Managed Money Reporter Newsletter — Issue 238, June 2007

Editors: Carl Spiess & Allan McGlade

Featured Articles

Carl Visits Fort McMurray

By Carl Spiess, CFP, CIM, FMA, FCSI, MBA, Director

In May, I went on a due diligence trip to Fort McMurray with 20 other ScotiaMcLeod advisors to visit the oil sands and review the investment opportunities there. (One of my clients recenty joked that I must have angered someone in management to be sent there, but in fact the trip, while organized by ScotiaMcLeod, was on my own dime - and a pleasure.)

We flew over each of the major developments, and had a tour of the Syncrude facility. With the ongoing discussion of Canada's wealth of resources, and the potential need to tap our oil and gas reserves for future global demand I thought it would be worth seeing things first hand and reporting back to you so we can keep it in mind for your investment portfolio. I also was curious to see the implications of this development with respect to global warming.

Indeed, the mining operations there are impressive. From the air, after over an hour of flying from Calgary, there is little to see other than northern Canadian wilderness. Then, there are some refineries on the horizon, and soon we were flying over several large open pit mines and tailing ponds along the Athabasca river.

Once on the ground, we drove past the on site employee housing (think university dorms) and into the Syncrude headquarters. There we learned some important facts.

It is estimated that there are 175 Billion barrels of oil that are recoverable in the oil sands. This is more than the reserves in Saudi Arabia. But there is a greater cost, as the oil needs to be separated from the sand.

There are two ways to get at the oil. Where the oil sand is near the surface, the overburden is removed by shovel and truck and then the oil sand is heated to separate the sand and oil with over 90% recovery of the oil. Where the oil sand is buried lower, steam is injected to the ground, and around 50% of the oil can then be extracted.

In both methods, the current cost to obtain a barrel of oil is around $20-$25. Around $5 of that is the cost of the natural gas, used to heat the oil sand and later to refine the crude. It seems strange to use clean natural gas energy to extract and refine oil, but the bottom line is that with oil at $60 a barrel, it makes sense financially.

The actual projects up there are enormous. Transporting the oil sand to the plant to be processed and then the separated sand back for reclamation is a huge task. The engineer in me loves watching "mighty machines" with my kids, so I've seen the pictures of the 400 tonne dump trucks, but they are even more impressive in person. The dragline cranes have been retired, but one has been kept on display (see photos). The investment in a new expansion to any part of the project is a huge undertaking that requires years of planning.

While there are concerns about the environmental impact of oil sands development, I was impressed with the environmental commitment that is being made at the Syncrude project. Syncrude returns no water to the Athabasca, most is recycled, the rest eventually escapes the process as steam. Parts of the old mine have been reclaimed, and a herd of buffalo now live on that land.

There is no doubt that the projects and their end product are huge contributors to climate change, and even the amounts of sulphur that are a by-product of the refining operation and is stockpiled on site is significant. But since there is no reduction in demand for oil in sight, the development will go on, and is creating a tremendous number of jobs for people moving to Fort McMurray and for the local first nations. Canadians can feel secure that we have a source of energy close to home, and also the engineering and skill to be able to bring it to market.

Here are some interesting general links about oil sands development:

And as long as oil prices remain high, oil sands investments appear attractive. Here are some funds that have significant holdings in oil sands companies...

Here are a few of the funds with Major Canadian Oil Sands Trust holdings:

Name of Fund Holding COS.un% of Total AssetsAs of date
iShares CDN Income Trust Sector Index9.8%31-May-07
TD Income Trust Capital Yield - I9.7%30-Mar-07
Fidelity Income Trust Series A8.5%31-Mar-07
Claymore Oil Sands Sector ETF8.0%31-May-07
TD Dividend Growth - I7.5%30-Mar-07
McLean Budden High Income Equity5.2%30-Apr-07
GGOF Monthly High Income II4.8%31-May-07

Here is a list of the Mutual Funds holding COS.un and how many fund managers are adding to their holdings, and how many are selling. Currently, more fund managers are selling than buying:

The top holding on our Recommended List is CI Canadian Investment with a major Canadian Oil Sands holding at 2.6% of net assets. See:

Another way to get a diversified exposure to oil sands development is through an ETF. The iShares Income Trust ETF holds trust from many sectors, the Claymore Oil Sands Sector ETF holds not just COS.un, but all the major Oil Sands developers. See:

  • Claymore Oil Sands ETF
  • Claymore Oil Sands ETF doc

Also, most of the resource funds available through ScotiaMcLeod have significant Oil Sands holdings:

  • Resource funds
    (From the fund performance page, click fund name for fund details and then again for performance details on the top holdings)

And of course the individual stock is a great way to invest directly as well:

Please contact us if you have questions about your exposure to natural resources and the oil sands in particular.

Scotiabank at 175

Celebrating 175 Years of Success

Scotiabank is celebrating their 175th anniversary this year. Most people know that our bank has a strong international presence, but did you know that the Bank of Nova Scotia had branches in the Caribbean before having branches in Toronto?

Find out more (and 3 minutes into the video, catch a minute of Carl's corporate screen debut) by watching the video spotlight at:

AIM Trimark Capping Some funds, Lowering Fees on Others

AIM/Trimark will be capping Trimark Global Endeavour Fund, Trimark Global Endeavour Class and Trimark Global Mid-Cap Equity Private Pool to new investors in July. These have been great funds but their small cap focus limits the amounts they can invest in smaller companies if the funds become too large.

AIM/Trimark is also lowering the MER on several funds, to bring them into line with other offerings in their fund lineup and to remain competitive with funds from other companies.

More on Aim Trimark Changes

  • Funds Capped
  • Lower MER

Securities Regulators Propose New Fund Documents

A document has been released for public comment about fund disclosure. "Proposed Framework 81-406; Point of sale disclosure for mutual funds and segregated funds." It provides a 2 page summary of a fund, for investors to review prior to making a fund investment. Let us or the regulators know what you think:

New Water Funds Making a Splash

In February this year, Criterion Investments (an affiliate of Vengrowth Asset Management) launched an interesting new global equity fund that focuses specifically on investing in companies tied to the global water industry. This portfolio has been professionally managed by Dr. Philippe Rohner of Pictet Asset Management (based in Europe) since early 2000 but until now has not been available to Canadian investors.

At a time when analysts and investors alike are focused on commodity pricing of oil, water has not received the attention it perhaps deserves. Unlike oil, (see oil sands article, above)there is no substitute for water. It is irreplaceable in all of its uses. Fresh-water is also rapidly becoming less abundant as net consumption increases. Fresh water has not been ‘created' in millions of years; yet global populations continue to grow.

This supply/demand problem is compounded by the ever-increasing amount of water that is contaminated by humans each year. While frightening to realize, these facts present solid investment opportunities in the water industry.

Enter the Criterion Water Infrastructure Fund. This is not a ‘green' fund, but will provide exposure to publicly listed companies around the world that specialize in everything from delivery infrastructure to water-treatment to bottled water producers.

Similarly, Claymore investments in early June launched a Water Exchange Traded Fund, under the stock ticker: CWW.A

More on Criterion Investments Water Infrastructure Fund

  • Criterion Overview

More on Claymore Water ETF

  • Claymore Water ETF
  • Claymore Water ETF doc

AGF Increases Foreign Content

Recently, AGF increased the foreign content limit on many of its Canadian funds to 49%. This is similar to what many other fund companies have been doing, to allow fund managers to explore opportunities beyond the 3% of world stock markets that Canada represents.

This does make it more important for us to follow the fund managers closely, since when we make an investment in a "Canadian Fund" and then balance it with an investment in a "Global Fund" we don't want to inadvertently move too far out of Canada, a move which has its own currency risks. We will continue to monitor the fund categories, which now distinguish between equity funds with purely Canadian holdings or a broader set of investments.

More on AGF Foreign Content Increase

Recommended Summertime Reading

Canadian Institute of Actuaries Say Canadians Not Saving Enough

Fidelity Retirement Survey Says we need 80% of Income to Retire

If you are considering retiring in 2030, ask yourself the following three simple questions:

  1. Do you contribute at least 15 percent of your yearly earnings to an RRSP?
  2. Does your employer sponsor a workplace pension plan?
  3. Do you own a home and do you intend to have it paid for by retirement?

If you are 40 years old or over, and have not given much thought to these questions, your retirement planning picture may be somewhat troubled. While this is not good news, you should know that you are not alone. Estimates show that two-thirds of Canadians may not be saving at the levels required to meet required household expenses in retirement.

So says the following study sponsored by the Canadian Institute of Actuaries and carried out this spring by the University of Waterloo's Department of Statistics and Actuarial Science.

At the same time, Fidelity Investments has introduced "The New Retirement Math". They suggest, that rather than the 70% that has traditionally been used as a retirement income replacement factor, 80% should be used.

We'll let you read and decide, or ask us for a detailed retirement plan based on your personal situation.

Mutual Fund Reporter Recommended Web site of the Month

Fidelity has just introduced a terrific retirement readiness tool. It uses your answers to six simple questions to project your approximate savings at retirement and your first-year income in retirement.

In just a few minutes, Snapshot can help you measure your own retirement readiness, which you can then compare to the Fidelity recommended benchmark, and do a quick "What if?" analysis.

Let us know about your results. We would be interested to hear how you made out and how we can help. You'll find the tool at:

  • Fidelity's Take the Challenge


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