Canadian Equities

HOOPP’s Canadian equities exposure generated a return of 11.06 per cent in 2007. That compares with a return of 19.82 in 2006 and falls shy of the portfolio benchmark – the S&P/TSX60 Total Return Index – by 8 basis points.

Markets got off to a strong start in the first half of 2007, with the S&P/TSX60 reaching an all-time high. However, fall-out from a troubled U.S. sub-prime mortgage market, as well as a faltering U.S. economy, triggered a correction that started in July and spilled over into August. Markets managed to rally in the third quarter only to fall again and finish the year on a volatile note.

Stock selection – particularly in the financial, technology and consumer sectors – detracted from portfolio returns, while derivative strategies added to returns.   

U.S. Equities

Following nearly five strong years, U.S. markets stumbled in 2007. A sell-off in July and August wiped out gains made during the first half of the year. Markets rebounded in the third quarter, but then faltered again in the fourth quarter.

Favourable stock selection and successful derivative strategies both added value to HOOPP’s portfolio. However, a strong Canadian dollar (relative to the U.S. dollar) pushed returns into negative territory. Before currency conversion, the portfolio had a return of 7.00 per cent, beating the benchmark by 1.51 per cent. However, the currency adjusted return (after converting gains back into Canadian dollars) was -8.06 per cent. (In terms of total Fund returns, the impact of this currency adjustment was muted by active overlay strategies that saw 50 per cent of the portfolio’s currency exposure hedged back into Canadian dollars.)

During 2007, HOOPP brought the remainder of its externally-managed U.S. equities in-house. The portfolio’s mid-capitalization stocks, which accounted for about one per cent of HOOPP’s total assets, were managed by two external managers. Moving these assets in-house will help reduce investment management costs and is consistent with a policy decision to reduce the Fund’s equity exposure.

International Equities

While there continues to be strength in the underlying economies of key global markets, many markets were affected by the weakening U.S. economy. There were, however, exceptions. The Chinese market set new records, with the Shanghai index rising by 97 per cent. The Bovespa, Brazil's main stock market, climbed 40 per cent during the year.

The currency adjusted return was -3.95 per cent, or 179 basis points shy of the benchmark. (Again, the impact of this currency adjustment, in terms of total Fund returns, was offset by active overlay strategies that saw 50 per cent of the portfolio’s currency exposure hedged back into Canadian dollars.)