Monthly Perspectives // August 2020

15 minutes

Brad Simpson, Chief Wealth Strategist

Anti-Grav Technology

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Anti-Grav TechnologyBrad Simpson, Chief Wealth Strategist and Head of PAIR

Figure 1: Tech has been on a rollFive-year performance of the Nasdaq vs. S&P 500

Source: Bloomberg as of August 14, 2020

For anyone who's been watching the performance of tech stocks lately, it's been quite the magic trick — a little bit like anti-gravity performance art. After all, when markets hit their peak in mid-February, the tech giants were high-flying and highly valued. So when the pandemic crash happened and market sentiment fell off a cliff, everyone expected the worst for the sector. Investors were supposed to flee hyped-up technology in favour of defensive stalwarts like consumer staples and utilities. The bubble, in other words, was set to burst.

But that just didn't happen. As the bottom fell out of the market, tech stocks continued to outperform and even took on a defensiveness we've never seen before. The performance of tech left a lot of investors scratching their heads, which is why we brought in Vitali Mossounov, Global Technology Analyst at TD Asset Management. Earlier this month, Mossounov took our advisors through a presentation that not only pulled back the curtain on tech's magic trick, but also argued in favour of continued outperformance.

Senior Equity Investment Analyst Mansi Desai, who is part of the Managed Investments Team at TD Wealth, sat down to talk to Mossounov. In the Q&A that follows, he makes a case that is both compelling and counterintuitive.

Desai: Vitali, thanks for taking the time to talk to us about this.

Mossounov: Not at all. Thanks for having me.

Desai: A couple of weeks ago, you were on a conference call with hundreds of advisors where you laid out a compelling case for the tech sector, despite the massive run-up in prices we've seen this year. I think a lot of people would be surprised by that position, given the fact that the S&P 500 tech sector has already risen 24% for the year. Can you run us through the broad strokes of your presentation?

Mossounov: Certainly. I think the first thing to understand about tech is that it's very different from other sectors. It's not constrained in the same way as other sectors and it doesn't behave in the same way. Twenty-five years ago, a portfolio manager could have completely ignored technology. Today, not only do you have to pay attention to technology, it really has to be your primary area of focus.

Even when you look at broad indices, tech has outperformed. Over the past five years, the Nasdaq Composite has doubled, while the S&P 500 has gone up around 50% (Figure 1). These are two well diversified indices, and yet the difference between them is staggering.

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You also have to look at the sheer size of the sector. We talk about Apple being the largest company in the world, but we rarely take a snapshot of the top 10 in the market and realize, holy smokes, this is all tech. Nine of the 10 largest companies in the world are technology companies (Figure 2). In fact, just recently, another big tech player pushed out one of the consumer products mainstays when TSMC, a Taiwanese microchip manufacturer, exceeded the market capitalization of Johnson & Johnson.

Desai: Okay, but with all due respect, you're looking back 25 years, well before the 2001 tech bubble. We all remember what happened to AOL, or in Canada to Nortel Networks. Couldn't the concentration of tech companies in the top 10 most valuable companies be a sign that we're already in a bubble?

Mossounov: First, any single company can blow up for idiosyncratic reasons and no one business is immune from that. That's why nobody owns only one public security. Regarding a bubble scenario, we'll remind readers that bubbles form due to euphoric and unrealistic investor expectations and manifest themselves in absurd valuations that eventually "burst". One way we can examine if we're in a bubble is to compare the current state of valuations to the last big bubble in March 2000. Back then, tech valuations peaked at 57x forward earnings or double today's levels. That's a strong data point in favor of the "no bubble" conclusion. Furthermore, since investing is a capital allocation exercise, an equally important exercise is to examine available returns in other asset classes. And in March 2000, you could get a 10 Year U.S. Government Bond that paid you 6.5%. Today, it is only 0.5%.

And then there is the fundamentals. First, the financial structures of the business models—low capital intensity and high margin—mean high earnings and return on capital. Second, the operating fundamentals and outlook is exceptional. I would say all nine companies on our top 10 list have fundamentals, market position, and outlooks that are remarkably strong.

Look at Apple. Here you have a company that, in the worst economic quarter since the Great Depression—with already over a billion iPhone users—actually managed to grow its iPhone revenue. It's difficult to generalize here, but I think it's fair to say, given the value proposition that these tech giants have for society, given the strength of their product portfolio and given their fundamentals, the potential growth for the future is remarkable. Asset-light balance sheets, coupled with the effect of having large networks and meaningful market share, has made the tech giants far more competitive. The tech giants have been immensely profitable over the past five years (Figure 3).

Desai: How much of the recent run-up in tech do you attribute to their defensiveness, given the need for remote working solutions and the reticence of consumers to engage in bricks and mortar retail?

Mossounov: Certainly, in the current crisis, yes, the tech giants have been recast into defensive roles, but I think that's a bit of a simplistic rationale. Remember that the crash in late February happened really quickly. At the time, a lot of people considered tech to be overvalued, driven by market euphoria, so any kind of uncertainty or any kind of reset to sentiment was supposed to

Figure 2: Dominating the marketTop 10 public companies by market cap (1993 vs. 2020)

Source: TD Asset Management. As of August 10, 2020

CompanyMarket CapUS$ Billions

(December 1993)Sector Company

Market Cap US$ Billions

(August 2020)Sector

NTT 104 Telecom Apple 1620 Technology

General Electric 89 Industrials Microsoft 1600 Technology

Exxon Mobil 78 Energy Amazon 1520 Technology

AT&T 71 Telecom Alphabet 1020 Technology

MUFG Bank 68 Financials Facebook 765 Technology

Toyota 60 Industrials Alibaba 645 Technology

Industrial Bank of Japan 60 Financials Tencent 636 Technology

Coco-Cola 58 Consumer Berkshire 509 Diversified

Walmart 57 Consumer Visa 385 Technology

Royal Dutch Shell 56 Energy TSMC 385 Technology

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S&P 500 TD Global Technology Leaders ETF

beat up the tech sector. Remember, this is before anybody sat around saying this is the new normal and that tech companies were going to be beneficiaries of all this remote working and e-commerce. It's before all that. It's in a period of sheer panic— and even in a period of sheer panic, tech kept pace with themarket or even outperformed, and that surprised a lot of people.

If you look at our own proxy for the tech sector, the TD Global Technology Leaders Index ETF — which is a fund we launched in May 2019 that tracks tech leaders in developed markets — it has outperformed the broader markets significantly this year (Figure 4).

So the question is, why? Well, one thing that is important to remember is that, in the kind of credit crunch that we saw, everybody quickly took out their pencils and started looking at who had leverage problems.

Remember, the credit markets were closing up on everyone, so you look at which companies are at risk of defaulting on their covenants. And tech is an unlevered sector — it's actually in a net cash position. So in that kind of global crisis, it turns out that, while these companies were more expensive than the market, they were also certainly going to survive the credit crunch, since they didn't have any debt problems to speak of.

Figure 4: Shrugging off COVIDYTD returns of TD Global Technology Leaders ETF vs S&P 500

Source: Bloomberg as of August 14, 2020

Revenue Growth (5yr CAGR)

EPS Growth (5yr CAGR)

ROE (5yr Average)

ROA (5yr Average)

Apple 13.4% 16.4% 43.15% 16.50%

Microsoft 9.2% 16.6% 27.68% 10.86%

Amazon 24.2% 70.3% 13.37% 3.22%

Alphabet 19.1% 17.6% 14.91% 11.79%

Facebook 39.1% 59.5% 18.65% 16.29%

Alibaba 43.5% 52.4% 26.04% 13.35%

Tencent 33.6% 27.8% 29.38% 13.22%

Visa 17.9% 21.2% 28.78% 13.81%

TSMC 6.6% 4.8% 24.50% 18.03%

Average of Top 10 Tech Giants 23.0% 31.8% 25.2% 13.0%

MSCI ACWI 1.4% 2.9% 11.65% 1.89%

S&P 500 4.1% 6.1% 13.90% 2.90%

Figure 3: Fundamentals of global tech giants

Source: Bloomberg as of December 31, 2019

Tech sector +30%

S&P 500 +4%

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Every crisis shakes our complacency and forces us to reevaluate the world around us. This crisis made investors discover the defensive nature of tech businesses they never thought possible.

Desai: You say that the tech giants are no longer as vulnerable to pure sentiment. Do you think the perception of big tech has changed? Maybe the businesses they're engaged in are now viewed as established industries?

Mossounov: I think you've hit on an important question: how do we determine the scope of the technology industry? How do we define it? It's a bit of a quagmire, right, because it's not neatly boxed in like, say, the consumer staples industry. Twenty or 25 years ago, you had 10 or 11 GICS sectors, and they were fairly discrete. If you were running a grocery store, you didn't really have to worry about the technology sector so much. But today, technology doesn't really have distinct boundaries. When you think about what Google does, what Facebook does, they're advertising companies. Apple sells high-end consumer devices. Tesla is a car company. The reason people are so excited and optimistic about the tech industry is because these companies are aggressively going after every market. Their imperial ambitions know no bounds. If you try to do a total market analysis—like, how big is the tech market in the world —well, they're really going after the entire economy. They're unconstrained now. The fact of the matter is, the Amazons of the world, they will go after a profit pool in any sector.

Desai: Do you think this economic crisis is actually an opportunity for them?

Mossounov: Absolutely. These large tech companies—the Amazons, Facebooks, Googles—I think they view this as an opportunity to expand into other business lines. You've got all these companies bleeding, cutting head count, furloughing employees. They're struggling, and I think who's not struggling are the big tech companies. You've got Apple recently buying a company that will allow them to accept digital payments on the iPhone without a third-party dongle. Amazon announced they were bartering with Simon Property Group to take over the real estate footprint of failed J.C. Penneys and Victoria's Secrets in malls. That's what is expected to drive attractive earnings in three, four, five, 10 years from now.

From a strategy perspective, they know that their competitors are weak, that many other industries are weak, and I think what you're seeing behind the scenes is accelerating investment into other profit pools, and the result of that will come to fruition again in five or 10 years from now. They're laying the groundwork for becoming much stronger right now.

Desai: Okay, granted, but if you step back objectively and look at their price-to-earnings ratios, tech is currently trading at 27 times future earnings. That's expensive by any standard, isn't it?

Figure 5: Strong balance sheets provided support for tech as COVID-19 outbreak hit in February 2020

Source: Bloomberg as of Aug 17, 2020*Net Debt is total debt minus cash & investments, negative net debt reflects ability of the business to generate high internal accruals from the business. Negative debt reflects a net positive cash position.

Tech segments vs. S&P 500 Net Debt*/EBITDA Debt/Equity FCF Margin

Software -0.35 0.77 29.7%

Tech Hardware, Storage & Peripherals -0.76 1.27 18.3%

IT Services 1.88 0.87 20.5%

Interactive Media & Services -1.91 0.10 22.4%

E-Commerce 0.51 1.33 11.2%

Semiconductor & Semiconductor Equipment 0.59 0.60 25.7%

S&P 500 1.78 1.15 10.6%

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Mossounov: It's undeniable that prices have done really well, and so, in the context of the past 26, 27 years, we are at the one standard deviation mark above the average (Figure 6), so at 27 times forward earnings, tech is getting expensive. I mean that's a fact. It's worth noting. But price is just one of the variables to consider when we try to determine where investors are going to park their money. The fact is, while the P/E ratio of tech has gone up significantly, the ratio of the market as a whole has gone up much more. So there aren't really many good options if you're a value investor looking for low P/E. What I'm saying is, technology has gotten more expensive, but relative to the market it's actually gotten cheaper, despite the outperformance (Figure 7).

Desai: Tech has outperformed the market and yet it's cheaper now than it was before. That's highly counterintuitive.

Mossounov: It is counterintuitive, I realize that. You have this outperformance, and the P/E ratio goes up, and yet I'm saying the stocks are getting cheaper relative to the rest of the market. How can that be? Well, if you look at earnings — the "E" in the equation — tech stocks have been resilient, whereas the rest of the market has utterly collapsed, many falling into negative territory.

Figure 6: But tech is getting expensiveForward P/E ratio of S&P 500 technology sector (1994 to 2020)

Source: Bloomberg as of August 14, 2020

Figure 7: … sort ofForward P/E ratio of S&P 500 tech sector relative to S&P 500 (1994 to 2020), with +1/-1 standard deviations indicated

Source: Bloomberg as of August 14, 2020

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Figure 8: Why? Expectations have been highEPS estimate revisions since market peak (February 19)

Source: TD Asset Management, Bloomberg, as of August 25, 2020

Figure 9: But tech has delivered so far Year-over-year growth (Q2/20)

Source: TD Asset Management, Bloomberg, as of August 26, 2020

Sector 2020 2021

Utilities -3.1% -2.6%

Health Care -5.7% -2.9%

Consumer Staples -5.7% -5.0%

Technology -6.6% -6.0%

Real Estate -11.9% -11.2%

Telecommunications -20.4% -13.9%

Materials -23.4% -14.6%

Financials -37.0% -24.0%

Consumer Discretionary -50.9% -23.1%

Industrials -54.8% -26.5%

Energy -102.3% -63.8%

Sector Revenue Earnings

Utilities -5.5% 9.2%

Health Care 2.4% 7.4%

Technology 3.9% 0.5%

Consumer Staples -1.4% 8.1%

Real Estate -6.5% -9.2%

Telecommunications -5.2% -13.2%

Materials -15.5% -29.5%

S&P 500 -10.6% -33.4%

Financials -2.7% -52.3%

Consumer Discretionary -16.2% -77.6%

Industrials -23.2% -82.8%

Energy -54.2% -168.2%

So, tech companies may have outperformed, but they've also kept their fundamentals intact, whereas the vast majority of the market has been severely damaged. Think about it: we've just gone through a massive crisis, and tech earnings revisions are down 6%, while industrials are down 50% (Figure 8). That's something to think about.

Desai: So you're saying that money may still flow into tech over the short term because earnings have evaporated just about everywhere else?

Mossounov: For the short term, yes, but we have to keep in mind that, for the medium term, the inverse is also true. Once the recovery is well and fully underway in other industries — industrials, discretionary, whatever it may be — the flow of investment into those beaten-down stocks is going to be swift and powerful. Earnings for industrials will eventually record. So, while these tech companies are in good shape for the short and long term, if we suddenly find ourselves in a world where things are returning to normal after the pandemic, then there's really no way that tech can outperform in those conditions.

Desai: It will be like the tides rolling back, with a lot of cheap stocks in other sectors.

Mossounov: And that's where the money will go.

Desai: But tech is expensive relative to historical P/E multiples. Is it fair to assume investors should have relatively muted returns?

Mossounov: All else equal, absolutely. The more expensive an asset generally, the less upside you can expect. That's common sense. But given tech's unique experience, we should also point out that being richly valued might actually drive returns.

Desai: Again, that's highly counterintuitive. You're saying that tech actually tends to perform better when it's more expensive.

Mossounov: Right, but not when it's at its most expensive. If you look at the periods where tech was at its most expensive, it usually precedes a crash. That's when you're in kind of bubble territory, 1999 and early 2000, and following the popping of the bubble you can expect poor returns and underperformance.

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That's all pretty straightforward. What's interesting, though, is the period that comes before tech valuations reach their peak. If we consider the period from early 1998 to March 2000 when valuations reached their peak, S&P tech index recorded a massive return of over 230%. Having said that, it is always difficult to predict the peak of valuations. This show could go on given the strong momentum, low interest rates and stronger fundamentals for tech this time around. But the fact of the matter is, people get behind a stock, and before bubbles burst, they inflate, and that may be what we're witnessing right now. I'm not saying we're close to a bubble now, but are we on our way to one? That certainly is a possibility.

Desai: I suppose it's not surprising given all the stimulus we've seen. That's what stimulus does, right? Inflate prices.

Mossounov: That's right. So you can see some difficult calculus for analysts and portfolio managers, because you want to be cautious, but you need to participate in the market, so we're in this precarious spot, and there are these types of factors to consider.

Desai: So, to summarize, tech stocks may have a pretty big wave of momentum ahead of them. Although things are at reasonable levels right now, given the pace of stock price growth, investors need to be discerning and resist getting complacent.

Mossounov: Absolutely, and if opportunities present themselves and these great tech businesses see material declines in value, they also need to act because the long-term prospects are great.

Desai: What about the nature of businesses in the sector? A lot has been written about remote working and e-commerce and new ways of socializing over tech platforms. Can you give us some colour on that?

Mossounov: Well, aside from the fact that these companies are unlevered and stable, we have this notion that they're actually defensive given the nature of their businesses. And we can break that down into two types of customer identities: the employee side and the consumer side of our lives. On the consumer side, of course, e-commerce is a good example, and we can just look at the stellar performance of companies like Shopify, which saw its merchants volume on the platform accelerate from 47% growth to 119% growth during a time when everybody was on lockdown and doing e-commerce. And then on the employee side, we can see the rapid adoption of these productivity tools, like Zoom and Microsoft Teams. It's kind of a theme that has been extensively covered.

Desai: Bottom line. Pandemics are good for tech companies.

Mossounov: Yeah, people begin to realize that if we exit the physical world and reimagine ourselves in a digital world, technology companies certainly stand to benefit. The big question becomes, what's on the other end of this for these companies?

Desai: You mean whether things are going to go back to normal, or whether this is a new normal?

Mossounov: Right. Personally, I think the answer is somewhere in between. On the one hand, I don't think our programming as humans can permanently change over the course of six or 12 months or whatever it is. It takes thousands of years. On the other hand, there are numerous factors driving us to change our behaviours. We have been seeing over these past six months hundreds of billions of dollars of investment that are pushing us away from cash or toward curbside pickup. These companies are spending money in order to get us to adopt e-commerce, and so our behaviours on the margin will change a decent amount, and the ecosystem for living in that digital world will have advanced.

Desai: We're even starting to hear about the decision by some tech companies to never return to their offices, given the cost savings associated with remote working. If people want to subsidize their companies by setting up a home office, just let them, right?

Mossounov: Yes, we are seeing that, and I think it was Shopify that announced it was reducing its physial footprints, so there are companies actually closing their offices for good.

Desai: What about regulation? There's a perception out there that these companies are getting too big and too powerful, and so you're seeing governments around the world starting to impose greater burdens, and there's even the threat that they could be broken up. Do you think the new regulatory burdens are going to dampen their growth prospects?

Mossounov: These big tech giants like Facebook and Google are about 20 to 25 years old, so I kind of think of it as late puberty for them. And what we're seeing today, with executives from these companies sitting in front of Congress — with stern faces and coached answers — it's like a teenager sitting in front of principal. It's part of the maturation process for these companies. We're seeing the social contract being redefined, rewritten between society, government and these corporations. This new social contract will bring changes, but I would say the impact on revenue will be minor. I see it as more of a nuisance than a real threat. These companies are powerful drivers of economic growth in the U.S.

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Desai: And I suppose that, even if certain monopolies are broken up, that's not bad news for the tech sector or American industry as a whole, right?

Mossounov: Very true. If you force, let's say, a Google spinoff of YouTube, what do you have? Two companies with billion-plus user bases with the world's best engineers and still tens of billions of dollars in revenue. I'm a believer that, in that worst-case scenario, if push comes to shove, the near-term headwinds will be strong for share prices, but in the long term, those companies will be more valuable and Congress will have done those investors a favour, because they're currently probably trading at somewhat of a conglomerate discount.

Desai: But you don't think the worst-case scenario of a breakup is very likely.

Mossounov: No, I don't, and that's because these companies, besides being powerful drivers of economic growth, are also powerful mechanisms for spreading America's influence around the world. Each of these companies has a dominant presence in just about every major market outside China. That lever for spreading influence is important for a country that actively promotes its cultural and economic principles like the U.S. has for the past century. In the world we live in, with an emerging power like China — which is quite aggressively trying to spread its own influence and has a couple of its own big tech champions — I doubt that the U.S. will be inclined to break up these companies or to do something that really impairs them. At the end of the day, the tech companies are really some of your best soldiers in the global war for cultural influence.

Desai: That's fascinating. During the Cold War in the '70s and '80s, it was Coca-Cola and blue jeans, but the influence of Silicon Valley must dwarf anything like that.

Mossounov: Exactly. I remember that vividly because my parents are actually from the Soviet Union. For people like them, there were all kinds of reasons to oppose communism, but the real thing that leads to dissent and support for another system is these strong cultural markers. People think, Coca-Cola, Pepsi, Levis, we don't have that. And so, you're right, the battle was really won by the spread of influence carried out by these great American brands.

Desai: But isn't China also competing in that respect? The most obvious example is what we're seeing right now with TikTok, but there's Alibaba and WeChat. These are huge platforms that are poised to spread around the world, aren't they?

Mossounov: As you leave China, I would guess the population of many major countries looks in great skepticism at these Chinese platforms. Despite the current turmoil in the U.S.

socially and politically, it's still well understood that the U.S. is built on the principles of liberalism. There are always going to be issues, of course, and the U.S. is far from perfect, but it does have the advantage of looking like a cooperative international partner next to China.

Desai: I guess if you're going to give up your personal information, better to do so in a country with strong privacy laws.

Mossounov: That's right.

Desai: Well, I have to say, this has all been incredibly enlightening, Vitali. Thank you so much for sharing your perspective on the sector.

Mossounov: My pleasure. ¨

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(%) (%) (%) (%) (%) (%) (%) (%)

Canadian Indices ($CA) Return Index 1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years 20 Years

S&P/TSX Composite (TR) 58,451 4.48 10.31 -3.32 1.86 5.46 5.44 6.40 4.92

S&P/TSX Composite (PR) 16,169 4.22 9.39 -5.24 -1.45 2.21 2.25 3.28 2.23

S&P/TSX 60 (TR) 2,841 4.00 9.61 -2.52 2.32 6.20 5.85 6.71 4.78

S&P/TSX SmallCap (TR) 903 7.36 18.86 -7.97 -6.39 -2.22 2.62 1.83 0.03

U.S. Indices ($US) Return

S&P 500 (TR) 6,710 5.64 12.87 2.38 11.96 12.01 11.49 13.84 6.29

S&P 500 (PR) 3,271 5.51 12.32 1.25 9.76 9.81 9.23 11.50 4.22

Dow Jones Industrial (PR) 26,428 2.38 8.55 -7.39 -1.62 6.48 8.36 9.71 4.71

NASDAQ Composite (PR) 10,745 6.82 20.88 19.76 31.43 19.18 15.94 16.90 5.38

Russell 2000 (TR) 7,546 2.77 13.32 -10.57 -4.59 2.69 5.10 10.07 7.01

U.S. Indices ($CA) Return

S&P 500 (TR) 8,994 3.91 8.77 5.66 14.15 14.70 12.09 16.89 5.74

S&P 500 (PR) 4,385 3.78 8.24 4.49 11.90 12.45 9.82 14.49 3.68

Dow Jones Industrial (PR) 35,427 0.71 4.61 -4.43 0.30 9.03 8.95 12.65 4.17

NASDAQ Composite (PR) 14,404 5.08 16.48 23.59 34.01 22.04 16.57 20.03 4.83

Russell 2000 (TR) 10,115 1.09 9.21 -7.70 -2.72 5.15 5.67 13.02 6.45

MSCI Indices ($US) Total Return

World 9,886 4.82 12.91 -0.93 7.82 8.12 8.13 10.22 5.27

EAFE (Europe, Australasia, Far East) 7,869 2.35 10.55 -8.97 -1.24 1.12 2.60 5.51 3.71

EM (Emerging Markets) 2,532 9.03 18.02 -1.52 6.92 3.22 6.54 3.69 7.68

MSCI Indices ($CA) Total Return

World 13,253 3.10 8.80 2.25 9.93 10.71 8.71 13.18 4.72

EAFE (Europe, Australasia, Far East) 10,548 0.68 6.54 -6.06 0.69 3.55 3.15 8.33 3.17

EM (Emerging Markets) 3,394 7.24 13.73 1.64 9.01 5.70 7.12 6.47 7.12

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Market Performance

Benchmark Bond Yields 3 Months 5 Yrs 10 Yrs 30 Yrs

Government of Canada Yields 0.17 0.32 0.47 0.93

U.S. Treasury Yields 0.10 0.21 0.53 1.20

Canadian Bond Indices ($CA) Total Return Index 1 Mo (%) 3 Mo (%) YTD (%) 1 Yr (%) 3 Yrs (%) 5 Yrs (%) 10 Yrs (%)

FTSE TMX Canada Universe Bond Index 1,224 1.27 3.30 8.89 9.06 6.41 4.16 4.76

FTSE TMX Canadian Short Term Bond Index (1-5 Years) 765 0.48 1.29 4.53 4.98 3.26 2.14 2.58

FTSE TMX Canadian Mid Term Bond Index (5-10) 1,320 1.03 2.47 9.37 9.06 6.04 3.91 5.03

FTSE TMX Long Term Bond Index (10+ Years) 2,195 2.36 6.28 13.98 14.13 10.77 6.89 7.75

Currency

Canadian Dollar ($US/$CA) 74.60 1.66 3.77 -3.10 -1.92 -2.34 -0.54 -2.61 0.52

Regional Indices (Native Currency, PR)

London FTSE 100 (UK) 5,898 -4.41 -0.06 -21.81 -22.26 -7.17 -2.51 1.15 -0.38

Hang Seng (Hong Kong) 24,595 0.69 -0.20 -12.75 -11.46 -3.45 -0.03 1.58 1.91

Nikkei 225 (Japan) 21,710 -2.59 7.51 -8.23 0.88 2.90 1.07 8.57 1.62

HFRI Indices ($US) Total Return (as of April 30, 2020)

HFRI Fund Weighted Composite Index 14,689 2.84 7.39 -0.71 1.83 2.72 3.01 3.84

HFRI Fund of Funds Composite Index 6,431 2.39 6.85 0.78 2.62 2.72 1.94 2.96

HFRI Event-Driven (Total) Index 16,206 1.74 7.68 -4.54 -2.93 1.00 2.59 3.98

HFRI Equity Hedge Index 22,436 3.40 9.36 -0.07 3.81 3.62 4.00 4.65

HFRI Equity Market Neutral Index 5,535 0.34 0.69 -1.77 -1.35 0.96 1.68 2.35

HFRI Macro (Total) Index 15,631 2.85 2.87 2.25 2.48 2.24 1.16 1.60

HFRI Relative Value (Total) Index 12,325 1.91 6.06 -2.81 -1.33 1.86 2.77 4.34

HFRI Indices ($CA) Total Return (as of March 31, 2020)

HFRI Fund Weighted Composite Index 19,705 1.32 3.43 2.64 3.89 5.20 3.59 6.64

HFRI Fund of Funds Composite Index 8,627 0.88 2.90 4.17 4.69 5.20 2.52 5.73

HFRI Event-Driven (Total) Index 21,740 0.24 3.71 -1.32 -0.97 3.44 3.17 6.78

HFRI Equity Hedge Index 30,098 1.87 5.33 3.30 5.92 6.12 4.59 7.47

HFRI Equity Market Neutral Index 7,425 -1.14 -3.02 1.54 0.65 3.40 2.26 5.11

HFRI Macro (Total) Index 20,969 1.33 -0.93 5.69 4.56 4.71 1.73 4.34

HFRI Relative Value (Total) Index 16,534 0.40 2.15 0.47 0.66 4.32 3.35 7.15

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