Editors: Carl Spiess, CFP, CIM, FMA, FCSI,
MBA, Director, Wealth Management
Allan McGlade, CFP, CLU, Senior Wealth Advisor
Featured Articles
 October - The
scariest month?
It is not just Halloween that makes October scary
As we get through another rough October, everyone will breathe a sigh
of relief. Canada's benchmark index was down 5.7 per cent in October.
The Dow fell 1.2 per cent, the Nasdaq dropped 1.5 per cent and the
S&P 500 dipped 1.8 per cent. But there have been much worse
Octobers if we think back to 1929 or 1987.
In fact, the economy seems quite stable at present. The biggest
factor in the market volatility, was the uncertainty the government recently
placed on the income trust market.
While talking to a Member of Parliament recently, he commented to me
"I'm sorry about the impact the income trust taxation issue is
having on your clients". My reply was simply that "there
isn't an income trust tax issue, there is an over taxation of regular
dividends tax issue." Hopefully the rest of Ottawa will see
it that way too and instead of taxing trust income, will lower the
(double) tax on regular dividend income.
And on the political front, despite a potential election just around
the corner, compared to October 10 years ago, the Canadian political
situation is more stable. It was exactly 10 years ago that we last suffered a crisis of Confidence
in Canada, and have seen a rising Canadian dollar ever since as a result.
Our Fall Investment Portfolio Quarterly (recommended reading link
below) provides much more commentary about the future opportunities and
risks in the Canadian and global markets. But before reading about
how Scotiabank and ScotiaMcLeod's employees say you should invest, let's
see how the Bank manages it own employees' money.
Asset allocation - What the bank's pension
fund managers do
 Bank pension plan
75% invested in equities
With uncertain markets ahead, it is worth asking what does the bank
do with their employees' retirement money?
Well, for the 36,000 employees of the Bank of Nova Scotia who are in
the bank's pension plan, the answer is investing for the long
term. While there are already thousands of retirees drawing a
steady income from the plan, many more are contributing regularly, so on
the whole, the assets have a long time horizon.
This asset allocation is more aggressive than our recommended
standard "your age as a percent in bonds", since
the average age of the plan members is more than 24, which is the
pension plans' allocation to fixed income. Although this may seem
heavily weighted in equities, especially for a conservative bank, it
just means that the pension fund managers view this portfolio as one with a
very long term time horizon. And they know what we know – equities
provide the best long term return on capital. Interestingly, the
Canadian equity and foreign (US and non-North American) weightings are
roughly equal at 39% and 37% respectively. This parallels what we tell
our clients – equal parts foreign and Canadian equity for better
diversification.
The asset allocation is reviewed annually, and if any sector is off
by more than 3% from the stated allocation, it is rebalanced. 20
different investment management firms actively manage the portfolio
against various benchmarks.
Next month, we'll look at some new asset allocation services that
can automatically make your portfolio more conservative as you get
closer to retirement. If it has been a while since we sat down together to look
at your asset
allocation, please contact us.
We would be more than happy to review your accounts to ensure your
portfolio is still tracking to your long term goals.
Recommended reading
Fall Investor Portfolio Quarterly
The Fall edition of ScotiaMcLeod's Investor Portfolio Quarterly has
now been published. This quarterly publication provides insight
into the markets and their outlooks from our Portfolio Advisory Group.
US investors favouring funds - Canadian fund
assets reach new record
A new study by the Spectrem
Group finds that the wealthiest US investors are adding to their
mutual fund investments. The report finds that over the past two years,
investors worth $5 million or more have doubled the percentage of
investable assets allocated to mutual funds from 6% in 2003 to
12%.
Coupled with a move out of individual stocks and bonds and into cash,
increasing mutual fund assets also suggests that Ultra High Net Worth
investors are becoming more conservative. Interestingly, High Net
Worth investors are allocating less to alternative investments –
hedge funds, private image placements, private equity and venture
capital actually fell to 8% in 2005 from 9% in 2003.
The study was conducted in the spring of 2005, generating 500
responses to a mail survey of 720 households with a net worth of $5
million or more.
In Canada, "September’s net sales helped bolster sales for the first
nine months, taking them to $18.4 billion, the highest net sales figure
since the same period in 2001," said Tom Hockin, president and CEO of
IFIC, in a release. Canadian Mutual fund assets at the September month end stood
over $550 billion, a new record for the industry.
More on Canadian Fund Statistics
LSIF funds merging
Covington and Growthworks consolidating smaller funds
Covington Group of Funds has announced a proposal in which six of its
labour-sponsored investment funds would merge into a new fund to be
named Covington Venture Fund Inc. The funds included in the proposed
merger are:
- Triax Growth Fund Inc.
- New Millennium Venture Fund Inc.
(both Venture series and Balanced series shares)
- E2 Venture Fund Inc.
- New Generation Biotech Balanced Fund
- Venture Partners Balanced Fund
Inc.
- Capital First Venture Fund Inc.
Four labour-sponsored investment funds managed by GrowthWorks are
also proposed to merge. The Canadian Science and Technology Fund
Inc. (“CSTGF”), Capital Alliance Ventures Inc. (“CAVI”) and
GrowthWorks Opportunity Fund Ltd. unitholders will be voting on whether
to merge into the much larger GrowthWorks Canadian Fund Ltd.
As we feel there are too many small and expensive LSIFs out there, we
applaud these merger initiatives and will keep you informed of future
developments.
More on proposed labour fund mergers
When it comes time to see how your politicians in Ottawa are voting
on issues of interest to you, visit:
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