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September 14, 2023

Commentary: NCM Pension Portfolios

On September 14, 2023, Portfolio Manager John Poulter, CFA reviewed why the Pension Portfolios are different from many balanced funds, and why he believes they are positioned for strong performance.


Hello. My name's John Poulter, the investment manager of the NCM Pension Portfolios. Today is September 14th, 2023. Now I’m going to spend a few minutes providing my thoughts on the markets, investment markets and the positioning of our portfolios. But one thing that I do want to make note of is that we are coming up to a interesting time mark on our portfolios.

The three NCM Pension Portfolios are approaching their fifth year and it's been quite a five years. We think these funds have achieved the objective of providing returns in a stable manner and they benefited from our active risk management programs. The funds maintain positions in a diversified selection of international equity investments and combine those holdings with an active allocation to fixed income holdings as well.

Today I'm going to review those holdings. My objective is to highlight their unique and diversified nature. Investors have definitely been on quite a roller coaster over the past five years. The volatility has been quite something and we think that our funds have fared quite well through all of the ups and downs. The series of funds include three different portfolios with three different growth profiles, and we're particularly proud of the balance income Pension Portfolio, which is on track to hit the five year mark with a steady and solid second quartile ranking through most of its history.

My next slides provide some market comments and the portfolio's equity and fixed income profiles. So this highlights some of my outlooks on the equity markets and fixed income as well. My outlook right now is itemized. It's on this slide and it really hasn't changed too much since my last video recording. And just quickly, going through my thoughts today, certain equity markets have been quite strong so far this year.

While we don't see any imminent danger, we wouldn't be surprised that there are some headwinds that might impact the market leaders that we see today. My second point is that I believe that there might be a rotation into some of the areas of growth in the market, but these might not be companies that are household names or familiar you might be familiar with, such as Apple or Amazon and Netflix.

At the end of the rate tightening as it becomes more in focus, we believe that our financial sector here in Canada will get investor support and provide decent returns as a sector and we believe a soft rather than hard economic landing will also support our resource industries.

And finally, while the timing of the European or the timing of Europe normalizing is uncertain, it is possible we might see some strength in Europe as the conflict in Ukraine can't continue forever.

And finally, our fixed income markets. We believe these should be less volatile, particularly in the longer end of the curve, and particularly when rate policy eases. We think coupon returns are going to return to the long term norms. For the first time in five years we’re starting to consider owning longer dated bonds. With that said, we're not there yet and we'll look at those positions in a moment.

My next slide looks at our equity positions. So these charts help me highlight the differences between the pension funds and other balanced funds that I've seen. On the left is the major holdings of pension funds, equities, and I'll be focusing on the specific themes and it'll help you understand how we achieve a higher diversification. We believe that diversification lowers risk. The pie on the right is the general allocation profile that I'm familiar with, and it applies to many of our competitors. International balanced equity funds often hold very little in Canada, and they're often tilted to the broad U.S. markets, namely the S&P 500.

The Pension Portfolios also hold a decent amount of U.S. equities, but we do this by diversifying into some themes that we like, and we believe that those are tilted to longer term growth. The pie chart on the left itemizes these holdings. The pension funds have positions dedicated to U.S. growth in growth oriented sectors. We call these sectors the new economy. We believe this is unique to our portfolios among other Canadian balanced funds.

My next chart is going to show this from a different angle. It aggregates the growth themes and it also shows our regional rates. This pie shows the equity allocations of our U.S. exposure, which is 58% of our equity holdings, but over half of that 32% of the total is are in areas of the market that we consider higher growth. And that's the gray slice of this pie in the chart.

And I would argue that our equity allocations within the pension funds is significantly different from many of our competitors with a healthy allocation of Canada and non-North American International, which are 18 and 24% respectively, and we also maintain an attractive growth profile primarily from our U.S. holdings. My next slide, will now switch into our fixed income, and here too we believe our profile is unique and this is primarily due to our short term positioning.

The pie on the left shows our split between long and short investments in fixed income. The pie on the right indicates both term and credit quality. And here the short term nature of our portfolio is evident and it also is showing that we hold moderate amount in high yield exposure.

So switching to my last slide, which is some fixed income comments and metrics, this slide details some of the metrics behind our income holdings. The short nature of the portfolio has proven to be defensive in a very volatile bond market over the last year, and it's provided decent relative performance. This low risk profile remains in our portfolio. The average coupon in the fixed income that we hold is 4%, but the yield to maturity is higher at around 6%. And this is because we're buying discount priced bonds, meaning that we're getting more coupon for our dollar invested.

The duration measure is a measure of time to maturity and our duration is three. And this compares to 7.2 for the Bond universe, and that's the Canadian bond universe, holding longer durations, meaning higher interest rate risk in the bond universe in general. Our risk is clearly lower with the duration of three.

The fixed income is also high quality. 66% of our holdings are rated as investment grade, meaning high quality corporations and risk free governments. And finally, we do hold some higher yield investments and these are primarily in the USA. It’s predominantly short term, again, meaning less interest rate risk. So our positioning reflects our view that longer dated fixed income remains higher risk due to uncertainty surrounding what central banks are going to be doing globally.

We think that inflation could surprise and come in lower in the coming quarters, but convincing the policymakers could prove to be difficult. When policy derived rates finally move lower, we believe that the first and the biggest impact will be in the short term part of the yield curve, and that's where we're concentrated.

And that concludes my comments for the Pension Portfolios. I hope I’ve demonstrated that they are unique and their built-in potential for attractive returns will result in the future. Thank you very much.


John Poulter is a Portfolio Manager, with Cumberland Investment Counsel Inc.(CIC). CIC is the sub-advisor to its affiliate, NCM Asset Management Ltd. The information in this video is current as of September 14, 2023 but is subject to change. The contents of this video (including facts, opinions, descriptions of or references to, products or securities) are for informational purposes only and are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. The communication may contain forward-looking statements which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.



John Poulter, CFA

John oversees key strategic asset allocation decisions across the firm and manages the NCM Pension Portfolios