This is my 6th annual year end investment review for Trusts.
As I have indicated in the past, Trustees are accountable for a prudent investment policy. This includes a review of the performance of the investments in the Trust. For Trusts that hold a portfolio of marketable securities, a fundamental element of the review includes a comparison of the performance of the investments in the Trust against relevant benchmarks. For the past several years I have typically suggested the following for benchmarking purposes;
1 Year % return as at
December 31, 2015
5 Year % return as at
December 31, 2015
|DEX Universe Total Return Bond Index (in $Cdn)||3.52||4.80|
|S&P/TSX Composite (expressed in $Cdn)||-8.32||2.30|
|MSCI World Index (expressed in USD)||-0.32||8.19|
|S&P 500 (expressed in USD)||1.38||12.57|
The specific portfolio objective would dictate the relative weightings of these benchmarks. A ‘growth’ portfolio might have a large percentage in equities, including U.S. and international stocks. Whereas ‘conservative balanced’ portfolio, might have less equities and more bonds.
Over the shorter term, for example, the 1 year period ended December 31,2015, as per the above chart, 2015 was not a good year for investors. The one saving grace for a diversified portfolio would have been investments outside of Canada, where the falling $Canadian dollar boosted the relative performance in those areas.
In my experience most trusts have long term investment horizons and as such investment performance should not be judged solely by short term investment performance. The chart also illustrates a much different picture over the 5 year period.
The benchmark performance review however, is not the only consideration when reviewing the performance of the Investment Advisor for Trust. The Trustee(s) should seek confirmation from the investment advisor that the portfolio has been compliant with the investment policy statement over the past period(s). In addition, the Trustee needs to be satisfied with the degree of risk, diversification, volatility and liquidity. Most importantly, a Trustee needs to be assured that the Advisor providing the advice and direction that was originally agreed upon with the Advisor.
Let’s hope for less volatility and reasonable returns for 2016.