MD Equity Fund


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MD Equity Fund

  1. 1. INVESTMENT + PORTFOLIO MANAGEMENT Cash & cash equivalents 3.53% MD Equity Fund Industrials 8.30% All MD fund information presented, unless otherwise indicated, represents Class A and is accurate as of September 30, 2008. Materials 9.93% Consumer discretionary 7.70% MD Equity Fund’s objective is long-term capital growth with primary consideration Fund facts given to conserving capital. Income production is a secondary consideration. Energy 22.04% Asset class: Canadian equity The fund is managed by an independent team of managers with complementary Financials Net asset value per share: 21.79% $20.60 investment strategies. This fund invests in a diversified portfolio of equities mainly of Canadian companies and also invests in foreign securities up to 30%. Fund size: $1.958 billion 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Inception date: March 1966 Who should invest in this fund? This fund is suitable as a core Canadian equity holding. The fund usually maximizes Fund investment style foreign investment exposure. This fund is not suitable as a short-term investment. Growth Blend Value Investment managers Large cap Acuity Investment Management (Toronto) Established in 1991, Acuity’s primary objective is to create long-term wealth Small cap for Canadians through a diversified, value-driven cornerstone growth strategy. To achieve the stable and consistent returns that increasingly sophisticated Canadian investors demand, Acuity focuses on companies with sustainable Compound annual rate of return proprietary advantages, strong financial positions, superior profitability and growth Since inception 10 years 5 years 3 years 1 year prospects, proven and committed management teams, and attractive valuations. 8.66% 8.63% 8.72% 0.01% -17.65% Jarislowsky Fraser Limited (Toronto) Jarislowsky Fraser (JF) was founded in 1955 and the majority of its assets through Management expense ratio (as of December 31, 2007) pension accounts. The firm employs a value/growth style with a bias towards 2.50% value. JF combines top-down economic and capital markets analysis with strong bottom-up, research-laden fundamental equity analysis. 2.00% 2.44% 1.50% Howson Tattersall Investment Counsel (Toronto) Established in 1962, and operating under the Howson Tattersall Investment 1.00% 1.41% Counsel name since 1989, the firm is widely recognized as one of Canada’s premier value-oriented investment firms. The investment process begins by analyzing 0.50% annual reports and financial statements, looking for securities trading at prices 0.00% below their intrinsic values. Once they have identified stocks meeting their strict MD Equity Fund Industry average criteria, they visit the company, speak to its management, and tour the facilities to make sure that the numbers match the reality. Only after this process is complete is a stock eligible for inclusion in a client’s portfolio. A key to value investing is Calendar year return, annual distribution & net asset value patience. It may take some time for a bargain stock to be recognized by the (as of December 31) marketplace, and to rise in price to reflect its intrinsic value. 2007 2006 2005 2004 2003 Return 0.71% 16.53% 18.30% 15.90% 24.89% Lord Abbett & Co., LLC (Jersey City) Founded in 1929, Lord Abbett is a very experienced independent investment Morningstar quartile 3 2 2 1 1 management firm currently in its fifth generation of partnership. Lord Abbett uses Net asset value $24.64 $26.33 $23.68 $20.25 $18.08 a disciplined investment process based on in-depth fundamental and proprietary Distribution $1.86 $1.24 $0.27 $0.69 $0.07 quantitative research that identifies undervalued securities while reducing downside risk. Privately owned, Lord Abbett is a research driven, value-oriented investment firm advising on more than $23 billion of U.S. large cap value assets.
  2. 2. INVESTMENT + PORTFOLIO MANAGEMENT MD Equity Fund Templeton Global Advisors (Nassau) Asset mix Franklin Templeton is recognized worldwide as one of the most successful global investment managers. Templeton follows a strict bottom-up, value-oriented Cash & equivalents 3.53% investing philosophy, leading managers to invest at the point of maximum Canadian equity 66.73% market pessimism to secure the best stock prices possible. To reduce the risk U.S. equity 15.20% of concentrating too many resources in one area, Templeton runs a widely International equity 13.37% diversified portfolio both by industry and country. Founded in 1954, the company Income trusts 1.17% is a subsidiary of the Franklin Templeton Group. 2.44% Investment managers outlook* (as of September 30) Acuity Investment Management Top 10 holdings We remain concerned about the prospects for the U.S. economy and, by extension, 1 Manulife Financial Corporation 3.70% Canada. The fall in house prices shows no signs of diminishing and, as noted, the 2 Royal Bank of Canada 3.45% Canadian housing sector is beginning to struggle, albeit to a much lesser degree. While U.S. authorities have taken substantial steps to forestall further weakness, 3 Bank of Nova Scotia 3.44% their actions have not yet been sufficient to stem the tide. Accordingly, we believe 4 Toronto-Dominion Bank, The 2.97% caution remains warranted, especially in the financials and consumer discretionary 5 EnCana Corporation 2.69% Industry average sectors exposed to the heart of the problem. However, long-term fundamentals for 6 Potash Corporation of Saskatchewan Inc. 2.65% the resource sectors still remain solid, in our view. 7 SNC-Lavalin Group Inc. 2.54% After the recent correction, a number of commodities have fallen to levels near 8 Nexen Inc. 2.40% their marginal costs of production. These industries continue to experience 9 Talisman Energy Inc. 2.19% difficulties ramping up supply in the face of inexorably rising demand from 10 Canadian Natural Resources Limited 2.07% emerging economies, notwithstanding the recent moderation in their growth rate. Furthermore, valuations for certain small-cap securities have reached what we Top 10 represent 28.10% of total equity holdings. Total holdings: 410. believe to be ridiculous levels, with some stocks trading for as little as 1x cash flow. Even many large-cap names currently have mid-single-digit multiples. As a result, Sector allocation our portion of the portfolio remains skewed toward the resource sectors at the expense of financials and consumer products. Overall, we are retaining a defensive Cash & cash equivalents 3.53% posture for the time being, with elevated cash levels as we anticipate ongoing volatility in the coming months. Nevertheless, long-term prospects for the portfolio Industrials 8.30% are increasingly enticing given current valuations. Materials 9.93% Jarislowsky Fraser Limited Consumer discretionary 7.70% Materials, energy and RIM posted the steepest declines in the index, as concerns Energy 22.04% of spreading global economic weakness grew. Our portion of the fund benefited from low exposure to these areas. Financials 21.79% The decline in real estate prices and related securities has resulted in one of the 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% most extraordinary periods for both stock and fixed income investors. Lack of confidence in asset values has created an unprecedented liquidity crisis. The fallout is spreading from Wall Street to Main Street, as banks seek to conserve capital by curtailing lending facilities. Consumers, who have been the engine of growth, will also have to deleverage. Global growth will slow in a recession that may be an extended one. Government bailouts are being orchestrated globally to restore confidence and liquidity. This will mean greater regulation and transparency. It will also mean slower earnings growth and lower valuation multiples. The rotation away from risk should gain momentum as investors refocus on dividends over capital appreciation. Our portion of the fund is well positioned for this, given its low risk profile. *Representing their portion of the fund. 2.50% 2.00% 2.44%
  3. 3. INVESTMENT + PORTFOLIO MANAGEMENT MD Equity Fund Investors have lived through market disruptions in the past and have learned that Large-cap value portion of fund: staying the course is the best strategy. Short-term timing only results in missing We anticipate economic growth will begin to stabilize in the coming months. the largest gains that can occur in a matter of days after a correction. Meanwhile, The housing situation is still a drag on the economy, but we perceive that the rate our portion of the fund continues to be managed with a focus on preservation of decline in housing prices has slowed, and anticipate that prices should bottom of capital, a philosophy which has helped cushion portfolios during past market out as we move into the first half of next year. That should help restore consumer corrections. confidence and bring more home buyers into the market. As liquidity improves, mortgages should be available for creditworthy borrowers. Howson Tattersall Investment Counsel The third quarter of 2008 was certainly a period of continued volatility in the Equity markets are down more than 20% from the highs reached in the fall markets. The ongoing credit crisis in the U.S. resulted in a series of unanticipated of 2007, making this an official bear market. We are hopeful that the worst of events, including the government takeover of Freddie Mac and Fannie Mae, the the stock market decline may be behind us. We are finally seeing some relief in demise of Lehman Brothers, and the establishment of the largest government the energy picture, where speculative leveraged bets and inflation-hedging drove bailout package in the history of the capital markets. In this environment, crude oil prices higher, and for a longer period than we would have expected. uncertainty has ruled the day, resulting in considerable pressure being placed And we are seeing early signs of a break for consumers as commodity costs come on stocks. Small caps faired worse than their large-cap counterparts, as down in conjunction with the U.S. dollar stabilizing. All cycles are different, and investors sought out larger, more liquid equities. Energy, in particular, the some downturns are longer than others, but we believe the combination of one positive performing sector up until about mid-year, has come under attractive valuations and the prospect for improving fundamentals as we move considerable pressure as a result of the decline in oil and natural gas prices. through 2009 has created an opportunity for long-term investors. Through these uncertain times, we remained committed to our core investment philosophy. As such, we believe our portion of the fund is positioned well to Templeton Global Advisors ride out the current storm. While the market in general currently remains under Equity markets reacted to three interrelated trends during the quarter: the pressure, the small-cap valuation discount relative to that of large-cap has weakening global economy, the increasing credit market complications, and the now widened to a point not seen since the days of the internet craze, a period volatility in commodities markets. Ironically, as the world’s largest economy and subsequent to which small caps outperformed quite dramatically. We plan progenitor of the credit crisis, the U.S. market outperformed virtually all others to be making selective purchases in order to take advantage of this growing during the quarter. It appears that much of the economic and credit market discrepancy. While history may not be an exact predictor of the future, upheaval affecting the U.S. for the last 18 months is now taking its toll on foreign we are seeing an interesting parallel that could point to future small-cap markets, as evidenced by failing banks and faltering economies abroad—proof outperformance once this discount begins to shrink. that globalization is not just a bull market phenomenon. The silver lining of the slowdown is that it has cooled some of the inflationary pressures that threatened Lord Abbett & Co., LLC to destabilize emerging markets, which have become increasingly important Multi-cap value portion of fund: drivers of global economic growth. As such, we remain confident in many of the We believe that the liquidity strains in the financial sector are beginning to large, global franchises with strong balance sheets and historically low valuations spill over into the real economy, negatively affecting the industrial cyclicals that we have long touted as “bargains.” and producer-durable areas of the market in the short term. Valuations in the health care sector have become quite attractive, and revenue and earnings Restoration of systemic confidence is critical to the resolution of this crisis and a growth profiles look favourable relative to an overall slowing economy. return to growth. We are convinced that coordinated efforts of central bankers Financial services remain our portion of the portfolio’s largest underweight, around the world will ultimately restore confidence, and therefore access to as housing and credit-related troubles continue to dampen the market. capital. The question is how long it will take. In the interim, we are continually We believe the prospects of a continued slowing economy, led by the difficult stress-testing companies to ensure that both their capital structures and their housing/construction market and a heightened liquidity squeeze, may business models can withstand what may be an extended period of weakness overshadow the U.S. Federal Reserve’s and government’s attempts to provide and rebuilding. Our positions in these compelling companies are increased monetary and fiscal stimulus. As such, we believe that stocks will remain opportunistically. This philosophy and process has endured and delivered very bounded on the upside until we see stabilization in investor psychology and strong returns for more than fifty years, and we remain convinced that it will in the overall economic environment. continue to do so.
  4. 4. INVESTMENT + PORTFOLIO MANAGEMENT MD Equity Fund Contact MD Financial today. y 1 877 877-3706 MD Financial includes CMA Holdings Incorporated companies offering financial planning and a banking referral service through MD Management Limited, mutual funds by MD Funds Management Inc. and MD Private Trust Company, investment counselling services by MD Private Investment Management Inc., estate and trust services by MD Private Trust Company, and insurance products by MD Life Insurance Company and MD Insurance Agency Limited. Fund performance data: Performance data represents past performance and is not necessarily indicative of future performance. Unit values, yields and investment returns will fluctuate. Important information about our mutual funds is contained in the simplified prospectus which can be obtained by calling 1 800 267-2332. Please read it carefully before investing. Rate of return: The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the mutual fund or returns on invest- ment in the mutual fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. The indicated rates of return are the historical annual compounded total returns including changes in share or unit value and reinvestment of all dividends and distributions, and do not take into account sales, redemption, distribution or optional charges, or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. Quartile rankings: Quartile rankings are a measurement of how a mutual fund performs when compared to other funds within the same competitive universe. The Investment Funds Standards Committee defines peer groups. Morningstar produces the rankings (1st quartile best—4th quartile lowest) and can be contacted at 1 800 531-4725. FUND-08-00209_E Note: Prior to October 1, 1994, the Fund was only responsible for payment of the management fee, brokerage fees and taxes. Effective October 1, 1994, the Fund assumed responsibility for the payment of all expenses related to the preparation and distribution of public disclosure documents, custodial fees, audit fees and meetings of security holders. Effective June 1, 1996, the annual management fee for MD Equity increased by 0.25%. Had this change been in effect throughout the above measurement period, fund performance would have decreased.