2016 Annual Report

Investment Manager Report

Since 2013, Beutel Goodman Serves The Plan as our Investment Manager.

Beutel, Goodman & Company Ltd. (BG) achieved positive performance results for NSPS LTD, with relative outperformance for both strategies for the year ending December 31, 2016.

Balanced Portfolio

The Beutel Goodman balanced portfolio achieved a positive return in the one year ending December 31, 2016, and outperformed its blended performance benchmark. The Fund’s fixed income, U.S. and international equity components all outperformed their respective indices over the year.

The Canadian equity component of the Fund underperformed the return of the S&P/TSX Composite Index slightly for the year. In spite of being underweight the two top performing sectors, Materials and Energy, sector allocation added value primarily due to a lack of exposure to Health Care. Stock selection in Energy was the largest detractor to performance. A lack of exposure to the overvalued pipelines earlier in the period detracted. Selection in Materials detracted, primarily due to a lack of exposure to gold and precious metals in the first half of the year and an overweight exposure to the fertilizers.

The portfolio’s U.S. component outperformed significantly over the period, primarily due to stock selection, but with positive effects from sector allocation as well. The largest contribution to stock selection came from Industrials. Selection in Health Care also added value as holdings in Baxter, Baxalta, Merck & Co and Johnson & Johnson all had double digit returns over the period, significantly outperforming the negative return of the sector. Selection in Energy added value due to the Fund’s single holding in the sector, Halliburton.

The international component produced a positive return, significantly outperforming the negative return of the benchmark. Stock selection in Consumer Staples was the largest contributor to performance over the period, primarily due to Familymart, the Japanese convenience store operator. In Industrials the largest contribution came from Konecranes, the Finnish industrial crane manufacturer, which added significant value after announcing and receiving unconditional approval from the U.S. and conditional approval from the European Union to acquire Terex’s Materials Handling and Port Solutions business. Positive stock selection in Health Care was due to the Fund’s holding in Merck KGaA, the German health care and specialty chemical company, which added significant value on a string of solid quarterly results.

The fixed income component added value over the period. Credit strategy added value as the corporate sector strongly outperformed both the provincial and federal sectors. The Fund considerably overweighed corporate during the year. In addition, corporate security selections contributed positively, as Energy and Infrastructure, where we have most of our credit exposure, were among the top performing corporate sectors during the year. Negative effects came from the Fund’s mix of provincial ownership and slightly negative contributions from duration and curve positioning.

BG Balanced Portfolio as at December 31, 2016

Source: Beutel Goodman

Liability Hedging Portfolio

Despite a rough start to the year, positive economic data and bank stimulus served to reverse the early year trends until the markets were caught off guard by the results of the British referendum on membership in the European Union. The market’s response to Brexit was immediate: stock prices, bond yields, oil prices, and both the euro and the pound fell dramatically, while the gold price rose and the U.S. dollar appreciated. Some relative calm returned to the market as it became clear that it will be a long path for Great Britain to exit the European Union. The market was once again caught off guard in November, however, when Donald Trump won the U.S. presidential election. The markets embraced Trump’s promises of massive debt-financed infrastructure spending and tax cuts, believing that these campaign promises would lead the U.S. economy out of economic malaise with strong growth and higher inflation. Bond yields increased rapidly in the days following the election. Stock markets and the U.S. dollar were also strong post-election.

In the Canadian market, a continued recovery in the oil price was a main story. After the Brexit vote, oil prices came under pressure, but the Energy sector was able to hold on to a good portion of its gains. A major catalyst for gains later in the period was an agreement by OPEC to cut production. Oil prices rose after the agreement was announced on November 30th, to end the year just below $54.

For the year end 2016, the liability hedging portfolio outperformed the benchmark, the FTSE TMX Canada Bond Universe Index. Credit strategy added value as the corporate sector strongly outperformed both the provincial and federal sectors. The Fund considerably overweighed corporate during the year. In addition, corporate security selections contributed positively, as Energy and Infrastructure, where we have most of our credit exposure, were among the top performing corporate sectors during the year. Negative effects came from the Fund’s mix of provincial ownership and slightly negative contributions from duration and yield curve positioning.

BG Liability Hedging Portfolio as at December 31, 2016

Source: Beutel Goodman