Investment Philosophy

Investment Philosophy

The Nunavut Trust investment portfolio reduces the overall portfolio risk by hiring a mix of external investment counselors each being given a portion of the overall portfolio to invest in their individual areas of specialization. Our investment counselors invest in fixed-income securities (bonds, short term investments and cash) as well as equity investments (Canadian stocks, foreign stocks, etc.) and alternative assets such as infrastructure and real estate funds. The fixed income investments provide a regular and predictable amount of income while the equity investments provide for future growth of our assets that would not be available in the fixed income asset class.

The trustees developed Nunavut Trust’s risk profile over the years with help from specialists from the firm Mercer Investment Consulting. To try to support higher levels of beneficiary organizations’ spending and meet the requirements to grow trust assets, the consultants recommended that the trustees adopt a more aggressive risk profile by increasing the overall level of equity held within the portfolio. The economic turmoil of recent years caused the Trust to re-evaluate its asset mix given that the markets were expected to return substantially less than we had originally predicted back in 2008. Alternative investments generate cash flow and a higher rate of return than fixed income products historically so these assets were added to the portfolio mix.

We should expect the portfolio to underperform when markets are declining and outperform when markets are rising. We recognize this will create more volatility in the short term but the mix will offer the potential for better relative returns in a market that can be expected to produce substantially lower rates of return than those seen in the past 5 years. Our investment philosophy can be stated in the following manner:

•Our goal is to produce and distribute a positive amount of income for tax purposes each year. A negative result in any single year can be tolerated (if driven by market conditions) but we would not want to see two negative years in a row.

• Variability in investment return over the long term is not of concern unless it becomes significantly greater than the variability of the underlying investment markets themselves.

• The investment objective is to try to provide for beneficiary organization spending at an annual level of 4% of the five year average market value of trust assets.

• We expect the investment counselors hired to invest Trust funds to add value relative to the performance of the markets within which they invest over the longer term.

Trust assets are diversified to reduce risk in two ways. First, assets are diversified by asset class and then assets are allocated to different investment counselors who invest using different investment styles. Specific limits are established by asset class and by manager and price changes move each of these sub-portfolio values over time. When a sub-portfolio exceeds its limit by a pre-defined amount then the portfolio is rebalanced back to its specific limit.

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