Managed Money Reporter Newsletter — Issue 271, November/December 2012

Editors: Carl Spiess & Allan McGlade

Featured Articles

ETF update

Carl Spiess

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

As Exchange Traded Funds (ETFs) have grown in breadth and popularity, it has become more confusing for investors trying to decide which ETF is best suited for their particular portfolios. Our in house research is one of the sources of information we use when analysing investment suitablility for clients for whom ETFs could provide a performance or fee advantage. ScotiaMcLeod's analysts have researched a recommended list to help us and our clients sift through all the options.

ScotiaMcLeod ETF Recommended list

For some time, the largest ETFs were also the least expensive. Now new entrants into the marketplace are driving down ETF costs, resulting in better value for our clients. Meanwhile, other niche ETFs are providing options for foreign exchange, unique sectors and strategies and even active management. We are pleased to be expanding our research on ETFs to help make the best use of these innovative investment structures in client accounts. Here is a good article from our research department, discussing important factors we consider when choosing an ETF:

ETFs vs. Mutual Funds

We are pleased to see that the tone of articles in the general media have become more balanced. As the number of offerings increases, the simplistic "all exchange traded funds - good, all mutual funds - bad" is being replaced with a more realistic view that lower fees in both ETFs and mutual funds is a good thing for investors. Ultimately, we want to see good value for our clients. That requires, not only looking at management fees, but also what benefit they provide in return. Underlying investment strategies, tax effectiveness, overall portfolio construction and asset allocation continue to be our key drivers in designing client portfolios.

Morningstar has been increasing their coverage of ETFs and have a good year end summary of trends in the industry. (Don't let the title shock you - read on):

Here are links to the top Canadian ETF providers - please note of course that all 1,500 US traded ETFs are also available for Canadian investors:

iShares ETFsBMO ETFs
Horizon ETFsPowerShares ETFs
Vanguard ETFsRBC ETFs
First Asset ETFs

Not sure if ETFs would be suitable for your portfolio? For us, it often depends on the structure of client accounts. Since all ETFs trade like stocks, holding them in a "fee based" account makes sense since there are no brokerage commissions for buy and sell transactions. In traditional ScotiaMcLeod accounts, trailer fee paying "advisor class" ETFs can be purchased with low trading fees. Of course, we are happy to advise you on all of this, keeping your overall investment strategy in mind. Please contact us if you have questions about our available ETFs or your portfolio in general.

More on exchange traded funds


Year-end tax considerations


Tax season will soon be upon us. Please be aware of the various deadlines that start this month and carry over into the new year. December 24, 2012 is the last day for tax-loss selling of Canadian securities for 2012. The only December 31st deadline is making sure your Registered Education Savings Plan is topped up for any youngsters you are helping fund a future education account. Contributions for RRSP contributions for the 2012 tax year must be received in our offices on or before March 1, 2013. TFSA contributions can be made any time and the limit will increase to $5,500 in 2013 - look for our updates on that early in the new year.

Here are a list of other considerations including tax loss selling. As always, please contact us if you have any questions - we are happy to help.


All the best for the holidays from the Spiess McGlade Team

It is interesting to look back almost a decade to our December, 2003 photo. While our team has grown, 9 of the 10 team members from 9 years ago are still working together.

Move your mouse over the photo to see the lighter side of The Spiess McGlade Team.


Spiess McGlade Team proud of 97% client retention

Spiess McGlade Team Retention 2009-2012

Our team has remained remarkably consistent over the years, and so have our clients. In fact, over the last 9 years, we've had a 97% annual client retention of our priority (over $250,000) client households. We appreciate your ongoing business and will continue to work hard to meet your investment and financial planning needs.

This strong client retention has resulted in our team having record assets under management at our fiscal year end, October 31st. Thank you to all our clients for allowing us to help with your investments.

While we are pleased with our team's performance, it is also great to be part of a bank that has done very well. Scotiabank just announced another record year.

And last week, The Banker magazine, a Financial Times publication, named Scotiabank Global Bank of the Year, as well as Bank of the Year in the Americas. This is the first time that a Canadian-based bank has received either of these prestigious awards:

Spiess McGlade Team assets under management












Upcoming changes to OAS

Allan McGlade

By Allan McGlade, CLU, CFP, CIM

Changes to the Old Age Security Program

In their effort to address the stress that baby boomers will put on the sustainability of federal government retirement income entitlements, the most recent federal budget announced changes to the Old Age Security (OAS) program. The changes are as follows.

Eligibilty age to increase to 67

Starting in 2023 the eligibility age will increase from 65 to 67. The increase will be phased in over 7 yrs. Canadians born in 1957 or earlier will not be affected by the new rules. Canadians born between 1958 and 1962 will see benefits begin later than the month they turn 65, but earlier than their 67th birthday. A transition schedule is provided on the Service Canada website at:

If you were born in 1963 or later you will need to wait until your 67th birthday to begin receiving the OAS entitlement.

Coupled with the recent changes to the CPP program we think this further highlights the need for the middle income segment of working Canadians to ensure that they are paying themselves first through contributing to a company pension plan and/or an RRSP program.

Introducing ability to defer OAS in return for larger benefit

The federal government is also introducing the ability for Canadians to defer receiving the OAS benefits by up to 5yrs past the age of eligibility, effective July 2013. Each month of deferral will enhance the base benefit by 0.6% per month (7.2% annual). A full five year deferral will provide an increased benefit of 36%. Looking at current benefit entitlements the monthly benefit rises to $741 from $545 if the full deferral period is taken. Of course this means you forgo up to $32,700 of benefits for a five year period and this doesn't factor in any indexing of the payments.

So who might consider the deferral option?
If your OAS entitlement will be fully clawed back due to employment income, employer pension entitlements, investment income or any combination of the three, you might as well defer your OAS benefits. Doing so will increase your claw back ceiling by 36%, which might allow you to collect at least a partial benefit at age 70 and beyond.

If you have reason to believe you will live well beyond the average life expectancy of a 65 year old female or male. There is merit in electing to defer the benefit. It is impossible to know how long we are going to live however as such we think most Canadians who will not be subject to a significant clawback of the OAS benefit should begin receiving their benefit as soon as they are eligible. Interested in finding our more about life expectancy? Visit the Interactive Tools section of our website:

These are general views. Each individual will need have unique circumstances that need to be considered.

Enrolment in OAS to become automatic

The third change to the program is automatic enrolment. Canadians will no longer be required to apply for the OAS benefits. Service Canada will pro-actively enrol Canadians and notify eligible participants in advance of their eligibility and procedures to elect for deferral.

Changes to GIS introduced

Lastly changes are also being introduced to the guaranteed income supplement (GIS) available to low income retirees.

More on the upcoming changes to the OAS & GIS programs


Some of our Economic Due Diligence

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

The Economist's Buttonwood Gathering

In October, I attended the Economist's Buttonwood Gathering in New York City. This annual conference brings together business leaders, economists, fund managers, central bankers and government policy makers.

The biggest items that were on everyone's mind were the deficits and resulting debt being run by the developed countries. The US "fiscal cliff", coming to the top of the news cycle later in December, was the most used catch phrase. Naturally, the US election and the polarized US political system was a topic of discussion. The upcoming "lame duck session" of congress after the election and coming into the Dec 31st deadline for payroll tax increases and broad based spending cuts. Amazingly since this was before the US election, neither Obama nor Romney had delivered a clear message as to how they were going to solve the fiscal cliff issue, but there was broad consensus that whoever won, they would likely defer the tax increases and spending cuts to minimize the potential GDP reduction and turn the fiscal cliff into more of a fiscal dip.


With the Economist being a British publication, the debt crisis in Europe was covered extensively with the widely accepted conclusion that the ECB intervention this past summer had been both needed and effective.

Canada only came up a few times in the discussions: First, when a question came up about the protectionist policies some countries (Canada temporarily blocking the Petronas purchase of Progress energy was cited as an example). The response was that while protectionism is always a threat, with global trade having grown from 5% to 50% of GDP worldwide it would be hard and very foolish to stop that progress. The second time Canada was specifically mentioned was when the discussion came to what countries can do when they are faced with ballooning debt and deficit issues. "Canada did it in the mid 90's and took the tough medicine to reshape the debt curve". Canada was mentioned as a model to be emulated when it comes to immigration and targeting immigrants with specific skill sets that the country needs and can easily absorb. Canada was also highlighted as a desirable system when it comes to banking regulation.

Two hedge fund managers (Hugh Hendry and David Einhorn) were very interesting. They have generated solid returns over the last decade by taking contrarian views. Comments about gold, gold mining stocks, the S+P 500 were diverse but most felt that the US dollar being the world's reserve currency, it was likely to be a safe place to be for some time.

El-Erian delivers Bagehot LectureAt Buttonwood, PIMCO's chief investment officer Mohammed El-Erian spoke about the extraordinary events of the last few years. His speech was picked up by newswires around the world. The impressive part about hearing from El-Erian is that he is a thought leader who is on record about not attending the well known Davos economic summit.

(As an aside, the week before I was in New York for this conference, Allan was in Los Angeles visiting Pacific Investment Management Company (PIMCO). Bill Gross' PIMCO is an impressive global investment firm. They have recently entered Canada and we are following the investment mandates they have available here. Note that as a follow up to our lead article, in the US the recently launched and actively managed, NYSE-listed PIMCO Total Return ETF [yes, its ticker is BOND] has been tremendously successful – attracting 3 billion in assets in just a year.)

There was a good deal of optimism about the prospects for the US becoming energy independent (and the largest oil producer by 2020) due to the groundbreaking (pun intended) explosion in shale oil and gas extraction. But questions about environmental impacts of fracking were dismissed a bit lightly to my mind.

The final speaker was Larry Fink, head of Blackrock investments. His speech commented on short termism of governments, corporations and investors. But his biggest point, and most relevant to anyone who has made it this far through this article, was about retirement age and interest rates. With many people having a potential 30 years in retirement, and historically low interest rates, the capital pools that will need to be saved will only increase.

More on The Economist's Buttonwood Gathering


Recommended Link of the Month

Mark Carney presents to the CFA Society

Allan, Andrew and I were fortunate to be able to hear directly from Bank of Canada governor Mark Carney at a recent Toronto Certified Financial Analysts' lunch. In his first speech since being selected as the next head of the Bank of England, he outlined the role of the Bank of Canada and the purpose of the policy guidance the Bank provides. He also outlined the differences between the actions the Bank takes in ordinary times, versus the extraordinary times we faced in 2008.

We feel sad to be losing a banker who kept Canada stable and respected through those tough times, but also proud of a small town Canadian boy (he was born in Fort Smith, Northwest Territories) who has earned the respect of the world.

Here are links of that recent Bank of Canada speech. One of the most interesting parts of the speech is right near the end in the Q&A, at 31.45 where he indicates (or misspeaks or speculates) there will be "a determination of the success or not of the relaunch of the Euro"? and at 41:50 that "we" need to end "too big to fail". Overall it seems we've been in capable hands.Looking through older speeches provides some interesting commentary on housing prices in Toronto and Vancouver.



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