Investment Policy
Donors fully expect our organization to be healthy and enduring. It is therefore important to evaluate investment structures and maintain a formal investment policy that will help monitor the performance of funds and individual managers within those funds. Any branch or division that holds an investment portfolio must maintain an investment policy.The Navy League of Canada will have financial resources that are not immediately required to meet approved operating expenses. This Policy provides direction as to how these financial resources are to be managed.
While this Policy is intended for use by the National staff and Directors, this Policy may be used at the Division or Branch level providing the National Board has granted approval for the Division or Branch to invest any excess financial resources in investments other than Guaranteed Investment Certificates (GICs).
Operating Funds
Through the course of the fiscal year, there will be timing differences between when revenues are received and when the funds are need to cover approved expenses. Depending on the nature of the revenues, such as annual government grants, this timing difference could be as great as 9-10 months. Rather than have the funds remain in an operating bank account that usually does not pay interest, any excess cash may be invested in GICs. The duration of the GIC and the amount invested will be determined by the Treasurer (for National in consultation with the Executive Director and Financial Administrator) based on known expenditure requirements and current interest rates. The GICs need to be cashable, in case emergencies arise, and should not normally be invested for a term longer than 180 days.Any funds received from government grants must only be invested in GICs – the funds cannot be placed in longer-term investments during the period the government grant is intended to support operating expenses.
Longer-term Funds
Financial resources that are not required to meet in-year operating expenses are available for longer-term investment. These financial resources will normally be the result of prior year operating surpluses, funds received as a charitable donation for a specific purpose, or funds allocated by the Board to support future special projects. As these funds are not immediately required, they may be invested with a longer time-horizon than is the case for Operating Funds.An Investment Fund will hold all longer-term investments. Funds within the Investment Fund may belong to one of the Navy League’s Restricted Funds (Maritime Affairs, Navy League Cadets and Special Projects), the Endowment Fund (if established), or the main Navy League National Office/Sea Cadet Operating Fund.
Investment Objectives
The objective of the Investment Fund is to achieve an average annual real return of four percent (gross return less inflation). These average investment returns will be calculated over a period of four years and will be net of investment fees.This investment return will be achieved through a diversified portfolio of Fixed Income (Cash and Bonds) and Equity (Stocks) that provide a mix of both capital appreciation (Capital Gains) as well as income (Interest and Dividends).
Asset Allocation
Diversification of the portfolio will be achieved by holding a mix of investments that cover Fixed Income, Canadian Equities and Global Equities (US and International). The benchmark asset mix weighting reflects the desired allocation under normal market conditions. The asset mix may, however, be adjusted within the maximum/minimum constraints outlined below in response to market conditions.| Asset Class | Benchmark | Maximum | Minimum |
|---|---|---|---|
| Fixed Income (Bonds and Cash) | 30% | 70% | 20% |
| Canadian Equities | 25% | 35% | 15% |
| Global Equities (US and International) | 45% | 50% | 15% |
Investment Management
With the exception of donated equity securities, all Equity Investments will be undertaken through an external investment manager. The investment manager will be selected by the Executive Committee upon recommendation from the National Treasurer. The investment manager, in consultation with the National Treasurer, will select either active or passive (index) funds that offer a low management expense ratio (MER) and hold an above average Morningstar Investment Rating. The equity funds may be either mutual funds or Exchange-Traded-Funds (ETFs).Fixed Income investments may be managed either through a self-directed investment account or through an investment manager. The National Treasurer, in consultation with the investment manager, will select either active or passive (index) funds that offer a low management expense ratio (MER) and hold an above average Morningstar Investment Rating. The Fixed Income funds may be either mutual funds or ETFs. Any allocation to cash may be placed in short-term investments.
Donated securities will be held in a self-directed investment account. The income from donated securities will be allocated to the purpose specified by the donor who provided the securities. The Executive Committee, on recommendation from the National Treasurer, will authorize the sale of any donated securities. Proceeds from the sale of donated securities will become part of either Equity Investments or Fixed Income Investments and will be managed accordingly.
Permitted Investments
In general, subject to any specific restrictions, the mutual funds or ETFs purchased may be invested in any of the investment instruments listed below:Cash and Short Term Investments:
- treasury bills issued by the federal and provincial governments and their agencies;
- obligations of trust companies and Canadian and foreign banks chartered to operate in Canada, including bankers' acceptances;
- Canadian commercial paper and term deposits.
Bonds
- bonds, debentures, notes, non-convertible preferred stock and other evidence of indebtedness of Canadian and provincial governments (and their guarantees), Canadian corporations, and supra national issuers, such as the World Bank, whether denominated and payable in Canadian dollars or foreign currency;
- National Housing Act (NHA) insured mortgage-backed securities;
- term deposits and guaranteed investment certificates.
Equities
Publicly listed (and to be listed) issues, rights, warrants and receipts of well capitalized companies (minimum $100 million float)Investment Restrictions
The investment portfolio shall respect the following restrictions:Bonds
- the minimum quality standard of the manager’s bond portfolio, at time of purchase, shall be “BBB” or equivalent;
- except for federal and provincial bonds, no more than 10% of the investment manager's bond portfolio may be invested in the bonds of a single issuer and its related companies;
- except for federal and provincial bonds, no one bond holding shall represent more than 10%of the market value of the total outstanding for that bond issue;
- no more than 30% of the market value of the manager’s bond portfolio may be invested in foreign securities; and
- no Emerging Market or High-yield Bond ETFs will be purchased.
Equities
- no more than 10% of the investment manager's equity portfolio may be invested in the shares of a single issuer and its related companies;
- donated securities and ETFs must trade on a recognized Canadian or US stock exchange; and
- Emerging Market investments are limited to a maximum 5% and must form part of a global fund rather than a specific Emerging Market investment.
Investment Reporting
The external investment manager will provide quarterly reports to the National Treasurer on those investments held in the external account. The National Treasurer will add to the report the results for any investments held in the self-directed account and then provide the consolidated report to the Executive Committee.At least once a year, the National Treasurer will provide the Board of Directors with a report on investment results achieved and any recommendations on potential changes to the Investment Policy.
For any questions or clarification regarding this Investment Policy, please contact the National Office by email at national@navyleague.ca.
September 2026