Happy New Year.

The end of the calendar year is a good time for Trustees to review both the investment performance as well as investment objectives of the Trusts for which they are responsible.

In this Blog entry I will discuss the investment performance review and benchmarking and I will comment on the all important selection of an investment objective in a future Blog.

While Trusts can hold any real property including private equity, real estate, or commodities such as gold, the most common investments consist of Canadian publicly listed equities and Canadian bonds. There are several ways to benchmark performance of these Trust portfolios. Two common ways are ‘market’ benchmarking and ‘peer group’ benchmarking.

The principal advantage of ‘market’ benchmarking is that it can be customized for a wide variety of asset mix situations. I outline two examples  of ‘market’ benchmarks:

1) To understand the relative performance of Canadian equities held in a Trust, I suggest using the stock index commonly known as the S & P TSX 60 as a fair benchmark. This is a basket of the 60 largest publicly listed companies in Canada (based on market capitalization). For Canadian equities the compound annual rate of return based on this index was 13.84% for the 1 year period that ended December 31, 2010, 6.49% for the 5 year period and, 6.11% for the 10 year period. The past 10 years represented the worst decade of equity performance in more than 100 years of capital market history.

2) To understand the relative performance of the bonds held in a Trust I suggest using the DEX short/mid index as a fair benchmark. This is a basket of over 500 investment grade government and corporate bonds with maturities between 1 and 10 years. The compound annual rate of return (based on the DEX short/mid index) was 5.68% for the 1 year period that ended December 31, 2010, 5.44% for the 5 year period and 6.05% for the 10 year period.

Many happy returns.