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Liquid Strategies

Liquid strategies include public equity, fixed income and absolute return strategies.

Public equity

Our public equity exposure is designed to generate returns, provide diversification and act as a potential source of liquidity, should it be required. Public equity was the top performing asset class in 2017, benefiting from economic growth momentum and an abundance of liquidity.

Overall, the public equity portfolio generated a net return of 22.9% in 2017.

Fixed income

Fixed income serves as the main source of liquidity and the primary liability-hedging asset. In addition, fixed income provides diversification benefits, especially in a deflationary environment.

Overall, the fixed income portfolio generated a net return of 4.6% in 2017.

Absolute return strategies

Absolute return strategies allow us to access a wide variety of risk premia in a diversified manner, consistent with our goals of building a more resilient portfolio. These strategies aim to produce consistent returns across market regimes, whether they are rising, flat or falling. These strategies are less constrained than those used by traditional managers who generally employ a “buy and hold” strategy.

Our absolute return strategies portfolio is transitioning to better align with our MDI objectives. In 2017, we funded key strategic partners, while consolidating the current portfolio of managers.

Overall, the absolute return strategies portfolio generated a net return of 5.0% in 2017.

Currency

Fluctuations in exchange rates have the potential to significantly impact the volatility of a global investment portfolio. As such, our MDI strategy supports maintaining hedges on most of our foreign currency exposure. However, some foreign currency exposure, particularly in those currencies that tend to act as a safe haven in times of market stress, can act as a meaningful source of diversification.

In 2017, we saw a strong rally in the Canadian dollar relative to the U.S. dollar, due to a divergence in interest rate expectations between Canada and the U.S. Our unhedged currency exposure, which is mostly in U.S. dollars, resulted in a drag on performance of -1.6%.