Week in review: November 10-14, 2008

Skip to: Quick links, stories this week.

The news this week includes a review of CI Financial’s position, a wealth of dreary, somewhat depressing economic and market news and an unsurprising number of fund merger announcements from the industry. Although mutual funds aren’t going away any time soon, a new study out of Boston might add to concerns — it concludes that mutual funds will take up drastically less space in the average retail portfolio and be replaced with alternative asset classes.

CI Financial though, says its relative position in the industry is good — while competitors all suffered net redemptions in October, it says the company’s mutual fund division managed to post small net sales. Admittedly, though, the bulk of the company’s net inflows are coming from segregated fund sales.

South of the border, the U.S. Federal Reserve Board and the U.S. Treasury announced it is bailing out America International Group (AIG), with plans to buy $40-billion worth of the company’s newly created preferred shares.

Canadian taxpayers are joining the game, whether they like it or not, after the federal government and the Bank of Canada both announced measures to purchase an additional $50-billion worth of insured mortgage pools by the end of the year from the Canada Mortgage and Housing Corporation (CMHC).

Canada The Good is also slipping on the tax front, according to an annual study from the World Bank, the International Finance Corporation and PricewaterhouseCoopers. The study says Canada’s tax system has fallen from 99th place to 105th out of a total 181 countries reviewed. It says the 105th ranking suggests changes already undertaken are not keeping pace compared to reforms being undertaken in other countries.

Finally, Advocis says a recent report written by the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations, calling for mandatory training and supervision of sellers by the insurer, is another sign the regulators are aiming too low. The CFA Institute, meanwhile, is looking for commentary from the industry on proposed risk management requirement changes to its Asset Manager Code of Professional Conduct. The comment period is open until January 15, 2009.

Products, investing
Although there were a number of fund mergers announced this week, only Mackenzie Financial announced it is launching a new product — the Mackenzie Universal Africa & Middle East Class — calling the fund “a unique opportunity to invest in frontier markets.” In insurance, Penncorp Life announced it is adding added a new long term care plan to its lineup.

Unitholders approved mandate changes for the Desjardins Dividend Fund, Desjardins CI Value Trust Corporate Class Fund and Desjardins Ethical Canadian Balanced Fund; GrowthWorks Canadian Fund Ltd. and the Canadian Medical Discoveries Fund (CMDF) Inc. have announced they have signed a letter of intent to examine the possibility and suitability of a merger between the two; Phillips, Hager & North Investment Management Ltd. plans to launch a new D-series of funds that will only be available to investors directly through PH&N. It is also introducing Series C fund units, designed for use by full-service advisors. Finally, JovFunds Management has announced plans to merge its Charterhouse Preferred Share Index Corporation into a new open-end mutual fund trust.

While this is going on, a new report from Standard & Poors suggests that nearly 60% of active managers were able to beat the S&P/TSX Composite Index in the third quarter. That said, the company cautions investors from reading too much into the results, saying the numbers are not indicative of a constant trend.

If CIBC is to be believed, the current trend — that is, market volatility — might be on the verge of letting up for active managers and investors. The company’s economists say they are “cautiously optimistic” that the remainder of 2008 should pass without more systemic shocks or another major equity market meltdown.

Value investors, meanwhile, are starting to “kick the tires” and explore investment opportunities among companies that suffered a rapid decline in share prices this year. But a new report from Merrill Lynch says buyers should beware of possible value traps — adding that energy and commodity sectors are potential value trap hot-beds.

Trends, economy
Call it what you will, but expect to hear the R-word for recession used more frequently in the future. According to the Organization of Economic Co-operation and Development (OECD), the developed world is in the middle of the worst economic downturn since the mid-1970s, with the U.S., Japan and Europe all expected to experience a protracted slowdown through 2009.

Still on the topic of cautious optimism, Fidelity Investments vice-president, Peter Drake says it’s true that the bottom might not be far off, but that three things need to happen first, namely that U.S. housing prices need to stabilize, credit markets need to normalize and the American economy needs to resume growth.

None of these elements has been realized yet and other firms are presenting evidence that the last one especially might be a challenge. Among them, RBC’s latest CASH (Consumer Attitudes and Spending by Household) Index numbers show that the worsening job market and still-falling home values are more than countering any positive sentiment generated by lower energy prices.

For businesses in Canada, though, growth might not be constrained by demand, but by the lack of skilled workers. Job shortages will likely continue for anyone without training. The Canadian Chamber of Commerce says 75% of all new jobs created by 2010 will be high-skilled. The group expects only 6% of jobs will be open to those without a high school diploma.

Regulatory
Fraud sanctions are the name of the game in regulatory news this week. The Alberta Securities Commission announced it was following the British Columbia Securities Commission’s (BCSC) lead, banning three B.C. residents from using securities laws exemptions, trading or acting as directors or officers of any issuer in the province. The three were banned by the BCSC in March.

Despite claiming he was merely an administrator working at the behest of a board, a British Columbia accountant was found guilty of distributing worthless debentures to about 130 investors in seven Canadian provinces. The Insurance Bureau of Canada (IBC), meanwhile, is warning consumers to safeguard their personal information, in response to reports of telephone calls from con artists who claim to be insurance agents.

News from Quebec
Former Canadian prime minister Paul Martin told those gathered in a downtown Montreal hotel on Wednesday that he favours the creation of a national securities regulator. In an exclusive article, our sister publication, Conseiller.ca reports on Martin’s speech, where he told delegates that the national organization should not be imposed by Ottawa, but rather created in partnership with the provinces. He also said an effort should be made to prevent concentration in centres like Toronto so the west and the Quebec financial sectors can have access to the financing they need. Roughly translated, he says Canadian provinces should recognize that they are in competition with the world, not each other.

In economic news, Clément Gignac, chief economist at the National Bank, is denouncing exaggerated comparisons that liken the current climate to the great depression in the early 1930s. Conseiller also reports that the financial crisis likely won’t affect Quebec consumers’ intentions to spend this holiday season.

For more news from our sister publication, click here/clic ici, to subscribe to Conseiller.ca or sign up for our French language e-mail service.

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Quick links: Advisor.ca news, November 10-14, 2008.

CI to target Assante costs Fed pours $40 billion into AIG Ottawa provides more support to credit markets Tax system needs overhaul: PwC Canada’s largest business association calls for action on labour shortage Energy and commodities listed as value trap hot-beds CIBC calls a bottom Economy not out of the woods yet: Fidelity Call it what you will – most call it a recession American consumer funk deepens: RBC

CFA Institute beefs up risk management guidelines Mackenzie launches Africa-Middle East fund Desjardins unitholders approve mandate changes GrowthWorks, Canadian Medical Discoveries funds could merge PH&N makes advisor-focused changes to fund lineup Jovian to merge Charterhouse Active managers fare better in Q3 ASC bans B.C. promoters Accountant guilty of distributing worthless debentures

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New features this week:

Do more with community investment
Businesses are starting to be measured on the basis of their community involvement – employee engagement efforts hinge on it, consumer perceptions are changed by it and special interest groups like Imagine Canada are beginning to quantify it in an effort to help businesses assess their contribution practices. Full story.

For Clients: The year in review
As we near the end of 2008, it’s a good idea to touch base with your clients, review the events of the year, thank them for their business and send along your warm wishes for the holiday season. To help you get started, we’ve created this customizable letter. Full story.

To Clients: Tax deadlines are looming (A client template letter)
Clients are often busy shopping for holiday gifts in December, so why not send them a letter reminding them that buying presents isn’t the only thing that needs to get done by the end of the year. This template letter explains to clients a few of the tax-related things they need to do before they ring in 2009. Full story.

When to use joint tenancy
When it comes to estate planning, one of the more complicated areas is joint tenancy. To help sort this out, Mackenzie estate and trust lawyer Floyd Gradley walks readers through a case study and gets to the bottom of this complicated planning tool. Full story.

Premium Advice — Will the TFSA kill or help insurance sales?
With the new Tax-Free Savings Account (TFSA) offering clients another place to park their dollars, it’s likely insurance advisors are wondering how this savings vehicle will affect their business. So, will the TFSA help or hurt insurance sales? In short, it will do both. Full story.

Management and “meaningful” work (for your employees)
Employee health and wellness is a focus for many employers these days. Hiring and retention are also big concerns. The two are related in many ways, but a recent report from French researchers is adding a new element to the mix, introducing “meaningful work” (and ways to help your employees find it). Full story.

Hedge funds face image problem
If you mentioned the names Bear Stearns, Ospraie and Sowood to investors a year ago, their eyes would likely have lit up with dollar signs flashing across their retinas. These hedge funds were powerful players, making big returns and helping investors get rich. But utter a word about these companies to investors today and you’ll hear nothing but expletives. Full story.

Filed by Kate McCaffery, Advisor.ca. kate.mccaffery@advisor.rogers.com

(11/14/08)