During our early years, the Foundation’s investment strategy was simple: buy high rated, fixed‐income securities with reasonable yields and hold them to maturity. We were able to produce predictable income for granting purposes while avoiding capital losses. But after the 2008 financial crisis (when we were fortunate to avoid any capital losses) and the emergence of a low-interest-rate environment, the game changed, so we needed to change as well. We adjusted our asset mix guidelines to permit increased investments in equities with a strong preference for stocks with a record of dividend growth. More recently the guidelines were adjusted to permit a small percentage of foreign equities (primarily US), again to take advantage of more opportunities for capital appreciation and dividend growth.
In 2014, because of increased exposure to equities, we undertook a comprehensive examination of the way we calculate the rate of return on investments. We have adopted a model which includes interest and dividend income received plus realized and unrealized gains (or losses). To ensure consistency over time, we will measure portfolio returns over a five‐year period.
Also, we withhold (from the rate of return available for disbursement) that component which is equivalent to annual inflation as measured by the Canadian Consumer Price Index. This will protect the purchasing power of each fund [link to Our Funds content] over the long term. For 2018, this works out to a disbursement rate of five percent for granting, which we believe is conservative and hopefully sustainable. This is well above our statutory minimum of 3.5% of assets.
Finally, we measure each fund on a market value basis for financial statement reporting. As of our fund Going forward starting with our year‐end 2014, each fund will move up or down as the value of its underlying market values change. The first indication of this change in policy is an allocation of a market gain of $468,000 realized over the past three years among all funds so they are on a market value basis. Of course, we will continue to track fund values on a historical cost basis (the cumulative value of donations received).