GGOF Investment Strategy

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GGOF Investment Strategy
Gavin Graham
(Location goes here)
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Guardian Group of Funds

• Established in 1962
• 4.9 billion in assets under management
• Global investment management expertise through 11
  leading organizations

Management Firm Investment Style Investment Region Assets Under Management
Barrantagh Investment Management Inc. Value Domestic 325 million
GGOF Investment Management Value Domestic 23 million
Guardian Capital LP Blend/Income Domestic 14 billion
Jones Heward Investment Counsel Inc. Growth/Income Domestic 19 billion
Lazard Asset Management (Canada) Inc. Value Global 92 billion
Mawer Investment Management Ltd. Blend Domestic 2 billion
Matthews Intl Capital Management LLC Value Asia 3 billion
Montag Caldwell, Inc. Growth U.S. 40 billion
PIMCO (Pacific Investment Management Co.) Income Global 525 billion
RCM Capital Management LLC Growth Global 36 billion
Vontobel Asset Management Inc. Growth Global 4 billion
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Guardian Group of Funds

• Top-performing mutual funds diversified by asset
  class, geography and investment style

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Interest rates bottomed and are now starting to
rise
Bank of Canada
Interest Rates ()
Federal Reserve
Source Bank of Canada, U.S. Federal Reserve
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and the yield curve is beginning to flatten
Government of Canada Bond
06/13/03
05/31/05
Yield ()
Source Bloomberg
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Government bonds have provided equity-like
returns over the last four years
Government of Canada Bonds
Return
Beginning Yield
Returns ()
Ending Yield
Start June 30, 2000 End May 31, 2005
Source Bloomberg
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The U.S. economy has been growing strongly for
several years
Change in U.S. GDP
()
Source Bureau of Economic Analysis
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leading to the return of inflation
Consumer Price Index (Year/Year)
U.S.
U.S. ()
Canada ()
Canada
Source Bloomberg
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Oil and Gas Secular Demand Growth
Developing Nations Oil Consumption vs.
Production (India, Vietnam, Turkey, Thailand,
Taiwan, Singapore, South Korea, Mexico, China,
Indonesia)
Estimate
Consumption 10 Year Historical Growth Rate 5
Per Year
bbl/d (000's)
Production
Sources Energy Information Administration, RJ
Research estimates and analysis
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Base metals and soft commodities will also benefit
Nickel in China Consumption vs. Production
Source CIBC
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Little new supply due to low real commodity prices

• CRB Index 1973 2004

Commodity Research Bureau Spot Index
Commodity Research Bureau Spot Index Deflated by
U.S. Consumer Price Index
Nov-04
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Excess oil and gas supplies are unavailable
OPEC Excess Capacity is Minimal OPEC Oil
Production October 2004 (thousands of barrels per
day)
OPEC Quota October 2004 Production Capacity Surplus Capacity
Algeria 862 1250 1250 0
Indonesia 1399 940 940 0
Iran 3964 3900 3900 0
Iraq (no quota) 2200 2200 0
Kuwait 2167 2400 2400 0
Libya 1445 1560 1560 0
Nigeria 2224 2300 2300 0
Qatar 700 800 800 0
Saudi Arabia 8776 9500 10000 500
UAE 2356 2500 2500 0
Venezuela 3107 2500 2500 0
OPEC Total 27000 29850 30350 500
Source US Energy Administration - November
2004
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GGOF Resource Fund (Barrantagh/Guardian Capital)

• SECTOR ALLOCATIONS

• TOP 10 HOLDINGS
• FNX Mining Co. Inc. 3.0
• Fording Cdn. Coal Trust 2.5
• Canadian Oil Sands Trust 2.3
• TransCanada Corp. 2.1
• First Quantum Minerals Ltd. 2.0
• Innova Exploration Ltd. 2.0
• Peyton Energy Trust 1.9
• ARC Energy Trust 1.9
• Toromont Industries Ltd. 1.8
• Penn West Petroleum Ltd. 1.8

As of May 31, 2005
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Canadian equities have performed well on a
relative basis
1-Year returns to May 31, 2005
()
Source Bloomberg (CDN)
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The U.S. dollar has weakened against many
currencies, whether based on commodities...
U.S. dollar per Canadian dollar
U.S. ()
U.S. dollar per Australian dollar
Source Bloomberg
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or higher interest rates
U.S. dollar per British pound
U.S. ()
U.S. dollar per euro
Source Bloomberg
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Canadian dollar set for a period of
strengthening?
U.S./Canada Exchange Rate
U.S. ()
Source Bloomberg
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Its no longer a bull market
1-Year Returns to May 31, 2005
()
Source Bloomberg (CDN)
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Rather than chase performance, diversify by style
and asset class
Cdn ()
Source Guardian Capital LP
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Income trust universe is now broadly diversified
Income Trust Universe 134 billion
Market Cap (billions)
Number of Issuers
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108
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Business Trusts
REITs
Power/ Pipeline
Royalty Trusts

• Total new trusts (including conversions) grew 29
  to 175 in 2004
• Foundation of a very liquid asset class is now in
  place
• 1 billion Yellow Pages IPO the largest ever in
  Canada

Source CIBC World Markets
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The income trust market continues to prosper and
grow
Growth of the Income Trust Market 187 Trusts
(billions)

• Only Power/Pipeline Sector (14 of Trusts)
  Directly Affected by Rising Rates

Excludes announced corporate conversions (Pacific
Northern) totalling 0.1 billion.
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REITs and the Interest Rate Environment
B
A
E
D
C
A second installment receipt debacle trust
units decline across the board B initial
decline as rates rise REITs rebound as techs
show first sign of collapse (March 2000) CD
some initial effect as rates rise, particularly
Canadian Apartment REIT (D) E sharp sell-off
during Q2/2004 reflected fears of higher interest
rates, which began in August 2004
Month-end data from Feb 1998 to April 2005
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Higher interest rates are part of an improving
economy
SP/TSX Sector Performance During Past 9 Upturns
in U.S. Interest Rates (average price change)
(12 months following Federal Reserve tightening)
Source BMO NB
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High yield bonds have low correlations with other
asset classes
Correlation of Monthly Returns with High Yield Bonds Correlation of Monthly Returns with High Yield Bonds Correlation of Monthly Returns with High Yield Bonds
Asset Class Canada 1997 to 2004 U.S. 1985 to 2004
High Yield Bonds 1.00 1.00
Investment Grade Corps 0.08 0.23
10 Year Government Bonds -0.12 0.18
90 day T-Bills 0.10 -0.01
Large Cap Stocks 0.37 0.49
Small Cap Stocks 0.37 0.38
IncomeTrusts 0.06
U.S. REITs 0.29
Merrill Lynch Canadian High Yield Index, U.S.
High Yield Index Dec 1994-Dec 2004. (Morgan
Stanley REIT Index Inception Dec 31/94)
Source Guardian Capital LP
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Reduce risk AND increase return
U.S High Yield Bonds vs. 10 Year U.S.
Treasuries (monthly 1985 2004)
Source Guardian Capital LP
As of December 31, 2004
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Negatively or non-correlated asset classes are
the answer to bear markets
Canadian Risk/Return Comparison Dec/88 Dec/03
Source Guardian Capital LP
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Small Caps Are Outperforming Large Caps
NB Small Cap
SP/TSX Composite
Cumulative Returns
Mawer New Canada Fund
NB Small Cap
SP/TSX Composite
Source Mawer Investment Management
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GGOF Canadian Diversified Monthly Income Fund
Based on monthly returns from January 1998 to
December 2004. Correlation is a measure of how
closely related two variables are. A high
positive correlation (1.0) indicates the two
variables move in tandem and provide little
diversification. Al low correlation (0.0) or high
negative correlation (-1.0) indicate the
variables complement each other and provide
superior diversification.
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GGOF U.S. Diversified Monthly Income Fund
Based on monthly returns from January 1997 to
December 2004. Correlation is a measure of how
closely related two variables are. A high
positive correlation (1.0) indicates the two
variables move in tandem and provide little
diversification. A low correlation (0.0) or high
negative correlation (-1.0) indicate the
variables complement each other and provide
superior diversification.
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GGOF Dividend Growth Fund(Jones Heward)

• Top 10 Holdings
• TD Bank 6.5
• Manulife Financial Corp. 6.3
• Royal Bank of Canada 6.3
• Bank of Nova Scotia 6.2
• CIBC 5.6
• Sun Life Financial Inc. 4.3
• Shell Canada Ltd. 4.0
• Imperial Oil Ltd. 3.9
• Power Financial Corp. 3.9
• Enbridge Inc. 3.5

Sector Allocations
As of May 31, 2005
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GGOF Asian Growth and Income Fund(Matthews)
Geographic Allocation Includes equities and
convertibles

• Top 10 Holdings
• PCCW Capital II Conv. 3.4
• Singapore Post Ltd. 2.6
• Citic Pacific Ltd. 2.4
• Hongkong Land Holdings 2.4
• Fraser Neave Ltd. 2.3
• China Mobile (HK) Ltd. 2.3
• HSBC Holdings PLC 2.1
• CLP Holdings Ltd. 2.1
• China Netcom Group Corp. 2.0
• Chunghwa Telecom. Co. 2.0

As of May 31, 2005
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GGOF Enterprise Fund(Mawer)
Sector Allocations

• Top Holdings
• Transat AT Inc. B 6.0
• Russell Metals Inc. 5.4
• CHC Helicopter Corp. A 5.3
• CCS Income Trust 5.2
• Canadian Western Bank 4.5
• Home Capital Group Inc. 4.3
• Contrans Income Fund 3.4
• Uni-Select Inc. 3.2
• Mullen Transportation Inc. 3.2
• AltaGas Income Trust 3.2

As of May 31, 2005
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The Asia Pacific Region
Makes up nearly half of the worlds
population
2003 Global Population
Region Population (million)
Asia Pacific 2,961
European Union 378
United States 315
Rest of World 2,646
World Total 6,300
Total 6.3 Billion
Note Asia Pacific is defined as Australia,
China, Hong Kong, India, Indonesia, Japan,
Malaysia, New Zealand, Philippines, Singapore,
South Korea, Taiwan, Thailand. Source U.S.
Census Bureau, Goldman Sachs.
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The Asia Pacific Region
2003 Global GDP
Accounts for over a quarter of the worlds
economic output
Region GDP ( billion)
United States 10,446
European Union 8,064
Asia Pacific 7,678
Rest of World 3,118
World Total 29,306
Total 29.3 Trillion
Note Asia Pacific is defined as Australia,
China, Hong Kong, India, Indonesia, Japan,
Malaysia, New Zealand, Philippines, Singapore,
South Korea, Taiwan, Thailand. Source U.S.
Census Bureau, Goldman Sachs.
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The Asia Pacific Region
Represents over 19 of the worlds market
capitalization
2003 Global Market Capitalization
Region Capitalization ( billion)
United States 11,052
European Union 5,603
Asia Pacific 4,439
Rest of World 2,298
World Total 23,392
Sources Goldman Sachs, CLSA, Standard Poors
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The Asia Pacific Region
2001 Per Capita GDP ( US) Population With Per Capita GDP Over US5,000 (million) Population With Per Capita GDP Over US5,000 (million) Population With Per Capita GDP Over US5,000 (million)
2001 Per Capita GDP ( US) 2001 2010 2020
China 911 64 237 723
Hong Kong 23,880 6 7 8
India 466 52 58 65
Indonesia 682 11 24 92
Korea 8,855 43 47 49
Malaysia 3,679 7 20 28
Pakistan 425 7 9 11
Philippines 916 4 27 41
Singapore 21,584 4 4 5
Taiwan 12,556 20 23 24
Thailand 1,811 10 49 71
Total 226 541 1,116
Source UBS Warburg, ABN-AMRO
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Chinas Growing Consumer Demand

• Number of major durable goods owned per 100 urban
  households

Refrigerators Color TV Computers Cell Phones
1985 7 17 - -
1990 42 59 - -
1995 66 90 - -
1997 73 101 - -
1998 76 105 4 3
1999 78 112 6 7
2000 81 117 9 18
2001 82 120 13 31
Source Matthews International Capital Management
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Chinas Growing Consumer Demand

• Chinas Mobile Phone Market

(millions)
Source TCL Mobile Communication Co. Ltd. Bank
Credit Analyst
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Home Ownership in Chinas Coastal Cities
()
Source Guangzhou Statistical Yearbook
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Top Performers Non-Correlated and Defensive
Asset Classes
Funds Asset Class 1-Year Return ()
GGOF Monthly High Income Fund II Canadian Income Trust 30.5
GGOF Dividend Growth Fund Canadian Dividend 15.1
GGOF Canadian Diversified Monthly Income Canadian Income 13.0
GGOF Asian Growth and Income Fund Asia ex. Japan 11.4
GGOF Canadian High Yield Bond Fund High Yield Bond 7.4

Indices Country 1-Year Return ()
SP/TSX Composite Index Canada 16.2
FTSE 100 Index U.K. 6.1
Dax Index Germany 5.8
SP 500 Index U.S. -0.6
As of May 31, 2005 (CDN)
Source Bloomberg
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Conclusions

• Canada has outperformed all other major markets
  in 2004 and year to date.
• The U.S. economy has grown by 3.5 - 4.0 since
  2001 leading to a return of inflation, which the
  Fed is addressing by raising interest rates from
  40-year lows.
• The Canadian dollar and many other currencies
  strengthened against the U.S. dollar in 2003 and
  2004, but rising U.S. rates have fuelled a U.S.
  dollar gain in 2005.

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Conclusions

• Earnings growth, which grew at its fastest rate
  in 20 years in 2004, is starting to slow.
• We have experienced a substantial cyclical bull
  run (30-40) since 2003, but it appears to be
  near the end.
• Growth stocks outperformed value stocks in the
  rebound (2002-2004), but value investments appear
  to have regained the lead.

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Conclusions

• The strong rebound in the Nasdaq over the last
  two years has led to a replay of the 1999 bubble
  attitude.
• Valuations are likely to get more attractive over
  the next 12 months as the economy slows down and
  stock markets trade sideways.

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Disclaimer
Sales commissions, service fees, management fees
and expenses all may be associated with mutual
fund investments. Please read the prospectus
before investing. The indicated rates of return
include changes in unit value and assume
reinvestment of all distributions, and do not
take into account sales, redemption or optional
charges or income taxes payable by any
securityholders, which would have reduced
returns. Mutual funds are not guaranteed, their
values change frequently and past performance may
not be repeated.