Managed Money Reporter Newsletter — Issue 221, November 2005

Editors: Carl Spiess & Allan McGlade

Featured Articles

October - The scariest month? 

It is not just Halloween that makes October scary

As we get through another rough October, everyone will breathe a sigh of relief.  Canada's benchmark index was down 5.7 per cent in October. The Dow fell 1.2 per cent, the Nasdaq dropped 1.5 per cent and the S&P 500 dipped 1.8 per cent.  But there have been much worse Octobers if we think back to 1929 or 1987.

In fact, the economy seems quite stable at present.  The biggest factor in the market volatility, was the uncertainty the government recently placed on the income trust market.  

While talking to a Member of Parliament recently, he commented to me "I'm sorry about the impact the income trust taxation issue is having on your clients".  My reply was simply that "there isn't an income trust tax issue, there is an over taxation of regular dividends tax issue."  Hopefully the rest of Ottawa will see it that way too and instead of taxing trust income, will lower the (double) tax on regular dividend income.

And on the political front, despite a potential election just around the corner, compared to October 10 years ago, the Canadian political situation is more stable.  It was exactly 10 years ago that we last suffered a crisis of Confidence in Canada, and have seen a rising Canadian dollar ever since as a result.

Our Fall Investment Portfolio Quarterly (recommended reading link below) provides much more commentary about the future opportunities and risks in the Canadian and global markets.  But before reading about how Scotiabank and ScotiaMcLeod's employees say you should invest, let's see how the Bank manages it own employees' money. 

Asset allocation - What the bank's pension fund managers do

Bank pension plan 75% invested in equities

With uncertain markets ahead, it is worth asking what does the bank do with their employees' retirement money?

Well, for the 36,000 employees of the Bank of Nova Scotia who are in the bank's pension plan, the answer is investing for the long term.  While there are already thousands of retirees drawing a steady income from the plan, many more are contributing regularly, so on the whole, the assets have a long time horizon.

This asset allocation is more aggressive than our recommended standard "your age as a percent in bonds", since the average age of the plan members is more than 24, which is the pension plans' allocation to fixed income. Although this may seem heavily weighted in equities, especially for a conservative bank, it just means that the pension fund managers view this portfolio as one with a very long term time horizon. And they know what we know – equities provide the best long term return on capital. Interestingly, the Canadian equity and foreign (US and non-North American) weightings are roughly equal at 39% and 37% respectively. This parallels what we tell our clients – equal parts foreign and Canadian equity for better diversification.

The asset allocation is reviewed annually, and if any sector is off by more than 3% from the stated allocation, it is rebalanced.  20 different investment management firms actively manage the portfolio against various benchmarks.

Next month, we'll look at some new asset allocation services that can automatically make your portfolio more conservative as you get closer to retirement. If it has been a while since we sat down together 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

Fall Investment Portfolio Quarterly

The Fall edition of ScotiaMcLeod's Investment Portfolio Quarterly has now been published.  This quarterly publication provides insight into the markets and their outlooks from our Portfolio Advisory Group.

US investors favouring funds - Canadian fund assets reach new record

A new study by the Spectrem Group finds that the wealthiest US investors are adding to their mutual fund investments. The report finds that over the past two years, investors worth $5 million or more have doubled the percentage of investable assets allocated to mutual funds from 6% in 2003 to 12%. 

Coupled with a move out of individual stocks and bonds and into cash, increasing mutual fund assets also suggests that Ultra High Net Worth investors are becoming more conservative.  Interestingly, High Net Worth investors are allocating less to  alternative investments – hedge funds, private image placements, private equity and venture capital actually fell to 8% in 2005 from 9% in 2003. 

The study was conducted in the spring of 2005, generating 500 responses to a mail survey of 720 households with a net worth of $5 million or more.

In Canada, "September's net sales helped bolster sales for the first nine months, taking them to $18.4 billion, the highest net sales figure since the same period in 2001," said Tom Hockin, president and CEO of IFIC, in a release.  Canadian Mutual fund assets at the September month end stood over $550 billion, a new record for the industry.

More on Canadian Fund Statistics

LSIF funds merging

Covington and Growthworks consolidating smaller funds

Covington Group of Funds has announced a proposal in which six of its labour-sponsored investment funds would merge into a new fund to be named Covington Venture Fund Inc. The funds included in the proposed merger are: 

  • Triax Growth Fund Inc.
  • New Millennium Venture Fund Inc. (both Venture series and Balanced series shares)
  • E2 Venture Fund Inc.
  • New Generation Biotech Balanced Fund
  • Venture Partners Balanced Fund Inc.
  • Capital First Venture Fund Inc.

Four labour-sponsored investment funds managed by GrowthWorks are also proposed to merge.  The Canadian Science and Technology Fund Inc. ("CSTGF"), Capital Alliance Ventures Inc. ("CAVI") and GrowthWorks Opportunity Fund Ltd. unitholders will be voting on whether to merge into the much larger GrowthWorks Canadian Fund Ltd.

As we feel there are too many small and expensive LSIFs out there, we applaud these merger initiatives and will keep you informed of future developments. 

More on proposed labour fund mergers

Mutual Fund Reporter recommended website of the month

When it comes time to see how your politicians in Ottawa are voting on issues of interest to you, visit:



Contact Us

T.  416.863.RRSP (7777)
F.  416.863.7479

ScotiaMcLeod is a division of Scotia Capital Inc., member of CIPF.

Security | Privacy Policy | Legal Information | Important Information | Site Map




® Registered trademark of The Bank of Nova Scotia, used under licence. ™ Trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management™ consists of a range of financial services provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust®); Private Investment Counsel, a service of 1832 Asset Management L.P.; 1832 Asset Management U.S. Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod®, a division of Scotia Capital Inc. ("SCI"). Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of SCI. Insurance services are provided by Scotia Wealth Insurance Services Inc., the insurance subsidiary of SCI. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Underwriters (Financial Security Advisors in Québec) representing Scotia Wealth Insurance Services Inc. SCI is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

The Spiess McGlade Team is a personal trade name of Carl Spiess and Allan McGlade.