Managed Money Reporter Newsletter — Issue 115, August 1996

Editors: Carl Spiess & Allan McGlade

New Fund Available - Pacific Special Equity

Another fund new to ScotiaMcLeod's list of funds is the Pacific Special Equity Fund run by Graham Henderson of Pacific Capital Management Ltd. since its inception in June of 1993. Henderson's background includes 10 years of pension fund management with Royal Trust and 6 years in institutional equity sales with Merrill Lynch and Credit Finance Securities. Henderson's focus for the Pacific Special Equity Fund lies in three key areas: Biotechnology, Resources and Industrials.

This small cap fund's investment objective is to achieve superior capital and long term returns, and judging from their track record so far they seem to be well on their way. Since its inception, the Pacific Special Equity Fund has been the best-performing TSE-oriented fund in Canada, with a total return to May 31, 1996 of over 147%. So far this year, the fund has returned over 43%. Initial purchases for this front-end fund is $5,000 with subsequent purchases of $1,000.

More Canadians Buying Mutual Funds

A recent study by consulting firm Ernst & Young revealed that Canadians are catching up to Americans in terms of mutual fund penetration. The study predicts that by the year 2000, Canadian mutual fund assets will more than double, to $300 billion or $400 billion. Currently the industry's assets stand at close to $150 billion. In contrast, in the U.S. mutual funds assets stand at almost $3 trillion and exceed the amount of money in bank deposits.

In Canada, many investors are still holding true to GICs and Canada Savings Bonds, however the study shows that the worldwide mutual fund industry will continue to grow rapidly as household wealth increases and the global trend toward encouraging and educating investors to take responsibility of their retirement savings continues.

Investors are learning through experience that mutual funds are long term investments. For example, many new mutual fund investors were horrified in late 1993 and early 1994 when they invested in bond funds just before the bond market peaked, and then watched as interest rates rose dramatically. Those who sold as they lost money worsened the mistake of buying high and selling low, since bonds gained back all their losses as interest rates dropped consistently in the past year and now stands at a record low. The moral of the story, for all mutual funds (not only bond funds) is that they should be held for at least five years to even out the fluctuations and come close to the average returns you can expect in the long term.

Market Commentary

The Canadian economy expanded only at a rate of 2-2.5% in the second quarter of 1996, slower than the Bank of Canada had expected. This, coupled with a low inflation environment, disappointing corporate earnings and low consumer demand all spurred on the Bank of Canada to lower the bank rate, which in turn prompted the major chartered banks to lower the prime lending rate from 6.25% to 6% last month and not raise it as was anticipated. Furthermore, the prime lending rate was dropped by another quarter of a percentage point last Friday to 5.75%. Many analysts now predict that Canadian commercial interest rates may be set to drop below U.S. levels on a sustained basis for the first time in 20 years. With all this taken into account, the economic outlook remains favorable, with low interest rates and the continuing trend of low inflation. Analysts feel that neither current monetary conditions nor economic fundamentals signal a bear market and do present a perfect buying opportunity for investors.

A Few Reminders

Here's a few notes to our clients:

  • The Estate Planning Seminar with Byren Innes will be held on Friday September 6, 1996 in the Ratcliffe Room of Scotia Plaza, 63rd floor.
  • In last month's issue of the Mutual Fund Reporter, we wrote about the G.T. Global Telecommunications funds. The response to this fund from our readers was so great that, we have enclosed some more information on some of the G.T. Global funds.


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F.  416.863.7479

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