Managed Money Reporter Newsletter — Issue 269, May/June 2012

Editors: Carl Spiess & Allan McGlade

Featured Articles

Groundhog Day Again

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

After last reporting on a banner start to the year, April and May felt just like 2010 and 2011. First a nice rise, then back down to where we started. And now as of the beginning of June we are below where we were 2 years ago. Fears of the chronic debt situation in Europe, poor US manufacturing and unemployment data, and slowing emerging markets growth have stock indexes all heading lower again. Resource prices are under pressure, which is especially hurting Canada's markets and dollar. The US does have dry powder with the Fed's third round of quantitative easing (QE3) on the sidelines. But does adding more debt to the enormous pile help us and future generations?

As evidence of how the resource picture has changed, in 2007 there was great discussion of the need to import natural gas in North America as our gas wells were running dry. Natural gas home heating bills were rapidly escalating. 5 years later, with controversial gas fracking taking hold, we now have record low gas prices, and there is discussion of building Liquid Natural Gas (LNG) ports to export, not import gas. Even oil prices have seen recent declines.

Bank of Canada Governor Mark Carney continues to sound the alarm bell warning overly indebted Canadian home owners about the risk posed by higher interest rates. Like in 2011, the possibility of higher rates is very real, but we have yet to see any significant rise in long term rates. Perhaps rates will rise toward the end of the year. In the interim, we will continue to focus on solid guaranteed investments, stocks with dividends and fund managers who have weathered past storms. With the dividend yield on Canadian bank shares running at twice the rate those banks pay to customers on their GICs, it does seem to make sense to be a bank owner, instead of a bank depositor.

We expect the rest of 2012 to continue to show volatility in equity markets, with the US election possibly providing a distraction in the fall. However, to paraphrase a famous old saying "this is the stock market, where anything can happen and it usually does." Hopefully though we will be heading into a quieter period - the attached chart shows how often the market moves more than 2%, and the last 4 years have been some of the most dramatic.

No. Trading Days Plus/Minus 2%

For more information on ScotiaMcLeod's view of the markets including a terrific summary of major investment themes by our Chief Strategist Shane Jones, we pleased to present the spring issue of our Investment Portfolio Quarterly:

Investment Portfolio Quarterly, Spring 2012 Edition


Asset Allocation is still important

In our one on one client meetings, we regularly remind our investors that Asset Allocation is important. Our simple rule of thumb of "your age as a percentage in bonds" continues to be relevant. We are always interested in other opinions on asset allocation, so it was interesting to read these comments from Benjamin Graham; the Columbia professor who was Warren Buffett’s teacher, and who is considered the father of value investing.  In a recently discovered 1963 talk, Graham had this to say on asset allocation: 

“In my nearly fifty years of experience on Wall Street, I've found that I know less and less about what the stock market is going to do but I know more and more about what investors ought to do.  My suggestion is that the minimum amount (of the investor’s) portfolio held in common stocks should be 25% and the maximum should be 75%.  Consequently the maximum amount held in bonds would be 75% and the minimum 25%; any variations should be clearly based on value considerations.”

Note that the DOW was at around 700 at the time of this quote, and yet still the focus of the speech was about uncertainty in the markets. However today the real question is, do we still want to have a significant portion of an investment portfolio in bonds when interest rates are so low? We think the answer is still yes, but will be monitoring asset allocation decisions more closely than ever.

A decade of falling yields


New ScotiaMcLeod statements

ScotiaMcLeod has recently updated your client statement beginning with the March 2012 month/quarter end statement. Some of the enhancements include colour accents throughout, including a pie-chart intended to give you a quick at-a-glance asset mix summary. As we mentioned in the previous article, with asset allocation being so important, bringing this information to you graphically and on the front page will help with investment reviews. Many securities do fall into the "other" category, so if you are looking for an even more detailed asset allocation analysis, please contact us for details.

You will also notice new section headings and enhanced messaging to better communicate key financial information. Account holdings are now listed alphabetically and the most frequently read section, “Account Overview”, has been moved to the first page.

Beginning September 2012, a new section will be introduced called “Your Personal Investment Profile”. Here you will find a summary of your Investment Objectives, Risk Tolerance and Investment Knowledge. In the coming months, you may receive documentation from our office in order to update this information and ensure it accurately reflects your investment profile.

We are pleased that ScotiaMcLeod is still the only major brokerage firm to offer plan growth calculations for registered accounts. In the future, plans are underway to provide even more performance and fee information to investors on our statements. In the interim, if you would like to receive more detailed investment return and fee information, please contact us directly.

As always, you are more than welcome to call our office with any questions and concerns and we welcome your feedback on the new statements.

Please see the link below to a sample statement which highlights the changes:

Reading Your Investment Account Statements


Scotiabank again named as one of the Best Places to Work

Scotia a great place to work

We are pleased to announce that Scotiabank has been recognized as one of the Best Places to Work in Canada 2012 by the Great Place to Work® Institute for the third consecutive year. ScotiaMcLeod is, of course, the private wealth management division of Scotiabank and we share the bank's culture of success. The Spiess McGlade Team is also a great place to work — half of our team has been working together for over 15 years now!

Selection for Best Workplaces is based primarily on an employee survey about the level of trust and quality of relationships in an organization. Scotiabank scored well in all categories of the study and received marks that were above the benchmark for large workplaces across three of the Institute's five Work Trust Index categories; Credibility, Pride and Camaraderie.

180 years in the making - our Global Community of Scotiabankers has an irrepressible spirit of community that fosters the sense of an extended family, focused on building strong relationships through collaboration and mutual trust. Our winning global team is the result of an environment where all employees have the opportunity to thrive in their careers.

Employees worldwide are our greatest strength and this achievement is about you making Scotiabank a great place to work, time and time again. We are proud of our One Team, One Goal spirit. To read or hear about the amazing career stories that take place every day at Scotiabank, visit:


Budget updates

Eliminating the penny from circulation

The Federal and Ontario Provincial budgets were tabled in the last month. ScotiaMcLeod has a good summary of changes in the Federal Budget that may impact some investors. It was a simple and unexpected item that received the most headlines was the elimination of the penny.

Fidelity published a good summary of the federal budget and the recent provincial ones.

Budget Analysis, Fidelity

And here is the article from the Royal Canadian Mint announcing the elimination of a penny.

Eliminating the penny, Royal Canadian Mint


Recommended Reading - Bill Gross

Bill Gross, manager of the world's biggest bond fund at PIMCO, offers his views on global markets.

Wall Street Food Chain, by Bill Gross


Ontario Savings Bonds Available

Ontario Savings Bonds are available for sale from June 1, 2012 to June 21, 2012. We have included the current rates for variable, step-up and fixed rate offerings below.

OSB rates

Full information on Ontario Savings Bonds is available at:

However, we are still in favour of GICs in your accounts for the guaranteed portion of your portfolio. Rates are more attractive than the current OSB offerings and GICs are fully insured by CDIC up to $100,000. We are able to shop from over 15 issuers to ensure that you have the best rate available.

In addition, if you currently do own a Step-up or Variable Rate Ontario Savings Bond, now may be the time to consider selling early to re-invest in a higher yielding GIC. You are able to sell these bonds prior to maturity on their anniversary, June 21st. Fixed Rate OSBs may not be sold prior to maturity.

Please contact our office for more information.


Recommended Link of the Month

Dynamic has launched a website to help investors make opportunity out of volatility. Named Volatunity, it has good resources to help understand market cycles and the benefit of having a long term plan. Please take a look and contact us with any questions.



Contact Us

T.  416.863.RRSP (7777)
F.  416.863.7479

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