Managed Money Reporter Newsletter — Issue 201, December 2003

Editors: Carl Spiess & Allan McGlade

Featured Articles

Seasons GreetingsSeason's Greetings

It certainly looks like 2003 has broken the back of the bear market.  We have been pleased with our clients investment returns of late, and share the optimism that is being reflected in many recent economic statistics. We are pleased to report that virtually all our clients stayed invested in the market throughout the downturn and are thus participating in the upswing. We commend our clients for persisting in their long-term goals in spite of the short-term uncertainty in the markets.

We appreciate the opportunity to help with your investment needs, and look forward to working even closer with you in 2004.  All the best for the new year to you and yours.

With warmest holiday regards, from Carl Spiess, Allan McGlade and your investment team.

Fun With Numbers - Most Assets in Above-Average Funds

In the popular press, there have been some articles in the past about how "most" funds underperform.  Bellcharts/Morningstar helps us review fund performance, with their "star" ranking service.  Funds with good returns and lower risk are given higher rankings, low return high risk funds get lower rankings.  (Funds with less than a 3 year performance history have no ranking.)

In the table below, we see that there are indeed more 1 and 2 star performing funds, than 4 and 5 star performing funds, seeming to support the hypothesis of underperformance.  However, there are many more assets in (i.e. your dollars are more likely to be in) outperforming funds.  In fact, of assets in funds with rankings, 46% (17%+29%) are in above-average funds, and only 16% are in below average funds.  

Morningstar Rating

Total Assets

% Total Assets

% Total Assets
(Ranked Funds Only)

# of Funds

% Of All Funds

5 Stars $74,502 13% 17% 232 5%
4 Stars $126,358 22% 29% 548 11%
3 Stars $168,722 30% 39% 925 19%
2 Stars $51,954 9% 12% 644 13%
1 Star $15,475 3% 4% 247 5%
Not Ranked $130,812 23%   2387 48%
Total Funds $567,823 100% 100% 4983 100%

Even accounting for the fact that a good fund will have grown the existing assets, and attract new assets (and possibly have other funds merged into it known as survivor bias), it does suggest that the majority of Canadian's investments are in the hands of good managers.  We would be pleased to provide you with the current Morningstar rankings of all your funds, simply contact us for a review.

Due Diligence - Jeremy Siegel

A few weeks ago, a select number of ScotiaMcLeod advisors were invited to hear a special presentation from renowned Finance Professor Jeremy Siegel.

Prof Siegel, is the author of Stocks For the Long Run, lectures at the Wharton School of business, and has done research at Columbia, MIT and Harvard.  He is often seen on CNN, CNBC, NPR and writes for the Wall Street Journal, Barron, The Financial Times and other publications.

While over the last 20 years, stocks and bonds have had nearly equivalent returns, his next book will not be "bonds for the long run".  In fact, he contends that we won't see great bond returns for many years into the future.  And interestingly, since 1802, the value of a dollar invested in gold, has only grown to $1.17.  Stocks he feels, are currently valued close to their long term growth rate, and while they are not historically cheap, they are not over-valued either.Click to enlarge

His current book, Core Investing, profiles the returns of an investor who simply held onto the top 50 stocks from 1950.  While many of the companies no longer exist, their descendants have provided a terrific return, for true buy and hold investors.  Even the rebalancing that an index does over time is unnecessary in his view.   

He highlights the importance of companies that pay dividends.  Fifty years ago, before securities regulations were what they are today, companies paid dividends to assure investors that their earnings were real and that their fundamentals were solid. In light of recent accounting scandals, he suggests a return to paying dividends.  He suspects that the reason dividends have fallen out of favour is the use stock options as management incentive.  Reinvesting earnings keeps the share price high, making managements' stock options worth more, but is not necessarily in the shareholders' best interest.  To better serve the interests of shareholders, he suggests the payment of dividends with the option for investors to reinvest, if they feel the company's prospects are worthwhile.

Overall his presentation was helpful for us in our evaluation the current market situation and the appropriateness of equities in our clients' asset allocations.  We will continue to review Prof. Siegel's research and weekly newsletters for further insights.

Labour Sponsored Funds Update

We have updated our annual review of Labour funds.  This year there are again many new funds, some with unique mandates.  A number of the existing funds are enjoying the market upswing that is helping other mutual funds.  Click here for our complete report

In 2004, many funds that were purchased in 1996 will be eligible for rollover & thus, new tax credits.  If you have funds which were purchased in 1996 (or prior) and have not yet been rolled over we should discuss doing so.  If you do it before March 1st, you can claim the credits on your 2003 taxes. Please contact us for a review of your Labour Funds. 

Fund News

Profile Update - Fidelity Canadian Asset Allocation

Last October we profiled Fidelity Canadian Asset Allocation.  Despite market volatility in the first half of 2003, we are glad to note that someone who invested in that fund on November 30, 2002, would have seen a one year increase of 10.3% to Nov 30, 2003. Click here for more performance information and important disclaimers.  Morningstar recently also chose to profile the fund - view their report.  It continues to be one of our core recommended balanced funds.

Templeton International Stock Fund Returns to 4 Star Status

This month marks a solid 8 months of gains for Templeton International Stock Fund (up 29% in 8 months - click for more performance details) after hitting Iraq war lows in April 2003.  The fund has returned to a 4 star ranking on Bellcharts Morningstar as a result of this rebound.  We had put Templeton Int'l on a performance watch in December 2002 but lifted it in May 2003 after meeting with fund manager Don Reed several times.  We are pleased to offer our performance monitoring service to all our clients, thereby keeping you abreast of pertinent information and recommendations regarding your investments.  

Switching Now Available Between CI and Synergy Funds

Synergy mutual funds have been integrated with CI's funds, just seven weeks after CI completed its acquisition of Synergy Asset Management Inc.  Effective Nov. 24, CI and Synergy investors may now switch between most funds within the two families.  

Lighter Side - Insuring Santa

Allan McGlade, our team's insurance specialist, helps many of our clients apply for and obtain appropriate life insurance.  When asked "How much would Santa Claus have to pay for life insurance?", he realized Santa may be a difficult underwriting. He travels abroad, does significant heavy lifting, is overweight, and smokes, so his hazardous lifestyle would make him a higher, and therefore expensive, risk.  

Please contact us if your insurance situation is simpler than Santa's, but needs a review.

Mutual Fund Reporter Recommended Link of the Month 

The investor learning center of the Canadian Securities Institute has great links on a wide variety of investment subjects.


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