22 Year Historic Return Narrative

The 22 Year Historic Performance Report shows the Fund’s historic performance results on a nominal, relative and real return basis for each of the past 22 calendar years, beginning in 1995. In other words, for each year, the report shows the Fund’s nominal return, the policy benchmark return, and the real return.

The 22 Year Historic Performance Report is helpful in analysing the Fund’s cumulative returns. Returns are time period dependent, and cumulative data does not show the underlying data for each and every year. Cumulative data represents a snapshot in time, and the start and end dates for cumulative data change each year. For example, ten-year cumulative return results as of 31 December 2016 include the financial crisis of 2008, and this difficult period will not be included in the ten-year results as of 31 December 2017.

The Fund’s primary objective is to meet or exceed a real rate of return of 3.5 per cent over the long term. The 3.5 per cent real rate of return is the Fund’s most important investment objective, as this is the rate of return needed over the long term to ensure the fully funded status of the Fund.

The Fund’s real rate of return is calculated by adjusting the Fund’s nominal return for inflation, as measured by U.S. CPI. For example, if inflation is 2 per cent for a given year, the Fund would need to generate a nominal return of approximately 5.5 per cent in order to achieve a real return of 3.5 per cent.

The 22 Year Historic Performance Report shows that the Fund generated performance which exceeded that of the 3.5 per cent real rate of return objective in 14 out of the past 22 calendar years. On average, the Fund generated performance which exceeded the 3.5 per cent real rate of return objective over the past 22 calendar years.

The Fund’s nominal performance is compared to the Fund’s policy benchmark. The policy benchmark is a weighted average of the target weighting and benchmark for each asset class. The policy benchmark represents the return that the Fund would achieve if it were fully indexed and rebalanced daily. In periods when the Fund’s nominal performance exceeds the policy benchmark, active management is contributing favourably to the performance of the Fund and vice versa.

The Fund outperformed its policy benchmark in 12 of the past 22 calendar years, and on average, the Fund generated performance which exceeded the policy benchmark over the past 22 calendar years. For the one-year period ended 31 December 2016, the Fund underperformed its policy benchmark. The Fund had a nominal return of 5.2 per cent, and the policy benchmark had a return of 6.9 per cent return. This is due to the fact that 2016 was a year which favoured indexation over active management. The Fund is actively managed, and most of the Fund’s portfolios performed in line with similar funds in the eVestment universe during 2016.

The 22 Year Report shows that the Fund only met or exceeded both of its return targets in the same year in 7 of the past 22 calendar years (32 per cent of the time). For example, some years such as 2008 and 2011 were worse relative to the policy benchmark and/or the 3.5 per cent real rate of return targets. Instead of focusing on the results of an individual year, it is important to observe the long-term results, particularly the long-term results relative to the 3.5 per cent real rate of return objective. On average, the Fund exceeded both its policy benchmark and the 3.5 per cent real rate of return objective over the past 22 calendar years. In summary, the Fund has generated strong performance over the long-term, which is in line with the Fund’s strategic objectives.