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MD&A | ||
| At a Glance | |
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| Overview | |||
| Introduction | |||
| Active Management | |||
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Asset Mix Strategy | ||
| Derivatives | |||
| Currency Hedging | |||
| Plan and Investment Expenses | |||
| Advocacy | |||
| Industry Standards | |||
| Glossary | |||
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The Fund has exposure to both equities (such as common stocks) and equity oriented holdings (such as private equity and real estate) and fixed income instruments (such as bonds, treasury bills and cash) through direct and indirect (derivative instrument) holdings. The proportion of equities, equity oriented and fixed income assets in concert with derivative exposures – referred to as the asset mix – is an important part of the Fund’s investment strategy. It allows the Fund to pursue gains in select markets while, at the same time, spreading the risk across different types of assets.
The ratio of exposure the Fund has to equities, equity oriented and fixed income assets is set out in the Fund’s asset mix policy, which HOOPP updated in 2007 to better align with HOOPP’s liability profile. Under the revised policy, the ratio was changed from 60 per cent equities and equity oriented / 40 per cent fixed income to 46 per cent equities and equity oriented / 54 per cent fixed income. This can be achieved using a combination of physical assets and/or derivatives to achieve similar exposure. This change, which significantly reduces the Fund’s overall risk exposure, is consistent with HOOPP’s approach toward liability-driven investing.The change will also help ensure that the type and liquidity of assets held align better with the Plan’s future cash flow requirements.
The transition to the new asset mix policy began in 2007 and should – depending on the availability of quality investments – be completed in 2008. Transitioning is being managed through a combination of:
- direct investment (e.g., holding actual securities)
- indirect investment (e.g., gaining exposure to certain securities through derivative strategies)
Once the transitioning is complete, HOOPP’s asset mix policy allows for a departure from the 46/54 split by plus or minus 3 per cent. This departure is permitted to:
- accommodate changes in the value of investments within a given portfolio
- take advantage of strengths or weaknesses in specific market segments
At December 31, 2007, the actual asset mix was approximately 44.7 per cent (59.4 per cent in 2006) equities and equity oriented, and 55.3 per cent (40.6 per cent in 2006) fixed income.
| Fund
Mix (economic exposure) |
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| ($millions) | 2007 | 2006 | |||||||
| Asset type | $ | |
% | |
$ | % | |||
 |
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Cash and short term securities |
$ | 2,577 |
8.6% |
$ | 833 |
3.0% |
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Canadian bonds |
13,917 |
46.7% |
10,413 |
37.6% |
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Canadian equities |
3,070 |
10.3% |
4,836 |
17.4% |
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U.S. equities |
3,063 |
10.3% |
4,003 |
14.4% |
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International equities |
2,883 |
9.7% |
4,014 |
14.5% |
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Real estate |
3,061 |
10.3% |
2,592 |
9.3% |
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Private equity & special situations |
1,222 |
4.1% |
1,041 |
3.8% |
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| Total | $ | 29,793 | 100% | $ | 27,732 | 100% | |||
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