cambridge advisors october 2012
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Cambridge Advisors
October 2012
Brandon SnowPrincipal & Portfolio Manager
Alan RadloChief Investment Officer & Portfolio Manager
Robert SwansonPrincipal & Portfolio Manager
Emi WintererAnalyst
Stephen GroffAnalyst
Greg DeanAnalyst
The Cambridge team
The Cambridge advantage
• 70 years of combined management experience• 12 esteemed investment management awards for
consistent outperformance • Flexibility and capacity to pursue alpha with no
incentive to resemble the index• Proven process for long-term holdings and short-term
investments• Downside protection• A focus on absolute return resulting in
outperformance
A variety of actively managed portfolios
Diversified incomeCambridge Income Fund/Cambridge Income Corporate Class
Canadian equityCambridge Canadian Equity Corporate ClassCambridge Canadian Growth Companies FundCambridge Pure Canadian Equity Fund
Global equityCambridge American Equity Fund/Cambridge American Corporate ClassCambridge Global Equity Corporate Class
Balanced/asset allocationCambridge Canadian Asset Allocation Corporate Class
Back to Basics
Bob Swanson, Principal & Portfolio ManagerOctober 2012
US Budget Crisis
US Double Dip RecessionEuropean Debt
Crisis
Middle East Uprising
CNBC Talking HeadsHigh Frequency Trading
JPM, Knight huge trading losses
No shortage of negative headlines
U.S. and Canadian interest rates are at record lows
Canada 10-year Treasury yield
Source: Factset
High-yield bond prices have risen dramatically
’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ‘12
110
100
90
80
70
60
50
Barclay’s Global High Yield Index
Source: Factset
Bonds are expensive in the U.S.
120
115
105
100
95
90
85
110
80’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ‘12
Source: Factset
Barclay’s U.S. Aggregate Credit (5 – 10 year)
And in Canada
118
116
112
110
108
106
104
114
102’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ‘12
Bank of America Merrill Lynch Canadian Broad Market
Source: Factset
Moment of truth
• How many of you are still recommending bonds to your clients?
• How many of you have stopped your clients from reinvesting into bond funds?
Record inflows into income funds
1,400,000
1,200,000
800,000
600,000
400,000
200,000
1,000,000
0’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ‘12
Source: Factset
Equity outflows
700,000
600,000
400,000
300,000
200,000
100,000
500,000
0
’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ‘12-100,000
Source: Factset
U.S. corporate profits at all-time highs
2,200
2,000
1,600
1,400
1,200
1,000
1,800
800’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ‘12
280
240
200
180
160
140
220
120
Source: Factset
S&P500 dividends per share
35
30
20
15
10
25
’99 ’00 ’01 ’02 ‘03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ‘12
Source: Factset
Valuations remain below average
Source: Factset
Price to earnings: 11x in 2011; 13x in 2012
Source: Factset
Equity performance
Source: Factset, September 2012
Earnings yields vs. bond yields
Source: Factset
S&P/TSX dividend yield vs. bonds
Source: Factset
Dividend yields: aristocrats vs. S&P/TSX 60
Source: Factset
S&P/TSX and aristocrats
Source: Factset
Growth of a dividend: Chevron
Source: Factset
Bonds are guaranteeing capital losses for clients
CompanyDividend
YieldCurrent
Yield PriceLoss at Maturity YTM
Altria Group 5.3% 4.8% 120.1 -16.6% 1.8%
Chevron Texaco 3.2% 4.0% 121.3 -17.6% 1.5%
Pfizer 3.5% 3.9% 115.4 -13.3% 1.1%
General Electric 3.1% 4.4% 118.6 -15.7% 1.5%
Cdn Nat’l Rail 1.7% 4.8% 121.8 -17.9% 1.4%
Bond Metrics*
Source: Bloomberg, bonds maturing in 4-6 years
Canadian debt issuance
Source: Factset
Who is buying stocks? The companies!
Source: Factset
Dun & Bradstreet announced a $1 billion buyback over two years funded by cash flow and cheap debt. This represented nearly 30% of the market cap at the time of announcement. (8/9/12)
Transforce announced an increase in its credit facility to $800 million and a buyback of nearly 10% of shares. (7/27/12)
IBM issued a 10-year bond to yield 1.875%, and the company is buying back 5% of the company’s shares each year. (7/25/12)
Who is buying stocks? The companies!
Source: Ned Davis Research Inc.
Who is buying stocks?
• Cambridge Income Fund• Cambridge Canadian Asset Allocation Corporate Class• Cambridge Canadian Equity Corporate Class• Cambridge American Equity Fund• Cambridge Global Equity Corporate Class
Cambridge Income Fund
• Combination of global fixed income and high-yielding equities
• Diversified across regions, sectors and capital structure• Focus on income stability, with potential for capital
appreciation and inflation protection
Representative portfolio structure
Investment grade 4.0%Converts 6.0%High-yield bonds 6.5%REITS 5.0%Preferred 6.5%High-yield equity 4.5%Infrastructure 4.5%Utilities 5.0%
Yields
Source:CI Trade Support, Factset (50%S&P/TSX Total Return / 50%BofA Cad A-AAA Total Return)
Outperformance with two-thirds the volatility of the benchmark
Cambridge Income Corporate Class performance vs. benchmark
94.00
96.00
98.00
100.00
102.00
104.00
106.00
1/9/
2012
1/23
/201
2
2/6/
2012
2/20
/201
2
3/5/
2012
3/19
/201
2
4/2/
2012
4/16
/201
2
4/30
/201
2
5/14
/201
2
5/28
/201
2
6/11
/201
2
6/25
/201
2
7/9/
2012
7/23
/201
2
8/6/
2012
8/20
/201
2
9/3/
2012
9/17
/201
2
10/1
/201
2
10/1
5/20
12
Time
NA
V In
dexe
d to
100
Cambridge Income Corporate Class Blended Benchmark
Fund Fund CodeAssets
(million)Foreign Content
Cambridge Canadian Equity Corporate Class CIG2321 $1.308 maximum 49%
Cambridge Canadian Asset Allocation Corporate Class CIG2322 $894.0 maximum 49%
Cambridge Global Equity Corporate Class CIG2323 $695.7 no restrictions
Cambridge Income Corporate Class CIG2261 $353.4 no restrictions
Cambridge Income Fund CIG635 $96.8 no restrictions
Cambridge American Equity Corporate Class* CIG294 $391.4 no restrictions
Cambridge American Equity Fund* CIG212 $55.4 no restrictions
Cambridge Canadian Growth Companies Fund† CIG11108 $47.5 maximum 49%
Cambridge Pure Canadian Equity Fund† CIG11109 $3.8 maximum 10%
*Effective June 5, 2011 funds were renamed from CI American Equity Corporate Class and CI American Equity Fund.† Effective July 27, 2012 funds were renamed from Castlerock Canadian Growth Companies and Castlerock Pure Canadian
Equity Fund
Source: RBC Dexia at September 30, 2012
Cambridge offers a variety of mandates
Thank YouAll charts and illustrations in this guide are for illustrative purposes only. They are not intended to predict or project investment results.
®CI Investments, CI Investments design and Cambridge are registered trademarks of CI Investments Inc. Cambridge Advisors is the business name of CI Global Holdings Inc. 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.
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