90 $89,250 1.48%
SUNCOR ENERGY INC 5,720 $22.46 $128,471 2.13%
TC ENERGY CORP 2,900 $62.55 $181,395 3.01%
Industrials $765,525 12.72%
CANADIAN NATL RAILWAY CO 3,500 $110.03 $385,105 6.40%
EXCO TECHNOLOGIES LTD 6,000 $5.38 $32,280 0.54%
THOMSON REUTERS CORP 3,631 $95.88 $348,140 5.79%
Materials $569,727 9.47%
CCL INDUSTRIES INC - CLASS B 2,300 $42.79 $98,417 1.64%
NUTRIEN LTD 960 $48.11 $46,186 0.77%
As of Mar. 31st 2020
91
As of Mar. 31st 2020
Portfolio Holdings
Company/Sector Name # of Shares Price Market Value % of Total
SANDSTORM GOLD LTD 13,500 $7.05 $95,175 1.58%
TECK RESOURCES LTD - CLASS B 2,000 $10.67 $21,340 0.35%
WHEATON PRECIOUS METALS CORP 6,050 $38.73 $234,317 3.89%
NEWMOUNT CORP 1180 $62.96 $74,293 1.23%
Information Technology $358,093 5.95%
CGI INC 4,700 $76.19 $358,093 5.95%
Utilities $436,188 7.25%
BROOKFIELD RENEWABLE PARTNER 2,570 $59.19 $152,118 2.53%
EMERA INC 3,600 $55.50 $199,800 3.32%
NORTHLAND POWER INC 3,000 $28.09 $84,270 1.4%
Consumer Staples $451,580 7.50%
METRO INC 6,000 $56.91 $341,460 5.67%
EMPIRE COMPANY LTD 4,000 $27.53 $110,120 1.83%
92
As of Mar. 31st 2020
Portfolio Holdings
Company/Sector Name # of Shares Price Market Value % of Total
Communication Services $243,790 4.05%
BCE INC 4,000 $57.73 $230,920 3.84%
CINEPLEX INC 1,100 $11.70 $12,870 0.21%
Consumer Discretionary $113,420 1.88%
RESTAURANT BRANDS INTERNATIONAL 2,000 $56.71 $113,420 1.88%
Real Estate $135,252 2.25%
CHOICE PROPERTIES REIT 8,000 $12.92 $103,360 1.72%
SLATE OFFICE REIT 8,690 $3.67 $31,892 0.53%
ETFs $406,164 6.75%
ISHARES CORE S&P/TSX CAPPED COMPOSITE INDEX 6,800 $21.18 $144,024 2.39%
ISHARE S&P/TSX CAPPED UTILITIES INDEX 5,000 $24.94 $124,700 2.07%
ISHARE S&P/TSX GLOBAL GOLD INDEX 3,000 $14.63 $43,890 0.73%
ISHARE S&P/TSX COMPLETION INDEX 5,000 $18.71 $93.550 1.55%
93
Appendix: Global Equity (US + ROW) Rishi Mehta| Portfolio [email protected]
95
US/Global Portfolio – 31/03/2019 to 31/03/2020Ending Value(1) Relative Return Tracking Error Information Ratio
2.74% -0.67-1.84%$6,689,380Portfolio vs. Benchmark Total Return(2)
(1) Ending value as of March 31st 2020– Port Beta – 0.96 (Ex-Ante)(2) US Equity Benchmark (iShares MSCI WORLD ETF (EX rest of the world)
-20
-15
-10
-5
0
5
10
15
20
Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20
Total Return (P) Total Return (B)
Strategies Under Various Market Patterns
Staying focused on investment goals and maintaining disciplines. Move allocations to Information Technology and High P/E stocks.
Consumer behaviors under lockdown turn into new normal. Turn to defensive strategies and reduce exposures to cyclicality and growth. Look for companies with less leverage.
Buy and Hold strategy. Continue with current allocations and selections. Market in between reversals. Take a bigger picture strategy.
Horizontal Trend
V Shaped Recovery
W-Shaped Pattern
96
97
As of March 31st, 2020(CAD)
Portfolio Holdings
Company/Sector Name # of Shares Price Market Value % of Total
Communication Services $562,650 8.61%
ALPHABET INC - CLASS A 140 $1,110.26 $218,730 3.35%
AT&T 3,500 $29.84 $146,968 2.25
FACEBOOK INC – CLASS A 600 $156.79 132,381 2.02%
WALT DISNEY CO 476 $96.40 $64,571 0.99%
Consumer Discretionary $735,186 11.24%
AMAZON.COM INC 100 $1900,10 $267,382 4.09%
HOME DEPOT 1,013 $190.55 $271,628 4.15%
MCDONALD’S CORP 850 $164.01 $196,176 3.00%
Consumer Staples $494,554 7.56%
COCA COLA CO 2,112 $42.81 $127,232 1.95%%
COSTCO WHOLESALE CORP 550 $284.33 $220,060 3.37%
WALMART INC 955 $109.58 $147,262 2.25%
98
As of March 31st, 2020(CAD)
Portfolio Holdings
Company/Sector Name # of Shares Price Market Value % of Total
Financials $180,559 2.76%
JP MORGAN CHASE &CO 1408 $91.13 $180,559 2.76%
Health Care $380,572 5.82%
ABBVIE CORP 1429 $72.67 $146,131 2.23%
VARIAN MEDICAL SYSTEMS INC 1,650 $100.97 $234,440 3.59%
Industrials $360,705 5.52%
3M CO 516 $133.42 $96,748 1.48%
BOEING 157 $162.00 $35,791 0.55%
EMERSON ELECTRIC 500 $45.58 $32,070 0.49%
LOCKHEED MARTIN CORP 400 $348.34 $196,096 3.00%
Information Technology $501,589 7.67%
CISCO SYSTEMS INC 4,500 $38.82 $245,824 3.76%
VISA INC – CLASS A 1125 $161.56 $255,766 3.91%
99
As of March 31st, 2020(CAD)
Portfolio Holdings
Company/Sector Name # of Shares Price Market Value % of Total
Real Estate $71,711 1.10%
CBRE GROUP INC – CLASS A 1,300 $39.20 $71,711 1.10%
ETFS $3,250,995 49.72%
ENERGY SELECT SECTOR SPDR 2,450 $59.20 $192,011 2.65%
FINANCIAL SELECT SECTOR SPDR 9,200 $28.00 $341,024 4.71%
ISHARES ASIA/PACIFIC DIVIDEND 1,000 $42.93 $56,830 0.78%
ISHARES EDGE MSCI MIN VOL EU 15,135 $25.43 $509,527 7.04%
ISHARES EMERGING MARKETS DIV 6,103 $37.42 $302,333 4.18%
ISHARES EUROPE ETF 9,190 $43.27 $526,431 7.27%
ISHARES MSCI AUSTRALIA ETF 5,420 $22.25 $159,650 2.21%
ISHARES MSCI FRANCE ETF 4,300 $30.14 $171,574 2.37%
ISHARES MSCI GERMANY ETF 5,200 $26.91 $185,249 2.56%
ISHARES MSCI JAPAN ETF 8,271 $56.74 $621,278 8.58%
100
As of March 31st, 2020(CAD)
Portfolio Holdings
Company/Sector Name # of Shares Price Market Value % of Total
ISHARES MSCI SINGAPORE ETF 1,000 $23.20 $30,713 0.42%
ISHARES MSCI SWITZERLAND ETF 3,115 $37.70 $155,467 2.15%
REAL ESTATE SELECT SECTOR SPDR 848 $39.34 $44,164 0.31%
SPDR S&P 500 ETF TRUST 348 $296.77 $136,722 1.89%
UTILITIES SELECT SECTOR SDPR 1,400 $64.74 $119,988 1.66%
101
From the period between Oct. 1st 2019 to March 31st,2020
Portfolio Transactions
Date Company Name Buy/Sell # of Shares Fill Price Total Amount
2019/11/26 BOEING BUY 91 $372.57 -$33,902.70
2019/11/26 3M SELL 200 $169.49 $33,898.00
2019/12/05 BOEING BUY 66 348.81 -$23,021.50
2020/01/21 VISA SELL 275 $204.13 $56,135.75
2020/02/12 ABBVIE CORP BUY 232 $97.58 -$22,638.30
2020/02/12 AMAZON SELL 16 $2,162.67 $34,602.72
2020/02/12 AMGEN SELL 100 $227.52 $22,520.00
2020/02/12 HOME DEPOT SELL 112 $241.72 $27,072.64
2020/03/02 ABBVIE CORP BUY 780 $87.81 -68,491.80
102
From the period between Oct. 1st 2019 to March 31st,2020
Portfolio Transactions
Date Company Name Buy/Sell # of Shares Fill Price Total Amount
2020/03/18 AMAZON SELL 14 $1828.35 $25,596.90
2020/03/18 DISNEY SELL 224 $88.122 $19,739.20
2020/03/18 COCA COLA SELL 1488 $43.100 $64,132.80
2020/03/18 MMM SELL 384 $136.80 $52,531.20
2020/03/18 ABBVIE CORP BUY 417 70.554 -$29,421.02
2020/03/18 FACEBOOK BUY 200 $145.479 -$29,095.80
2020/03/18 JP MORGAN BUY 708 $87.58 -$62,006.64
2020/03/18 WALMART BUY 155 $126.430 -$19,596.65
Appendix: ESG
Student Investment Advisory Service (SIAS)- One of the largest student-run funds in North America
Impact of Stranding & Carbon Risk on SIAS’ Canadian Energy Holdings
ESG Manager – Gosheealee SewruttunEnergy Analysts - Sizhe Zhang & Xiaoya Zhou
• Overview of the Crude Oil Industry in Canada
• Government Regulation
• Dimensions to stranded assets
• Potential Capex Pathway
• Capital Investment & Drilling in Canada
• Recognising ESG Leaders is Crucial
• Drill-Down on current holdings❑ ESG Rating❑ ESG Highlights❑ Carbon Risk
• Carbon Footprint of Current Holdings
• Carbon/GHG Reduction Target & Current Objective Achieved
• Share of Capital Expenditure
• Scenario Analysis
• Implications of Stranded Assets on Companies’ Financials
• Conclusion on security selection
Content
▪ Canada is a major supplier of secure, reliablecrude oil to international markets, producing 4.6million barrels per day (mb/d) of crude oil in 2018.
▪ It is the world’s fifth-largest oil producer, with 96%of its proven reserves in oil sands.
▪ Canada has 168 billion barrels of proven oilreserves, of which 164 billion barrels are in theform of oil sands.
▪ Also the world’s 10th largest emitter of greenhousegases due to transportation and productionemissions.
▪ Canada has pledged a 30% reduction on 2005greenhouse gas emissions by 2030 (ParisAgreement on Climate Change).
▪ To fulfil its pledge, Canada has imposed severalregulations very likely to hit the production of oil,wipe out market values of companies in the Oil &Gas Sector and render unburnt reserveseconomically worthless, resulting in billions ofdollars of stranded assets.
106
Overview of the Crude Oil Industry in Canada
Canada’s climate plan
107
Government Regulation
Actions to reduce emissions▪ Pan-Canadian Framework is helping reduce
emissions, grow the economy and build resilience to a changing climate.
▪ Greenhouse Gas Pollution Pricing Act
▪ Output-based pricing system is designed to put a price on carbon pollution for industrial facilities that emit 50,000 tonnes or more per year
▪ Pay a charge at the carbon price ($20 per tonneexceeding the limit in 2019, rising by $10 each year to $50 per tonne in 2022)
▪ Coal – phase out plan (16 MT by 2030)
▪ Methane regulations (21 MT by 2025)A price on carbon lowers the carbon budget
▪ A price on carbon could cut carbon pollution across Canada by 80 to 90 million tonnes in 2022.
Clean Technology
▪ Canada’s clean energy sector has 20 times as much wind energy capacity and 125 times as much solar electricity capacity as it did a decade ago.
▪ The Canadian clean technology market generated about $11.6 billion in revenue in 2014, and exports accounted for half of these revenues.
▪ Clean Fuel Standard is set to reduce emission by 30 MT by 2030.
▪ Stranded assets are investments that may lose economic value ahead of their expected life because of changes in regulation, market forces, environmental concerns, societal norms and innovation associated with the transition to a low carbon economy.
▪ Analysis by Carbon tracker in a 2017 paper indicates that US$2.3trn – around one third – of potential capex to 2025 should not be deployed in a 2-degree Celsius (2D) carbon budget scenario compared to business as usual expectations.
▪ For the period 2017-2035, the International Energy Agency (IEA) estimates a total carbon budget for oil and gas of 320Gt of CO2, leaving over 80% of reserves stranded.
108
Dimensions to stranded investments
Regulations put a price on carbon emissions
Revenue generation from cleaner & cheaper sources of energy
109
Comparison of the global 2°C carbon budget with fossil fuel reserves CO2 emissions potential
Source: www.carbontracker.org
110
Potential Capex Pathway
▪ Sharp decline in capital investment in oil sands and petroleum industry
▪ Oil wells drilled faced a similar fate
▪ This points towards a reduction in demand for fossil fuel energy due to cleaner and cheaper renewable sources of energy
▪ Government regulations on carbon emissions are limiting the carbon budget, leaving many reserves unexploited and stranded
111
Capital Investment & Drilling in Canada
0
1000
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4000
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6000
7000
8000
9000
0
10000
20000
30000
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50000
60000
70000
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2013 2014 2015 2016 2017 2018
Upstream Capital Investment in Canada
Oil Sands Expenditures Petroleum Industry Expenditures Oil wells Drilled
▪ Current headwinds such as local and international regulations on carbon emissions and the unprecedented global transition to renewable sources of energy highlight the importance of recognising companies that are:• curbing their carbon emissions by using carbon capture technologies (to avoid regulatory fines)• reducing investments in potential stranded assets (to avoid negative NPV exploration projects)• making the shift to develop infrastructure to tap into renewable sources of energy
112
Recognising ESG Leaders is Crucial
-0.63 -0.44
ESG Quality Score 4.99 5.12
ESG Rating BBB BBB
- ESG Laggards 11.30% 9.06%
Adjustment Total -11.30% -7.96%
Score Adjustment
- ESG Trend Negative 0.00% 0.72%
5.62 5.56
Adjustment
+ ESG Trend Positive 0.00% 1.83%
Oil & Gas
Portfolio
Oil & Gas
Benchmark
Weighted Avg ESG Score
14.9% greater than benchmark
(T CO2E/$M SALES)
Very High Carbon Risk
Carbon Risk
976.2
849.9
Portfolio Benchmark
Very High
High
Moderate
Low
Very Low
113
Drill-Down on current holdings
Stable Very High N/A Laggard
Stable Very High N/A Leader
HUSKY ENERGY INC. 0.33% 0.28% 5.5 BBB
Oil sands and refinery operations continue to increase environmental risk profile
Stable High N/A Average
CENOVUS ENERGY INC. 0.44% 0.23% 6.9 A Oil sand operations elevates carbon-related risks
Stable Very High N/A Average
CORPORATION CAMECO 1.16% 0.89% 7.0 AStrong safety culture reflected in declining LTR and zero fatalities
Stable Very High N/A Leader
CANADIAN NATURAL RESOURCES LIMITED 1.32% 0.19% 2.8 B
Oil sands operations remain a key concern, but strong safety management continues
Stable High N/A Average
PAREX RESOURCES INC. 1.59% 1.50% 5.4 BBB N/A
Stable Very High N/A Leader
ENBRIDGE INC. 1.95% -2.13% 5.8 A Ongoing controversies weigh on overall ESG rating
Stable Very High N/A Average
SUNCOR ENERGY INC. 1.98% 0.32% 6.9 A Improvements in climate change strategy
CARBON RISKREPUTATIONAL
RISKGOVERNANCE
RISK (T CO2E/$M SALES)
TC ENERGY CORPORATION 2.92% 0.00% 5.3 BBB
Carbon mitigation capacity remains strong, but environmental protests continue
PORTFOLIO WEIGHT
ACTIVE WEIGHT
ESG QUALITY SCORE
ESG RATING ESG HIGHLIGHTS ESG RATING
MOMENTUM
114
Carbon Footprint of Current Holdings
1
10
100
1000
10000
100000
1000000
10000000
100000000
Carbon Emissions (Scope 1&2) Carbon Emissions Intensity Carbon Emission PerformanceRelative to Peers
Carbon Footprint
Canadian Natural Resources Limited
Parex Resources Inc.
Enbridge Inc.
TC Energy Corporation
Cenovus Energy Inc.
Husky Energy Inc.
Suncor Energy Inc.
Carbon Emission What is my portfolio total carbon footprint?
Scope 1 – Direct emissionsScope 2 – Indirect emissions (eg
electricity)
Carbon Emissions Intensitytons CO2e/$M Sales
How efficient is my portfolio interms of carbon emissions per
unit of output?
Carbon emissions performance compared to competitors
115
Carbon/GHG Reduction Target & Current Objective Achieved
Company Specific Target Target Reduction Target YearCurrent Reduction Status(Compared
to 2017)
Canadian Natural Resources Limited No target - - 2.18%
Parex Resources Inc No target - - 55.18%
Enbridge Inc (Still under development) - - 3.57%
TC Energy Corporation Absolute: Scope 1 Target (pipeline and power plant under Quebec Cap and Trade System) 20% 2020 7.56%
Cenovus Energy Inc Reducing Scope 1: Metric tons CO2e per barrel of oil equivalent (BOE) 33% 2026 10.6%
Husky Energy Inc
Methane reduction target - Husky is aligning with national and provincial plans to reduce
methane emissions by 40-45% of 2012 levels by 2025 as part of its general compliance
strategy..
40-45% of 2012 methane emissions expressed in tonnes
CO2e
2025 8.18%
Suncor Energy Inc Reducing the total emission intensity of the production of our oil and petroleum products 30% 2030 6.53%
Canadian Natural Resources Limited
116
Share of Capital Expenditure – Upstream & Midstream
Enbridge Inc.-20%
0%
20%
40%
60%
80%
100%
2014 2015 2016 2017 2018 2019
Midstream
Horizon Project
Crude Oil and NaturalGas
0%
20%
40%
60%
80%
100%
2014 2015 2016 2017 2018 2019
SponsoredInvestments
Corporate
Liquids Pipelines
Gas Distribution
Green Power andTransmission
Gas Pipelines,Processing andEnergy Services
Parex Resources Inc.
0%
20%
40%
60%
80%
100%
2014 2015 2016 2017 2018 2019
Other
Llanos Basin additionalworking interestacquisitionWell equipment andfacilities
Drilling and completion
Geological andgeophysical
Acquisition of unprovedproperties
TC Energy Corporation
0%
20%
40%
60%
80%
100%
2014 2015 2016 2017 2018 2019
Natural GasPipelines
Energy
Liquid Pipelines
117
Share of Capital Expenditure - IntegratedCenovus Energy Inc.
0%
20%
40%
60%
80%
100%
2014 2015 2016 2017 2018 2019
ConventionalEnergy
Oil Sands
Deep Basin
DownstreamRefining
Corporate andEliminations
Husky Energy Inc.
0%
20%
40%
60%
80%
100%
2014 2015 2016 2017 2018 2019
Upgrading
Canadian RefinedProducts
U.S. Refining &Marketing
Infrastructure &Marketing
Exploration andProduction
Suncor Energy Inc
0%
20%
40%
60%
80%
100%
2014 2015 2016 2017 2018 2019
Corporate andEliminations
Refining andMarketing
Oil Sands
Exploration andProduction
Revenue without stranding
118
Scenario 1 - Oil & Gas Price Shock: 5% annual decline from 2020
Scenario Analysis – Upstream, Midstream & Integrated
Revenue with stranding
Free Cash Flows with stranding Share Price
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000 Canadian NaturalResourcesParex Resources
Enbridge
TC Energy
Cenovus
Husky
Suncor0
10,000
20,000
30,000
40,000
50,000
60,000 Canadian NaturalResources
Parex Resources
Enbridge
TC Energy
Cenovus
Husky
Suncor
-40000-35000-30000-25000-20000-15000-10000-5000
05000
1000015000
Canadian NaturalResources
Parex Resources
Enbridge
TC Energy
Cenovus
Husky
Suncor
0102030405060708090
100
CanadianNatural
Resources
ParexResources
Enbridge TC Energy Cenovus Husky Suncor
Current Price Price With Stranding
Revenue without stranding
119
Scenario 2 - 80% decrease in EBIT fading in from 2020 and peaking in 2035: Prompt Decarbonization
Scenario Analysis – Upstream, Midstream & Integrated
Revenue with stranding
Free Cash Flows with stranding Share Price
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000 Canadian NaturalResources
Parex Resources
Enbridge
TC Energy
Cenovus
Husky
Suncor
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000Canadian NaturalResources
Parex Resources
Enbridge
TC Energy
Cenovus
Husky
Suncor
05,000
10,00015,00020,00025,00030,00035,00040,00045,00050,000
Canadian NaturalResourcesParex Resources
Enbridge
TC Energy
Cenovus
Husky
Suncor
- 10.00 20.00 30.00 40.00 50.00 60.00 70.00
Current With Stranding
▪ A price decline of oil coupled with stranding reserves are likely to hit upstream companies (CanadianNatural Resources & Parex Resources) and integrated companies (Cenouvus, Husky & Suncor) harderthan midstream companies (Enbridge & TC Energy)
▪ Upstream companies in our portfolio are highly resource-intensive and exposed to increased operatingcosts and costs linked to carbon regulatory caps.
▪ Apart from Enbridge that has some investments in green power transmission and TC Energy thatgenerates 7% and 8% of the company’s revenue from natural gas and nuclear (considered to be lesscarbon emitting), our analysis shows almost no capital investment and revenue generation fromrenewable sources of energy for other companies, which exacerbates transition risk.
▪ As such, the two current midstream holdings are somewhat better-positioned for the energy transitioncompared to its peers.
▪ This is supported by our scenario analysis as well – assuming price decline of oil, stranding of assetsand a prompt decarbonization resulting in 80% of fossil reserves staying in the ground, Enbridge andTC Energy seem to be able to withstand and survive the tough market conditions.
▪ Suncor has progressively reduced its investment in exploration & production and oil sands and hasmoved to refining & marketing which might explain its higher revenue in a stranding scenarios when oilprice is declining and 80% decarbonization.
▪ On the other hand, Husky is knee-deep in exploration & production exposing itself to two potential risks:• Elevated risks of additional costs from stringent carbon regulations due to increasing GHG emissions
arising from the company's focus on oil sands extraction• Highly negative NPV projects as depicted by scenario 1 – free cash flows under the stranding
scenario falls the most for Husky
120
Implications of Stranded Assets on Companies’ Financials
121
Conclusion on Security Selection
Overweigh
• Enbridge Inc - Strong management practices to address carbon emissions relative topeers, including evidence of investments in carbon capture and storage projects, however,keep an eye for ongoing severe controversies
• Suncor Energy Inc – Strong climate change strategy, some evidence of investments inwind energy and biofuels, however, keep an eye on its heavy carbon footprint.
• Cenovus Energy Inc – Bold emission targets, uses cleaner energy sources such asnatural gas to power operations but it’s in a weaker position to adapt to carbon-constrained economy relative to peers
Underweight /Divest
• Husky Energy Inc – Elevated risks of costs due to extensive oil sands, heavy oil leases,and refining operations; carbon intensity at 1169 t CO2e/USD million sales over 2015-2017 vs peers' average of 700; concerns that director elections are not well-aligned withshareholder interests
• Canadian Natural Resources Limited – Higher risks - 75% of its operations are in oilsands extraction(more carbon-intensive vs conventional crude); carbon intensity of 1977.6t CO2e/M USD over 2016-2018 vs 910 for peers
• Parex Resources Inc – No disclosure of quantitative targets to reduce GHG emissions,carbon intensity of 1275 t CO2e/M USD vs 910 for peers; no evidence of investments inrenewable energy
Retain but follow closely
due to ongoing environmental
protests
• TC Energy Corporation – Demonstrates strong GHG emissions management, howeverthere is strong opposition from environmental groups over the planned construction of itsKeystone XL Pipeline. Landowners and conservation groups filed their federal lawsuit inNovember 2019.
Banktrack.org. 2020. [online] Available at: <https://www.banktrack.org/download/unburnable_carbon/unburnablecarbonfullrev2.pdf> [Accessed 5 May 2020].
CAPP. 2020. Petroleum Industry Statistics | The Statistical Handbook | CAPP. [online] Available at: <https://www.capp.ca/resources/statistics/> [Accessed 5 May 2020].
Carbon Tracker Initiative. 2020. Powering Down Coal: Navigating The Economic And Financial Risks In The Last Years Of Coal Power - Carbon Tracker Initiative. [online] Available at: <https://carbontracker.org/reports/coal-portal/> [Accessed 5 May 2020].
Carbon Tracker Initiative. 2020. 2 Degrees Of Separation – Transition Risk For Oil And Gas In A Low Carbon World -Carbon Tracker Initiative. [online] Available at: <https://carbontracker.org/reports/2-degrees-of-separation-transition-risk-for-oil-and-gas-in-a-low-carbon-world-2/> [Accessed 5 May 2020].
Carbontransfer.wpengine.com. 2020. [online] Available at: <https://carbontransfer.wpengine.com/wp-content/uploads/2018/12/CTI_Powering_Down_Coal_Report_Nov_2018_4-4.pdf> [Accessed 5 May 2020].
Data.bloomberglp.com. 2020. [online] Available at: <https://data.bloomberglp.com/bnef/sites/4/2013/12/BNEF_WP_2013-11-25_Carbon-Risk-Valuation-Tool.pdf> [Accessed 5 May 2020].
Esgmanager.msci.com. 2020. MSCI Inc. Login. [online] Available at: <https://esgmanager.msci.com/esgManager/> [Accessed 5 May 2020].
Nrcan.gc.ca. 2020. Crude Oil Industry Overview | Natural Resources Canada. [online] Available at: <https://www.nrcan.gc.ca/our-natural-resources/energy-sources-distribution/clean-fossil-fuels/crude-oil/crude-oil-industry-overview/18078> [Accessed 5 May 2020].
Support.msci.com. 2020. [online] Available at: <https://support.msci.com/support/webcast/the-financial-implications-of/0160873087> [Accessed 5 May 2020].
122
References
Scores are collected
123
Quantitative lens: Canadian Equity vs Benchmark
Industry SIAS BenchmarkCommunication Services 3.7368% 5.7602%
Consumer Discretionary 2.1066% 3.7312%
Consumer Staples 7.2206% 4.3321%
Energy 12.4068% 13.5168%
Financials 28.0946% 29.2562%
Healthcare 0.0000% 1.0128%
Industrials 12.3301% 11.7113%
Information Technology 6.4520% 8.0945%
Materials 11.4757% 14.1101%
Real Estate 2.0849% 3.0893%
Utilities 6.9541% 5.2388%
Portfolio vs Benchmark weights
Process
▪ Scores are collected from MSCI ESG Manager
▪ Portfolio weights and benchmark weights are retrieved from Bloomberg
▪ Score matrix is created –weighted scores are calculated by multiplying the scores by the respective weights
Communication Services Overall Environmental Social GovernancePortfolio 4.4 9.8 4.2 5.5Benchmark 5.9 9.6 5 5.6
Consumer Discretionary Overall Environmental Social GovernancePortfolio 3 6 4 5Benchmark 4.6 5 4 5.7
Consumer Staples Overall Environmental Social GovernancePortfolio 7 5 5.1 5.3Benchmark 4.1 4 4.4 5.6
Energy Overall Environmental Social GovernancePortfolio 4.9 3.5 6.3 6.2Benchmark 5.1 3.8 6.7 6.2
Financials Overall Environmental Social GovernancePortfolio 6.1 6.7 4.9 5.9Benchmark 6 6.3 4.9 5.9
Healthcare Overall Environmental Social GovernancePortfolio 0 0 0 0Benchmark 1.8 3.8 3.9 4.3
Industrials Overall Environmental Social GovernancePortfolio 4.6 5.9 4.1 6.2Benchmark 5.7 4.7 4 6.5
Information Technology Overall Environmental Social GovernancePortfolio 0 4.2 5.1 5.4Benchmark 3.9 4.7 3.1 7.1
Materials Overall Environmental Social GovernancePortfolio 6.6 4.1 5.3 5.3Benchmark 7.1 3 5.8 5.4
Real Estate Overall Environmental Social GovernancePortfolio 0 0 0 0Benchmark 2.5 4.8 2.8 6.6
Utilities Overall Environmental Social GovernancePortfolio 10 6.1 4.2 6.7Benchmark 10 6.3 4.7 6.6
124
Score Matrix: Canadian Equity vs BenchmarkWeighted Score
SIAS CE Portfolio Overall Environmental Social GovernanceCommunication Services 0.16 0.37 0.16 0.21
Consumer Discretionary 0.06 0.13 0.08 0.11
Consumer Staples 0.51 0.36 0.37 0.38
Energy 0.61 0.43 0.78 0.77
Financials 1.71 1.88 1.38 1.66
Health Care 0.00 0.00 0.00 0.00
Industrials 0.57 0.73 0.51 0.76
Information Technology 0.00 0.27 0.33 0.35
Materials 0.76 0.47 0.61 0.61
Real Estate 0.00 0.00 0.00 0.00
Utilities 0.70 0.42 0.29 0.47
Weighted ScoreBenchmark Overall Environmental Social Governance
Communication Services 0.34 0.55 0.29 0.32
Consumer Discretionary 0.17 0.19 0.15 0.21
Consumer Staples 0.18 0.17 0.19 0.24
Energy 0.69 0.51 0.91 0.84
Financials 1.76 1.84 1.43 1.73
Health Care 0.02 0.04 0.04 0.04
Industrials 0.67 0.55 0.47 0.76
Information Technology 0.32 0.38 0.25 0.57
Materials 1.00 0.42 0.82 0.76
Real Estate 0.08 0.15 0.09 0.20
Utilities 0.52 0.33 0.25 0.35
Communication Services 0.34 0.55 0.29 0.32
Scores are collected
125
Quantitative lens: US Equity vs BenchmarkPortfolio vs Benchmark weights
Process
▪ Scores are collected from MSCI ESG Manager
▪ Portfolio weights and benchmark weights are retrieved from Bloomberg
▪ Score matrix is created –weighted scores are calculated by multiplying the scores by the respective weights
Communication Services Overall Environmental Social GovernancePortfolio 5.4 8.4 4.3 4.5Benchmark 4.8 8.4 4.3 4.5
Consumer Discretionary Overall Environmental Social GovernancePortfolio 8.5 6.3 4.1 7.1Benchmark 7.5 5.5 3.8 6.7
Consumer Staples Overall Environmental Social GovernancePortfolio 7.9 5.6 3.6 6Benchmark 7 5.6 4.4 5.8
Energy Overall Environmental Social GovernancePortfolio 6.1 4.2 5.9 5Benchmark 6 4.1 6 5
Financials Overall Environmental Social GovernancePortfolio 3.4 6.4 5 2.8Benchmark 4.8 6 4.4 4.9
HealthcarePortfolio 8.3 7.1 5 5.4Benchmark 5.5 7 4.4 4.8
Industrials Overall Environmental Social GovernancePortfolio 7 5.5 4.5 5.8Benchmark 6.7 5.3 4.4 5.9
Information Technology Overall Environmental Social GovernancePortfolio 8.8 6.2 5.8 5.9Benchmark 7.4 5.5 5.6 5.8
Materials Overall Environmental Social GovernancePortfolio 5.9 5 4 5.7Benchmark 5.8 5.1 3.9 5.7
Real Estate Overall Environmental Social GovernancePortfolio 6.9 6.4 5.4 5Benchmark 6.8 6.4 5.3 5
Utilities Overall Environmental Social GovernancePortfolio 7.4 6.4 5 5.9Benchmark 7.3 6.4 4.9 5.9
Industry SIAS BenchmarkCommunication Services 15.586% 11.076%Consumer Discretionary 19.251% 10.582%
Consumer Staples 12.750% 7.439%Energy 0.186% 2.944%
Financials 5.890% 10.366%Healthcare 10.704% 15.255%Industrials 9.475% 7.959%
Information Technology 20.834% 25.718%Materials 0.129% 2.203%
Real Estate 1.084% 3.016%Utilities 4.067% 3.148%
126
Score Matrix: US Equity vs Benchmark1
SIAS US Portfolio Overall Environmental Social GovernanceCommunication Services 0.84163840 1.30921528 0.67019354 0.70136533Consumer Discretionary 1.63630188 1.21278845 0.78927502 1.36679333Consumer Staples 1.00724265 0.71399479 0.45899665 0.76499441Energy 0.01132454 0.00779722 0.01095324 0.00928241Financials 0.20025129 0.37694360 0.29448719 0.16491282Health Care 0.88846452 0.76001182 0.53521959 0.57803716Industrials 0.66322370 0.52110434 0.42635809 0.54952821Information Technology 1.83341628 1.29172510 1.20838800 1.22922228Materials 0.00759719 0.00643830 0.00515064 0.00733966Real Estate 0.07476958 0.06935150 0.05851533 0.05418086Utilities 0.30094712 0.26027859 0.20334265 0.23994433
Weighted ScoreBenchmark Overall Environmental Social Governance
Communication Services 0.53163470 0.93036072 0.47625608 0.49840753Consumer Discretionary 0.79364049 0.58200303 0.40211118 0.70898551Consumer Staples 0.52069890 0.41655912 0.32729645 0.43143623Energy 0.17666518 0.12072121 0.17666518 0.14722098Financials 0.49758294 0.62197867 0.45611769 0.50794925Health Care 0.83903586 1.06786382 0.67122869 0.73224948Industrials 0.53323734 0.42181461 0.35018571 0.46956721Information Technology 1.90309566 1.41446299 1.44018050 1.49161552Materials 0.12778526 0.11236290 0.08592457 0.12558207Real Estate 0.20508052 0.19301696 0.15984217 0.15079450Utilities 0.22982646 0.20149169 0.15426707 0.18575015
127
Drill-Down into ESG Performance – Largest Positions in CELARGEST POSITIONS
Upward Low N/A Leader
Stable Low N/A Leader
MANULIFE FINANCIAL CORP 3.19% 1.54% 7.5 AA Strong ESG integration in asset management drives upgrade
Stable Very Low N/A Leader
BCE INC. 3.47% 1.03% 4.1 BB Labor management and data security risks persist
Stable Very Low N/A Leader
SUN LIFE FINANCIAL INC. 4.44% 3.08% 8.1 AAStrong ESG integration in investment management and robust governance practices
Stable Low N/A Leader
WHEATON PRECIOUS METALS CORP. 5.05% 3.89% 6.9 AImproved ethics practices but continues to invest with ESG laggards
Stable Low N/A Average
METRO INC. 5.32% 4.62% 7.7 AA Strong product quality and safety measures
Downward Very Low N/A Leader
THOMSON REUTERS CORPORATION 5.49% 4.69% 3.9 BBImproved data security yet employee morale may decline amid layoffs and business restructuring
Stable Very Low N/A Leader
TORONTO-DOMINION 5.56% 0.48% 7.1 AIncrease in human capital management challenges drive downgrade
Stable Very High N/A Average
ROYAL BANK OF CANADA 5.96% 0.06% 6.7 AChallenges in human capital management, focuses on green financing opportunities
Downward Very Low N/A Average
CANADIAN NATIONAL RAILWAY COMPANY 6.23% 2.25% 5.8 A
Despite negotiating union agreements, continued layoffs may exacerbate labor risks
CARBON RISK REPUTATIONAL RISK
GOVERNANCE RISK (T CO2E/$M
SALES)
CGI INC. 6.45% 5.43% 5.9 A Weakening Corporate Governance practices drive the downgrade
PORTFOLIO WEIGHT
ACTIVE WEIGHT
ESG QUALITY SCORE
ESG RATING ESG HIGHLIGHTS ESG RATING
MOMENTUM
128
Drill-Down into ESG Performance – Largest Positions in US
LARGEST POSITIONS
Stable N/A N/A Laggard
Stable N/A N/A Average
JPMORGAN CHASE & CO. 4.45% 3.24% 2.9 BB
Corporate governance weakens
while controversies remain a sore
point
Stable N/A N/A Average
LOCKHEED MARTIN CORPORATION 4.98% 4.59% 5.9 A
Monetizing clean tech
opportunities; concerns over
alleged corruption
Stable N/A N/A Average
MCDONALD'S CORPORATION 5.06% 4.49% 3.9 BB
Increasing focus on franchise
operation does not reduce labor
and food safety risks
Stable N/A N/A Average
COSTCO WHOLESALE CORPORATION 5.40% 4.85% 3.5 BBRisks related to supply chain labor
remain
Stable N/A N/A Laggard
VARIAN MEDICAL SYSTEMS, INC. 5.94% 5.89% 5.7 BBB
Employee programs fall short to
tackle heightened workforce
challenges due to recent
acquisitions
Stable N/A N/A Average
ALPHABET INC. 6.17% 2.84% 7.8 AA
Retains Interactive Media &
Services ESG industry leader,
despite scrutiny
Upward N/A N/A Leader
VISA INC. 6.47% 5.24% 6.2 AContinued focus on fintech
involvement
Stable N/A N/A Leader
AMAZON.COM, INC. 6.69% 2.70% 5.5 BBB
Environmental measures improve;
spike in demand amid COVID-19
tests data protection, labor
practices
Stable N/A N/A Leader
THE HOME DEPOT, INC. 7.22% 6.24% 8.4 AA
Robust programs across
environmental and governance
pillars
CARBON RISK REPUTATIONAL RISK
GOVERNANCE RISK (T CO2E/$M
SALES)
MICROSOFT CORPORATION 7.24% 2.03% 10.0 AAATakes lead in data protection
practices
PORTFOLIO WEIGHT
ACTIVE WEIGHT
ESG QUALITY SCORE
ESG RATING ESG HIGHLIGHTS ESG RATING
MOMENTUM
Appendix: Operations
Reconciliation detail
130
Reconciliation detail
131
Reconciliation detail
132
Reconciliation detail
133
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