Global Dividend Fund

Global Dividend Fund

Portfolio Sub-Advisor: Fortis Investment Management Canada Ltd. (now called BNP Paribas Investment Partners Canada Ltd.)

Fund Commentary - December 31, 2011

During the first half of the year, the markets were mainly dominated by the volatility caused by the natural disaster in Japan as well as the political unrest in North Africa and the Middle East. The European sovereign debt issues continued to cast a shadow on the sustainability of the eurozone, which caused volatility in European stock prices.

Rising inflation as well as fiscal and monetary tightening also weighed on growth, but a fall in commodity prices, after disappointing macroeconomic data, took away some of the downside risk to global growth. The soft patch in U.S. growth continued, with weak domestic demand and disappointing job creation. In the eurozone, leading indicators pointed to robust growth in the core countries and weakness in the 'peripheral' countries. Growth in the emerging markets slowed slightly due to monetary tightening and the slowdown in global manufacturing, but generally stayed robust.

During the second half of the year, markets experienced a sell-off in equities before gaining back some of the lost ground toward the end of the year. We also saw a downgrade of the U.S. government debt after a lengthy deliberation over the debt ceiling, which U.S. congressional leaders eventually agreed to raise by a further $2.1 trillion. Most Asian currencies weakened against the U.S. dollar as investors began buying the greenback as a safe haven. Dividend stocks behaved more defensively versus the general equity market. Similarly, in this run for cover, large-caps outperformed small- and mid-caps; while Consumer Staples, Utilities and pharmaceuticals outperformed banks, cyclicals, Industrials, Energy and Materials.

In North America, stock selection in Financials and media stocks was the main detractor from relative returns. The Portfolio Sub-Advisor's stock selection within the Energy sector also detracted from performance, as did the Fund's underweight position in the Health Care sector. On the positive side, stock selection within Industrials and the Fund's positions in Telecommunication stocks boosted returns. Telefonica Brasil SA, ADR was a top performer in the Americas portfolio, as the merger of the wireless and wireline operations of Telefonica Brasil SA, ADR created the largest telecom company in the country and unlocked significant value for shareholders. First Niagara Financial Group Inc. was the worst performer. This regional bank was forced to raise capital to complete a regulator-assisted acquisition. This left the firm vulnerable when the market declined in the third quarter and the capital raising was ultimately dilutive and required a dividend cut.

In Europe, most of the gains were attributed to the Fund's overweight in Northern Europe, notably Germany. On a sector level, the Portfolio Sub-Advisor did well by maintaining the Fund's overweight position in Energy and Staples, with the help of the Fund's underweight in Utilities. Stock selection in Technology, Financials and Industrials detracted from performance. The overweight positions in pharmaceutical company Roche Holdings AG and tobacco companies Imperial Tobacco Group PLC and British American Tobacco PLC contributed to relative performance. The underweight position in Southern European banks such as Banco Santander SA, Registered also helped. However, the position in Credit Suisse Group AG and our underweight position in pharmaceutical Glaxo detracted from relative performance.

In the Asia Pacific region, 2011 was a challenging year due to the lackluster performance of emerging Asian countries. There were a few positive stock selections, in particular in the Consumer Discretionary and Financial sectors. Overweight positions in Hitachi, Ltd., PT Bank Mandiri (Persero) Tbk., Samsung Electronics Co. Ltd., Pref. and PT Bank Rakyat Indonesia (Persero) Tbk contributed to the Fund's relative performance. The Fund also gained on the underweight positions in Tohoku Electric Power and Australia & New Zealand Banking Group Ltd. However, the Fund's overweight positions in China and India detracted from performance. On a sector level, holdings in the Technology and Materials sectors also detracted from performance. The Fund's positions in Commonwealth Bank of Australia, Westpac Banking Corp., Esprit Holdings Ltd. and KDDI Corp. detracted from performance.