dividend growth investing cambridge style stephen groff principal & portfolio manager bob...
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Dividend Growth Investing Cambridge Style
Stephen GroffPrincipal & Portfolio Manager
Bob SwansonPrincipal & Chief Market Strategist
Manager checklist
ETF Manager 1 Manager 2
Manager alignment Net worth and compensation aligned
Active share 88-98%
Upside / downside capture See upcoming slide
The Cambridge philosophy
Active management• Conviction in what we own and why we own it• Not index focused• Nearly 100 years of diversified investment experience on the team
Absolute return, downside focused• Primary focus is understanding what can go wrong• If you invest in good companies the upside takes care of itself• Avoiding big losses is the best way to grow wealth over time
We are personally aligned• Significant holders of our funds• We lose money, our pay goes down• Focus on absolute returns
The Cambridge suite of products
Diversified income & balanced
Dividend income
Equity
Small/mid-cap equity
• Cambridge High Income• Cambridge Canadian Asset
Allocation
• Cambridge Canadian Dividend
• Cambridge U.S. Dividend• Cambridge Global Dividend
• Cambridge Canadian Equity• Cambridge American Equity• Cambridge Global Equity
• Cambridge Canadian Growth Companies
• Cambridge Growth Companies
• Cambridge Pure Canadian Equity
Potential return
Pote
ntial
risk
Macro outlook and insights
Summary• Continued appetite for income and safety• Equities are your new yield investment• We favour U.S. equity and U.S.-dollar exposure
U.S. 10-year bond yields
Source: FactSet
TSX dividend yields and Canadian 10-year bond yields
Source: FactSet
S&P 500 dividend yields and U.S. five-year bond yields
Source: FactSet
Dividend Yield
Bond Yield
Fund flows: stocks vs. bonds
Equity Funds
Bond & Income
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14-400,000
-200,000
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000 (RUNTOT) Ici Mutual Funds, Net New Cash Flow, All Equity Funds, Mil l ions Of Usd - United States (RUNTOT) Ici Mutual Funds, Net New Cash Flow, All Bond & Income Funds, Mil l ions Of Usd - United States Recession Periods - United States
Source: FactSet
People have been chasing yield
High-dividend stocks are the same value as the index for the first time in history
High yield vs. a better company
AGF CI Financial9.1% Dividend yield 3.5%
118% 5-year average payout ratio
70%
1% 5-year average dividend growth
8%
-0.2% 5-year average change in share count
-2.7%
5% 5-year total return 111%
4% Dividend Aristocrats Index weighting
Not in the index
Source: Bloomberg, September 2014
Not just about ‘high yield’
Source: ISI Group
Where to find quality dividend candidates
0
50
100
150
200
250
300
350
400
5 years 10 years 25 years
U.S. Europe Canada
Number of companies with consecutive years of dividend growthN
um
be
r o
f co
mp
an
ies
Source: FactSet, August 2014
USD index long-run waves: get long the $
17 years 16 years
U.S. Federal Reserve’s broad real trade-weighted dollar index since Bretton Woods
• The USD has had about 2.5 cycles in 40 years of floating rates• The apparent bottom of the last cycle was 32 months ago and since then the USD has risen a mild 6%• The index spending two to four years ‘bumping along the bottom’ before accelerating higher is consistent with
previous dollar cycles
Source: Federal Reserve, Bloomberg, BMO FX Strategy
Yield today’s reality
Past Future
Yield investing was “easy” It won’t be as easy going forward Falling interesting rates Rising interest rates
Compressing spreads Spreads / defaults at historical lows
Rising payout ratios Elevated payout ratios
Rising valuation High valuations
But your clients still need income … so what is the solution?
Cambridge investment philosophy
Core holdings Management aligned with shareholders
Strong capital allocationCompetitive advantage
Allison TransmissionFirst Republic
GraingerHome Depot
Norfolk SouthernThomson Reuters
US Bancorp
Non-core holdingsInformation edgeCyclical recovery
Emerging profitabilityThematic investing
Swift TransportationFluorCash
Attractive risk/reward
How we think about a business
Know your business
Reinvest in the business Buybacks Dividends
“Total shareholder yield”Supports future growth
Different geographies + same philosophy = consistent results
Gross returns of Canadian and U.S. underlying holdings in Cambridge Canadian Equity Corporate Class relative to index returns
Source: CI Investments, February 2014
23.4%
30.9%
14.4%
29.4%
50.0%
63.0%
10.3%
65.3%
Downside protection
Rolling one-year returns of underlying holdings in Cambridge Canadian Equity Corporate Class vs. TSX, April 2011 to March 2014
Source: CI Investments
Managing the downside is criticalF
req
ue
ncy
(a
s p
erc
en
t o
f to
tal)
Find
ScreensConferences
Company meetingsSell side discussions
Analyze
Public filings (10Ks, Proxies etc.)Transcripts and presentations
Site visitsIn-house management meetings
Conferences Financial modelling and analysis
Competitor / supplier discussions
It is a time-intensive process to vet business models and build relationships with management teams.
Our relationships and consistent investment process is a competitive advantage.
How we find and analyze potential investments
Cambridge is not benchmark focused
Source: Bloomberg, September 2014
Sector
CambridgeCanadianDividend
iShares S&P/TSX
High Dividend Difference
Cambridge U.S.
Dividend
iShares High Dividend
ETF Difference
Cash 10 - 10 11 - 11
Bonds - - - -
Financials 21 31 -10 20 7 13
Energy 13 31 -18 5 14 -9
Materials 7 6 1 - 2 -2
Consumerdiscretionary 13
5 8 18 4 14
Consumerstaples
12 1 11 6 25 -19
Information technology
2 1 1 4 7 -3
Telecomservices
- 12 -12 - 10 -10
Industrials 13 2 11 27 1 26
Health care - - 3 19 -16
Utilities 9 11 -2 6 11 -5
Dividend investing Cambridge style
*3 or 5 years depending on history, adjusted for M+ASource: Bloomberg
Cambridge Global Dividend Fund characteristics
August 2014
Number of holdings 52
Average dividend yield 2.5%
3-year dividend growth 11.2%
Change in shares* 0.0%
Payout ratio 42.8%
Cambridge U.S. Dividend Fund characteristics
August 2014
Number of holdings 28
Average dividend yield 2.0%
3-year dividend growth 16.0%
Change in shares* -0.01%
Payout ratio 37.7%
Cambridge Canadian Dividend Fund characteristics
August 2014
Number of holdings 32
Average dividend yield 2.5%
3-year dividend growth 17.8%
Change in shares* -0.02%
Payout ratio 51.0%
Cambridge is not benchmark focused
Cambridge Canadian DividendTop holdings
as at August 31, 2014
Intact Financial 5.3%
Loblaw 4.7%
PrairieSky Royalty 4.4%
US Bancorp 4.4%
Granite REIT 3.9%
TransForce 3.6%
Thomson Reuters 3.3%
ITC Holdings 3.2%
Microsoft 3.1%
Agrium 3.0%
Total 38.9%
Source: CI Investments
Cambridge U.S. Dividend Top holdings
as at August 31, 2014
Norfolk Southern 5.3%
US Bancorp 5.3%
First Republic Bank 5.2%
Thomson Reuters 5.1%
Home Depot 4.5%
Adecco 4.4%
Allison Transmission Holdings 4.0%
Microsoft 3.9%
United Parcel Service 3.9%
Anheuser-Busch InBev 3.9%
Total 45.3%
The Cambridge suite of products
Diversified income & balanced
Dividend income
Equity
Small/mid-cap equity
• Cambridge High Income• Cambridge Canadian Asset
Allocation
• Cambridge Canadian Dividend
• Cambridge U.S. Dividend• Cambridge Global Dividend
• Cambridge Canadian Equity• Cambridge American Equity• Cambridge Global Equity
• Cambridge Canadian Growth Companies
• Cambridge Growth Companies
• Cambridge Pure Canadian Equity
Potential return
Pote
ntial
risk
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Commissions, trailing commissions, management fees and expenses 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. ®CI Investments, the CI Investments design and
Cambridge are registered trademarks of CI Investments Inc. Cambridge Global Asset Management is a business name of CI Investments 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. This communication is published by CI as a general source of information and is not intended to provide personal legal, accounting, investment or tax advice. Facts and data provided by CI and other sources are believed to be reliable when posted; however, CI cannot guarantee that they are accurate or complete or that they will be current at all times. CI and its affiliates will not be responsible in any manner for direct, indirect, special or consequential damages howsoever caused, arising out of the use of this presentation.
Thank you
FOR ADVISOR USE ONLY – NOT FOR DISTRIBUTION TO CLIENTS
Appendix – Cambridge performance
Performance as at August 31, 2014 1 year 3 year 5 yearSince
inception
Cambridge Canadian Equity Corporate Class 23.0% 18.9% 15.1% 8.9%*
Cambridge Canadian Asset Allocation Corporate Class 15.9% 9.6% 10.1% 6.2%*
Cambridge Canadian Dividend Fund 27.3% 10.4% 11.4% 8.1%
Cambridge Canadian Growth Companies Fund 30.5% 32.8% n/a 28.0%**
Cambridge Pure Canadian Equity Fund 39.3% 33.7% n/a 28.3%**
Cambridge Global Dividend Fund 18.0% n/a n/a 16.4%
Cambridge Global Equity Corporate Class 20.3% 17.4% 11.5% 7.1%*
Cambridge High Income Fund 16.8% 10.3% 12.4% 10.7%
Cambridge U.S. Dividend Fund 23.0% 20.3% 13.1% 6.1%
Cambridge American Equity Fund 26.6% 18.5% 12.2% 7.1%
*Dec. 31, 2007; **Feb. 15, 2011; Jul. 31, 2013; Jul. 2, 2004; May 25, 1989; Feb. 1, 2005; June 14, 2006
Source: RBC Investor & Treasury Services, August 31, 2014