Managed Money Reporter Newsletter — Issue 220, September 2005

Editors: Carl Spiess & Allan McGlade

Featured Articles

The cheque is in the mail 

Fund settlements proceeding ahead of time

Many Canadian investors will be receiving cheques in the mail in the next few weeks. The payments for the fund settlements that were announced last December have now all been calculated and are being processed. Clients who held AIC, AGF, CI, Investors Group or Templeton GLOBAL funds sometime in the 1998-2003 period, are sharing in the reimbursements.

The initial timeline was to have the process complete by Dec. 31, 2005, but it now looks like most cheques will be mailed by Sept. 30th. Cheque amounts start at $2, and may be more depending on the particular fund and the amount invested. Complete tax reporting information is also included with the cheques. Please contact us or the fund companies directly if you have questions.

More on fund settlements

Markets making new highs

TSX at highest level in 5 years

By Carl Spiess
As the TSX closed over 11,000 for the first time in 5 years earlier this week, it is worth looking back at what has made investors successful over the last decade. What seems to be the right answer through good times and bad, is remaining invested for the long term.

It is interesting recalling how bad the investment marketplace looked 10 years ago for Canada, with separatists, GST, uncertainty about free trade, and the failure of Meech Lake and Charlettown – and how dire the investment outlook was in 2001 after 9/11 – and again in 2003 with war looming in Iraq.  Back then, markets went down due to poor investor sentiment, in spite of rising corporate profits and low interest rates.

Today, markets are high again and as Canadians, we have been blessed with significant portions of our funds and indices being exposed to resource companies.  So much so, that when disaster struck in New Orleans, markets in Canada actually rose.  

Markets in the US seemed unfazed  by the destruction resulting from Katrina, which I personally found to be a reality "disconnect" since, as discussed above, previous catastrophic events have negatively affected market performance, in spite of good underlying fundamentals.  It is truly strange when we see a tragedy in New Orleans, and yet there is a marked increase in the markets over the subsequent weeks. It almost denies day-to-day analysis and compels us to turn off the 24 hour news channel due to the improbability of predicting short term market moves resulting from such events.  

In fact, it finds us repeating even more our mantra of buying and holding good funds with professional money managers, where we focus from the top down on your asset allocation (bonds vs. stocks) to balance your risk and return profile.  If it has been a while since we sat down to look at your asset allocation, please contact us. We would be more than happy to review your accounts to ensure your portfolio is still tracking to your long term goals.

Recommended reading

Is there an income trust bubble?

The Russell Investor has one of the best pieces on income trust investing that we have seen. There is no doubt that income trusts are here to stay, and many companies are seeing increases in their stock price when they consider or complete a conversion to the trust format. But it is important to know what you are buying.  This article outlines how trust valuations differ from common stock valuations.

Interestingly, the last time we featured an article by Russell was 3 years ago, and it was entitled "battling a bear".  It turned out to be quite a prescient article.

CI investors approve fixed operating expenses

Effective Sept. 1, CI Investments Inc. is charging its mutual funds a fixed amount for operating expenses. CI said investors voted overwhelmingly in favour of the new lower pricing schedule at special meetings held on Aug. 30. 

The new system will result in cost savings and greater transparency to investors. The management expense ratios (MERs) of CI funds will consist of three components. The first component, which makes up by far the largest portion of the MER, is the management fee. The second component will be the fixed administration fee, which will cover operating expenses. The third component is taxes, over which CI has no control. Excluding any possible tax changes, CI says its new system effectively creates a cap on MERs, since CI will absorb any operating costs that exceed the published administration fee. 

Another plus for investors is that the new administration fees are, on average, 36% lower than the funds' actual operating expenses for 2004. The administration fees are set at 0.20% of assets for domestic equity funds, 0.21% for U.S. equity funds, and 0.22% for other foreign equity funds and specialty equity funds. For balanced and fixed income funds, the administration fee will range between 0.17% and 0.22%.  We continue to favour funds and fund companies where management fees are lower than their peer group while still providing good returns and the many services investors expect.

Please contact us to know more about the benefit to you if you hold CI mutual funds..

Ontario revising LSIF tax credits

Full 15% grant still available until 2008 tax year 

The Ontario government made an updated announcement in September that the 15% tax break will be phased out starting in 2009 and will be eliminated after the 2010 tax year (incorrect information appeared here earlier).  The tax break along with the federal 15% grant, was one of the primary reasons why Canadians made Labour Sponsored Investment Funds so popular in the 1990s.  Not all provinces offered the 15% grant for LSIF investors but Ontario did and thus was one of the provinces with the most LSIF funds available to residents.  The labour fund industry did succeed in providing financing to many small companies, creating jobs which was its mandate when established in 1991.  Approximately 40% of venture capital financing in Ontario came from LSIFs annually.

Personally, I purchased an LSIF every year for the last decade, and for the past few years have been "flipping" my fund from 8 years ago (i.e. once the tax penalty period is over), into the same fund to recapture the credits.  2005 will likely be the last year I take advantage of this, however there will still be a number of funds worth examining for the 15% federal credit, and even more importantly, several funds stand on their own merits, due to the emerging companies they hold in their portfolios.  Unfortunately, many funds in the sector have had disappointing performance and will have a difficult time retaining assets in the future.

We will keep you updated on any other changes to the LSIF rules before RRSP season, but in the interim, please contact us if you would like to review the dates at which you could sell your LSIF funds without incurring a tax penalty.

More on labour fund rule changes

  • Original August 2005 Ontario government press release
  • The Association of Labour-Sponsored Investment Funds responds 
  • Updated September 2005 LSIF Announcement from Ontario government

Mutual Fund Reporter Recommended Website of the Month

Canada News Wire is an excellent site for researching public company information.



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