Managed Money Reporter Newsletter — Issue 126, July 1997


Editors: Carl Spiess & Allan McGlade



Top Manager Moves Firms - Creates New Funds

By John Zufelt

Gerry Coleman

The performance delivered by an investment fund is directly attributed to the manager who makes the investment decisions. If a manager leaves a fund company, the fund company can still advertise the historic rates of return for the fund, even though the manager who had achieved those returns no longer manages the fund. Buyers beware! Gerry Coleman has left Mackenzie Financial Corporation and the management of Ivy Canadian Fund and the Ivy Growth and Income Fund. Gerry has now moved to Canadian International (C.I.) Management Inc. and has launched two new funds called the Harbour Funds.

Coleman's History

Gerry Coleman began his career with Montreal Trust Company where he performed a wide variety of tasks, including trading both bonds and stocks as well as managing investment portfolios for estate, trust, personal and pension portfolios. Latterly, he was manager of the company's Toronto investment department. In 1978, he moved to the mutual fund industry and joined United Financial Management to become a pure money manager. In 1992, he left United to assist in the creation of the Ivy Funds at Mackenzie. At the time Coleman joined C.I., the two Ivy Fund portfolios that he managed had aggregate assets of $4.7 billion. Under his tutelage, the Ivy Canadian Fund achieved high returns with far lower risk than the TSE 300 index and became Mackenzie's flagship fund.

Interview with Gerry Coleman

"My approach to the stock market is a little like a businessman trying to assemble a portfolio of businesses. I have certain criteria which must be met, and I'm very disciplined about portfolio decisions. Although I'm typically referred to as a value investor (which is correct), I also place a strong emphasis on growth. For me, value and growth must strike a balance. Today, I think we're in the kind of market where investors need to be really discriminating. My sense is that, even though economic fundamentals look pretty solid, the valuations in Canada and the U.S. are at the upper end of the spectrum. If that is the case, the Harbour Funds should do very well because the kinds of companies we'll be putting into the portfolios will be very high quality and will stand up to any environment. If I'm right about that and right about the fundamentals of the portfolio holdings, this style of fund should fare very well going forward in the next two or three years."

The Harbour Funds

Many people wish to invest into new funds, especially where a top performing manager is involved. Initial sales have been very strong. If you wish more information on the Harbour Funds or would like to purchase them for your account, please call us at (416) 863-7777 or 1-800-387-9273 or e-mail us at spiessmcgladeteam@scotiawealth.com.


Buy A Term Certain And Invest The Difference

By Allan McGlade

Annuity Products

Recently a client came to us and asked for our assistance in structuring a portfolio for her elderly parents. The primary objective of the portfolio was to produce a monthly income stream equal to 8 to 10 percent of the capital with emphasis on capital preservation. To top it all off, we were told that the parents were risk adverse.

After we had assured ourselves that the client and her parents were of sound mind and had looked at the financial pages in the last couple of years (particularly where interest rates are listed), we went to work.

The situation I have just described may sound familiar. Increasingly we are coming across situations where retirees who have been living off of interest bearing vehicles are being faced with the prospects of substantially reduced interest rates when the investments mature.

For the most part we have looked at two solutions to the problem. The first is to set the client up in a couple of well-managed mutual funds that offer a systematic withdrawal plan. The client can select a fixed amount or a percentage of the net asset value to be withdrawn each month. This type of arrangement works well for the most part. This type of approach is best suited for individuals who are comfortable with funds and are willing to accept some volatility.

The alternative solution is to purchase a term certain annuity that will produce the income stream required and invest the difference.

Example

In the case of our client's parents we had $300,000 to work with. The annuity required $111,000 to produce an income of $2100 per month for five years or a pre tax return of 8.5%. More importantly the taxable portion of the total annual payments was only $3000. So even at the highest marginal tax rate, the annuitant gets to keep in excess of $23,700. At the end of five years the capital would be depleted and the payment would cease.

The difference can then be invested with a five-year time horizon in mind. Because an income stream is not required the yield on fixed income investments can usually be improved. Alternatively, a portion of the assets available for investing could be placed in a conservative mutual fund to enhance the returns. Conservative clients are usually more accepting of equities when they are not depending on the capital to generate an income each month.

This is exactly what we did with our client's parents. The fixed income portion will generate a return of 5.3%. Combined with the equity portion we have targeted 6.5% to 7% as a total return. The net result is a high cash flow, access to capital if needed and a more favorable after tax position than a portfolio of strictly GICs. Most importantly, the client has peace of mind knowing her parents are set for the next five years.

Seg Fund Update

Since the launch of ManuLife's Guaranteed Investment Funds earlier this year, the funds have taken in a total of 587 million with the Trimark Select Canadian Growth GIF leading the way at 100 million.

 



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    allan.mcglade@scotiawealth.com

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