Managed risk investing Joe Jugovic, CFA President

Managed risk investing

QV Investors

History

• Founded in 1996 on the principles of Quality & Value

• Employee-owned, independent investment counsel

• Repeatable, proven value-based processes

• All employees of QV are personally invested in the funds they manage

Equity investing

Investment philosophy

We buy a portfolio of enduring businesses run by capable, committed, and candid people. We select equities on good value, that is the price we pay for

a company’s assets and their return on equity. We hold our good business positions for an

indefinite period.

Our goal is to provide consistent growth with below average risk

Equity investing

Company analysis & security selection

Share ownership, years of leadership, succession planning, compensation, board & operational team, corporate governance.

Innovation, service, product or resource development. Competitive position. Business outlook.

Demonstrated record of growth in equity, earnings, sales and cash flow or demonstrated management of asset base.

Equity financed balance sheet versus debt. Sensible allocation of capital.

P/E’s, P/CF’s, P/B’s and NAV’s below market. Reasonable relative to ROE’s and ROIC’s above market. Assessment of downside risk.

Dividends & capital allocationDividends & capital allocation

ValuationValuation

Balance sheet strengthBalance sheet strength

Franchise & outlookFranchise & outlook

Financial recordFinancial record

ManagementManagement

Free cash flow to increase dividends. Culture of dividends. Sensible capital allocation.

Portfolio enhancementPortfolio enhancement New selections enhance portfolio characteristics, quality, diversification and growth.

Book Value per Share Return on Equity (%) Dividends / Share

Consistent long-term appreciation in firm value with a commitment to shareholders

Source: CPMS

Equity investing

Buy discipline – Canadian equity example – Canadian utilities

Source: Capital IQ

CFPS

Price

CFPS

Equity investing

Buy discipline – Canadian equity example – Canadian utilities

Dividend/share $0.90 $0.94 $0.98 $1.02 $1.06 $1.10 $1.40 $1.25 $1.33 $1.41 $1.51 $1.61

Source: Capital IQ

$4,615

$19,692

$37,949

$58,410

-$32,000

-$24,000

-$16,000

-$8,000

$0

$8,000

$16,000

$24,000

$32,000

$40,000

$48,000

$56,000

$64,000

$72,000

$80,000

$75,000

$100,000

$125,000

$150,000

$175,000

$200,000

$225,000

$250,000

$275,000

$300,000

$325,000

$350,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Cumulative Dividend Income

Share Value

Cumulative Dividends from 100K Investment

$100K + Dividends + Capital Gains = $390K

Equity investing

Buy discipline – Canadian equity example – Canadian Utilities

Consistent long-term appreciation in firm value with a commitment to shareholders

Book Value per Share Return on Equity (%) Dividends / Share

Source: CPMS

Equity investing

Buy discipline – Canadian small cap equity example

– Leon’s Furniture Ltd.

Source: CPMS

0.92 -

0.79 -

0.66 -

0.53-

0.40 -

0.27 -

0.14 -

0.01 -

24.55

21.74

18.94

16.14

13.34

10.54

7.74

4.94

EPS

Price

EPS

82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Equity investing



Dividend/share $0.10 $0.10 $0.25 $0.13 $0.19 $0.20 $0.38 $0.28 $0.38 $0.48 $0.32

Source: Capital IQ

$1,619

$9,231

$21,538

$40,000

-$32,000-$28,000-$24,000-$20,000-$16,000-$12,000-$8,000-$4,000$0$4,000$8,000$12,000$16,000$20,000$24,000$28,000$32,000$36,000$40,000$44,000$48,000

$0

$25,000

$50,000

$75,000

$100,000

$125,000

$150,000

$175,000

$200,000

$225,000

$250,000

$275,000

$300,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Cumulative Dividend Income

Share Value



Equity investing



Equity investing

Sales discipline

Failure of our buying tests or attractive alternative: • Management turnover / material change in firm

direction• Breakdown in profit/ cash flow consistency • Erosion of competitive position / negative future

outlook• Increasing financial leverage• Excessive valuation / dividend failure

Source: Capital IQ

Price to Book

Equity investing

Company analysis & security selection – Canadian equity

Sale candidate – Canadian Oil Sands Trust – P/B

Source: Capital IQ

Price to Book

Equity investing

Company analysis & security selection – Canadian equity

Sale candidate – Research In Motion P/B

Equity investing

Risk management philosophy

Risk is the permanent loss of our clients’ capital.

We manage the valuation, growth, balance sheet,

and diversification risks of the portfolio.

Our process keeps us consistent over time

Price to earnings 4-year average ROE

QV Cdn Small Cap Equities BMO Small Cap Index

Source: Capital IQ

13.3

16.9

8

15

22

29

36

11.9

5.5

0

5

10

15

20

Equity risk management

Canadian small cap equity

Debt to equity Dividend yield

QV Cdn Small Cap Equities BMO Small Cap Index

Source: Capital IQ

0.38

0.53

0.2

0.4

0.6

0.8

1.0

2.4

2.6

0.0

1.5

3.0

4.5

6.0


Canadian small cap equity


Sector allocation – all cap Cdn. EquityAs of March 31, 2012

Diversification measures

Industry

• 25% maximum

Portfolio Positioning

• 25 holdings

• 1% minimum - limit

• 6% maximum - limit


Top 10 holdings – all cap Cdn. EquityAs of March 31, 2012

3 Mos

(%) 6 Mos

(%) 1 Year

(%) 2 Year

(%) 3 Year

(%) Incept.

(%)

All Cap Cdn Equity 8.2 10.3 2.0 8.8 19.5 6.9

S&P/TSX Composite Index 4.4 8.1 -9.8 4.2 15.6 0.4

All Cap Cdn. EquityAnnualized returns as at March 31, 2012

All Cap Cdn. Equity

Performance review

Annualized returns as at March 31, 2012


Sector allocation – CI Can Am FundAs of March 31, 2012

Diversification measures

Industry

• 25% maximum

Portfolio Positioning

• 29 holdings

• 1% minimum - limit

• 6% maximum - limit

^ S&P Citigroup EMI 50:50: 50% S&P Citigroup EMI (CDA); 50% S&P Citigroup EMI (US)


Top 10 holdings – CI Can Am FundAs of March 31, 2012

CI Can-Am Small Cap Corporate Class

YTD1

Year3

Year5

Year10

Year

CI Can-Am Small Cap Corporate Class 7.2% 0.1% 8.1% 3.9% 10.8%

Quartile 2 1 3 1 1

At March 31, 2012

Current environment & outlook

What’s next?

• Artificially low rates = artificial growth = high volatility

• Government austerity = slow growth/private sector healing

• Dividend yields = support in tough markets…to a degree

• Value & strong balance sheets = positive risk management

“There is no such thing as a free lunch”

Source: John Aitkens, TD Securities, March 2012

TSX Forward Earnings Yield ( )And Long Term Canada Bond Yield ( )

M1941 MAR 2012

18 18

16 16

14 14

12 12

10 10

8 8

6 6

4 4

2 282 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

2.48

7.63

TSX Forward Earnings Yield ( )And Long Term Canada Bond Yield ( )

M1941 MAR 2012

18 18

16 16

14 14

12 12

10 10

8 8

6 6

4 4

2 282 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

2.48

7.63

Equities better valued

Source: RBC Capital Markets, Haver Analytics

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

Jan-93 Jan-98 Jan-03 Jan-08 Jan-13


4

5

6

7

8

9

10

11

12



Diversification will matter

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80


CRB Raw Industrials / S&P 500


4

5

6

7

8

9

10

11

12


TSX / S&P 500


5

10

15

20

25

30

35

40

45


MSCI Emerging Monthly / S&P 500


0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80



0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80


CRB Raw Industrials / S&P 500


4

5

6

7

8

9

10

11

12


TSX / S&P 500


5

10

15

20

25

30

35

40

45


MSCI Emerging Monthly / S&P 500


Source: Ed Yardeni, www.yardeni.com The Gloom, Boom & Doom Report, October 2010

Economics vs. company analysis

After-tax profit margin from current production, 1948-2010

Source: Barry Bannister, Stifel Nicolaus

Equities…the lost decade

Source: IFIC & BMO

Psychology

Bond Funds

Equity Funds

Money Market Funds

30

25

20

15

10

5

-

(5)

(10)

(15)

(20)

Net Sales for Canadian Mutual Funds

Bonds the favored asset class

“For the first time in at least 12 years, reports the 2012

Milliman Pension Funding Study, a canvass of corporate

America’s 100 largest defined benefit plans, pension managers have ear-marked more funds for fixed income (41.4%) than

equities (38.1%). Just five years ago, stocks got twice the allocation of bonds (60.3% vs. 29.3%)…”

– GRANT’S Interest Rate Observer, Vol. 30, No. 7, April 6, 2012

Source: RBC Capital Markets Quantitative Research

11.8

10.1

6.5

2.6

1.0

-4

-2

0

2

4

6

8

10

12

14

Dividend Growers Dividend Payers TSX Composite Dividend Cutters Non-dividend Payers

Total Portfolio Returns (Dec 1986 - Apr 2012, Equal Weighted, %)

Source: RBC Capital Markets Quantitative Research

Opportunity – dividends matter

Source: Capital IQ

Dividend/share $0.23 $0.15 $0.15 $0.15 $0.08 $0.20 $0.30 $0.40 $0.50 $0.50 $0.50 $0.75 $0.75



Power of dividends: dividends + asset

Canadian equity example – Astral Media Inc.

Conclusion

• Strong companies provide more stability

• Great businesses provide growing income

• Risk management protects capital

Thank you

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise indicated and except for returns for periods less than one year, the indicated rates of return are the historical annual compounded total returns including changes in security value. All performance data assume reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

®CI Investments and the CI Investments design are registered trademarks of CI Investments Inc.

Documents

Managed risk investing Joe Jugovic, CFA President