Target Click 2015 Fund Commentary
Portfolio Advisor: Fortis Investment Management Canada Limited
(now called BNP Paribas Investment Partners Canada Ltd.)
Fund Commentary - June 30, 2011
The Fund was rebalanced in February 2011 resulting in less
exposure to the BNP Paribas Global Equity Exposure Fund and an
increase of the cash/T-bill liquidity provision. This reduction of
the BNP Paribas Global Equity Exposure Fund was due to its positive
performance over the 12 months preceding the end of February 2011.
This rebalancing was consistent with the investment strategy to
annually rebalance the investment in the Global Equity Exposure
Fund and the liquidity provision to approximately equal
amounts.
The Fund underperformed its benchmark due to a combination of
factors. The Fund's equity exposure has less currency risk exposure
than the equity portion of the benchmark, and is equally weighted
across the Americas, Europe, and Asia; whereas the equity portion
of the benchmark is weighted by market capitalization. This results
in the Fund's equity exposure having a lower allocation to the
Americas and a higher allocation to Asia. The Fund can invest only
in Canadian federal and provincial strip bonds, while the bond
portion of the benchmark incorporates corporate and municipal bonds
along with government bonds. Overall, the allocation to bond and
equity exposure can differ, as the Fund does not use a fixed ratio
similar to the benchmark.
The international equity markets that the Fund is exposed to
ended the first half of 2011 with mixed returns. In local
currency terms, the U.S. performed the best, with the S&P 500
Index increasing by 6.0%. The Dow Jones Euro Stoxx 50 Index
increased by 2.0%. The UK gained modestly, with the FTSE 100 Index
increasing by 0.8%. Japan performed the worst, with the Nikkei
225 Index declining by 4.0%. Australia and Hong Kong also
retreated, with both the ASX 200 Index and the Hang Seng Index
declining by 2.9% and 2.8%. The S&P TSX 60, the Canadian index,
added to the equity mix in February 2011, declined slightly by 0.7%
for the six month period.
The wind of optimism that appeared at the end of 2010 continued
to blow for a good part of January, enabling U.S. equity indexes to
reach their highest level since August 2008. However, when the
crisis in the Middle East and North Africa hit the front pages,
market participants became alarmed, mainly due to repercussions on
oil prices. In addition, equity markets were hit in March after the
earthquake in Japan. The geopolitical risks and natural disasters
triggered an increase in volatility of most financial assets. At
the same time, economic data in the major developed countries
showed signs of slowing.
During the second quarter, fears of deflation subsided and the
pickup in western economies continued. However, the end of Federal
Reserve asset purchases suggests that US long-term interest rates
could rise. The latest macroeconomic data were not encouraging,
indicating deterioration of the leading indicators and of U.S. job
creation. However, there remain new growth opportunities in the
cyclical sectors of the US economy. We also have a reassuring view
of the situation in China, where we believe there is currently a
normalization of the growth rate rather than a hard landing.
Moreover, monetary conditions are still favourable, with negative
real interest rates in many countries. The confirmation of
continuing US and global growth, and a more accurate view of
monetary policy trends, should support risky assets in the second
half of 2011.
In Canada, prices for government strip bonds maturing in 2015
increased as yields fell.