Good Morning…This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, and this is Beyond Funds market weekly for May 31st, 2008.
May 2008 is in the books, and it will go into the record books as a recovery month for 3 of the 4 major North American markets. The Nasdaq, Standard & Poors, and TSX all posted significant gains for the month, and the TSX posted a new record high later in the months, breaking through the psychologically significant level of 15000.
The Dow missed the party, dragged lower by continued losses in major US financials, and a significant, 20 percent drop in shares of General Motors, an index component.
An investor who followed the old adage of “Sell in May and go away” has certainly missed the positive impact of equity market returns this month.
Let’s take a look at global returns and year to date market performance, adjusted to our Canadian currency.
Across the Americas, the NASDAQ lags the field with a year to date return of -4.65%, while the Dow has returned -4.49% and the S&P 500 return is -4.39.
Toronto has fared much better, up 6.37 percent on a year to date basis, even though it has shed 2% from the peak reached earlier this month.
The true superstars of this year’s global market, on a currency adjusted basis, are Mexico’s Bolsa, up 14.89% and Brazil’s Bovespa, which has charged ahead a remarkable 24.53%
Europe, in spite of a strengthened currency, has joined the US on the negative side of the ledger. Every European market is down for the year, although Amsterdam (0.64), and Stockholm (0.41) are ahead slightly on a currency adjusted basis. The European majors have really struggled. The Stoxx 50 is off 8.2%, the FTSE off 6.09%, the CAC 40 off 4.51%,, the DAX is off 5.95%, and the IBEX is off 4.22%. These market returns are even worse without the impact of a six percent gain in the Euro…unadjusted, most are down over 10%.
Asia is flat to down, with the Nikkei off 0.47%, the ASX in Australia off 2.51%, and the Hang Seng is off 11.63%.
Scotia Economics has revised its global outlook this week, and here is some of the relevant commentary…it was entitled Up, Down and Sideways.
p — Our revised energy price outlook now calls for WTI crude oil to average US$125/bbl in 2008, and
$135-140/bbl in 2009. Natural gas prices are expected to average US$11/mmbtu both this year and next.
Changing fundamentals are behind the upward shift in the price of energy, particularly oil. While the
demand for products emanating from developing economies continues to move higher, the global supply of
energy products continues to move lower, reflecting aging production structures.
Accordingly, we have raised our aggregate inflation estimates for most countries through the remainder of
2008 and into 2009. This not only reflects the roughly 30% jump in the price of crude oil just to around
US$130/bbl since the beginning of Q2 alone, but the increasing likelihood that the elevated price of this key
staple will now trigger broader inflationary gains because of its pervasiveness throughout the production
chain for goods and services.
Down — We have lowered our output growth forecasts for 2009 in the United States, Canada, and
internationally as well. The downward revisions largely reflect the lagged fallout from the escalating rise in
the price of energy. Over the forecast period, the dramatically higher prices for crude oil, gasoline, and
other strategic petroleum-based inputs, will ultimately raise production costs, compress profit margins,
reduce investments, and put an added squeeze on discretionary consumer purchases. In the United States,
these trends should become more visible later this year once the temporary effects of the tax rebates work
their way through the economy.
Growth in Canada should essentially perform in line with the modest gains expected in the United States in
2008, led by the continuing buoyancy in the resource-rich sectors that cover virtually every province.
Prospects for Ontario’s large export-centric manufacturing sector have been further cut in response to the
weaker U.S. outlook, and the additional retrenchment in the key auto and housing sectors. A number of
factors, some transitory, helped to drag Q1output into negative growth territory, exaggerating the slowdown
underway. Domestic conditions — including profitability — fundamentally remain in better shape than south
of the border. Moreover, the performance gap between the two countries widens in Canada’s favour in
2009 — an important factor underpinning our stronger Canadian dollar forecast — owing to more
favourable construction, employment, household balance sheet, and fiscal trends.
Although recent results in Japan, the U.K. and the Euro Zone have added to this year’s growth, we have
lowered the outlook for 2009 modestly to reflect the further reduction in U.S. prospects, the continuing
monetary caution in the U.K. and on the continent to rein in higher inflation, and the downturn in selected
housing and consumer spending markets.
Sideways — Renewed inflation concerns have pushed bond yields higher and steepened yield curves
throughout the developed world. Recent guidance by central bankers in the developed countries suggests
that monetary policy, for the most part, will remain on hold through the remainder of 2008. However, we
believe that another bout of U.S. economic weakness later this year will dampen price pressures and
trigger renewed Fed easing that would see the overnight funds rate drop to 1.25% by the end of 09Q1 — a
combined 75 bp reduction from the 2% rate today.
The weaker-than-expected starting point for the Canadian economy in Q1 reinforces our view that the Bank
of Canada will trim the overnight cost of borrowing another 25 bps at its upcoming June 10th rate-setting
meeting. Thereafter, we feel that the Bank of Canada will mirror policy developments in the United States,
preferring to keep its overnight rate at 2.75% through the balance of the year before lowering it again by
50 bps in Q1 to 2.25% as the spillover from the intensifying economic weakness in the United States
becomes more evident domestically.
On a side note, an odd piece of data came to light…US growth has remained positive through the first quarter of the year, while Canadian GDP slipped to the negative. The technical definition of a recession is two periods of negative growth…it would be strange if the US avoided a recession, and Canada had one, with the remarkable psychological strength of our economy, relative to the US.
On a regional note, I was in Newfoundland last weekend, and I must say Ontario took some good spirited ribbing at the fact that Newfoundland was, for the first time, sending transfer payments to Ontario.
After the break, I will share more of my experience in Newfoundland, as I talk further about the opportunity to benefit charity, and your family, by considering a gift of securities in your estate plan.
Stay tuned for segment two of beyond funds market weekly.
Saturday, May 31, 2008
Friday, May 30, 2008
Protect Your Portfolio
This is Jeff Wareham, ScotiaMcLeod wealth advisor, with some thoughts for investors outgrowing their mutual funds…
On Wednesday, I stated that proper diversification and risk management is almost impossible by investing in only the Canadian market.
Tune in tomorrow at 8:30, as I review the May performance of the markets around the world, and discuss ideas to protect your portfolio from swings in the value of commodity prices. Learn more about diversifying, in a market that is dominated by the global commodity story.
In segments two and three, I will discuss the impact of making a gift to charity a part of your estate plan, and cover several novel ways to maximize your gift.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
On Wednesday, I stated that proper diversification and risk management is almost impossible by investing in only the Canadian market.
Tune in tomorrow at 8:30, as I review the May performance of the markets around the world, and discuss ideas to protect your portfolio from swings in the value of commodity prices. Learn more about diversifying, in a market that is dominated by the global commodity story.
In segments two and three, I will discuss the impact of making a gift to charity a part of your estate plan, and cover several novel ways to maximize your gift.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
Wednesday, May 28, 2008
Risk of the Canadian market
This is Jeff Wareham, ScotiaMcLeod wealth advisor, with some thoughts for investors outgrowing their mutual funds…
If you have been listening to my commentary the last two weeks, you will now that I have been banging on the drum of the risk the Canadian market presents to those holding ETFs, Canadian Index funds, and Canadian mutual funds. Yesterday, and essentially over the last week, the TSX has been hammered by a relatively minor drop in global energy and commodity prices. The reality is, a slowdown in the global economy could significantly harm investors who have been happy to participate in the upward market movement over the last couple of months.
Proper diversification and risk management is almost impossible by investing in only the Canadian market.
Learn more about diversifying, in a market that is dominated by the global commodity story.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
If you have been listening to my commentary the last two weeks, you will now that I have been banging on the drum of the risk the Canadian market presents to those holding ETFs, Canadian Index funds, and Canadian mutual funds. Yesterday, and essentially over the last week, the TSX has been hammered by a relatively minor drop in global energy and commodity prices. The reality is, a slowdown in the global economy could significantly harm investors who have been happy to participate in the upward market movement over the last couple of months.
Proper diversification and risk management is almost impossible by investing in only the Canadian market.
Learn more about diversifying, in a market that is dominated by the global commodity story.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
Monday, May 26, 2008
Terry Fox
This is Jeff Wareham, ScotiaMcLeod Wealth Advisor with some thoughts for
investors outgrowing their mutual funds.
I am actually in Newfoundland today, and was lucky enough to witness the
launch of the Terry Fox tour of hope...a memorial tour featuring the van
Terry used in his marathon of hope. Seeing the progress that has been made
as a result of terry's heroism was both inspirational, and a reminder that
one of the most important financial planning issues is ensuring that your
charitable wishes are carried out in as efficient and tax effective a manner
as possible. Proper planning can reduce or eliminate the tax payable on
securities gifted to charity.
Do you need to review your estate plan?
For a review your portfolio, or a complimentary copy of my CD, visit
www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and
commissions may be associated with mutual fund investing Investors should
consult their prospectus before investing. Views expressed are those of the
author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital
Inc, member CIPF.
investors outgrowing their mutual funds.
I am actually in Newfoundland today, and was lucky enough to witness the
launch of the Terry Fox tour of hope...a memorial tour featuring the van
Terry used in his marathon of hope. Seeing the progress that has been made
as a result of terry's heroism was both inspirational, and a reminder that
one of the most important financial planning issues is ensuring that your
charitable wishes are carried out in as efficient and tax effective a manner
as possible. Proper planning can reduce or eliminate the tax payable on
securities gifted to charity.
Do you need to review your estate plan?
For a review your portfolio, or a complimentary copy of my CD, visit
www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and
commissions may be associated with mutual fund investing Investors should
consult their prospectus before investing. Views expressed are those of the
author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital
Inc, member CIPF.
Saturday, May 24, 2008
May 24, 2008
I am ScotiaMcLeod Wealth Advisor Jeff Wareham, with your Beyond Funds market Weekly Market summary
The performance gap between Canadian and global markets remained wide this week, as investors continued to seek comfort in the performance of Energy and Material stocks.
US stocks remained in correction territory, albeit well off their 2008 lows, while the Canadian market set a new all time high, and broke through the 15000 level, before selling off mid week.
There was no stopping oil, as the latest market darling broke through both 130 and 135 dollars per barrel during the week.
The canadian dollar followed suit, gaining a couple of cents against the greenback, ending at 101.04 US.
Toronto’s TSX closed the week at 14723, while the Dow limped into the memorial day weekend at 12479, and the Nasdaq stumbled to 2444. the S&P closed out the week at 1375, down 3.5% on the week.
Oil touched 135 earlier yesterday, but ended the week at 131.79.
Gold, and the Canadian dollar, gained on the US greenback, largely because it appears that we have reached the bottom of the current interest rate easing cycle in the US, with apparently pretty mixed results.
The strength of the Canadian dollar was global this week, as it gained significantly on the Euro as well…largely on energy and material strength.
Speaking of energy, Scotia Economics released its Commodities Outlook this week…it is pretty detailed, so I will touch on the highlights, and post the details on my blog on the AM 980 web site.
On the oil side, our analysts have increased their price forecasts in both 2008 and 2009…not great news for those of us that drive, or heat our homes, but very good for those who are invested in the energy sector, as most experts still agree that most energy companies are not yet priced for the impact of elevated energy prices.
Scotia Economics upped their forecast price for 2008 to 140 US…and they note that both oil and natural gas are likely to continue their price climb due to growing demand, subsidies in many Asian economies, and unexpectedly low growth of supplies outside of the OPEC countries.
Conversely, many other commodity price forecasts from our economic outlook are significantly lower than their current price…this includes pulp and paper products, zinc, nickel, and copper…although uranium, a substitute in the energy market, are seen going higher..
The slowing global economy should curb some commodity demand. This is great if you are worried about inflation, but not so if you are heavily exposed to materials or commodities in your portfolio…this may not seem important, but many Canadian equity funds have massive commodity exposure…and this includes the very popular category of index funds, as more than half of the Canadian index is now represented by energy and materials stock. As of a few days ago, Scotia’s portfolio advisory group noted that, if you add in financials, 75% of the index is covered by three key sectors…meaning many other sectors, like conglomerates, consumer products, healthcare, utilities, manufacturing, and even transport and technology are badly under represented by our index…meaning investors need to look elsewhere to cover these vital parts of the economy.
Fact is, if the economy does slow globally, and it appears it is, materials, energy, and financials may take their lumps…meaning investors focused in Canada may have real problems with return.
It is always good to diversify…right now, I believe it is critical.
The performance gap between Canadian and global markets remained wide this week, as investors continued to seek comfort in the performance of Energy and Material stocks.
US stocks remained in correction territory, albeit well off their 2008 lows, while the Canadian market set a new all time high, and broke through the 15000 level, before selling off mid week.
There was no stopping oil, as the latest market darling broke through both 130 and 135 dollars per barrel during the week.
The canadian dollar followed suit, gaining a couple of cents against the greenback, ending at 101.04 US.
Toronto’s TSX closed the week at 14723, while the Dow limped into the memorial day weekend at 12479, and the Nasdaq stumbled to 2444. the S&P closed out the week at 1375, down 3.5% on the week.
Oil touched 135 earlier yesterday, but ended the week at 131.79.
Gold, and the Canadian dollar, gained on the US greenback, largely because it appears that we have reached the bottom of the current interest rate easing cycle in the US, with apparently pretty mixed results.
The strength of the Canadian dollar was global this week, as it gained significantly on the Euro as well…largely on energy and material strength.
Speaking of energy, Scotia Economics released its Commodities Outlook this week…it is pretty detailed, so I will touch on the highlights, and post the details on my blog on the AM 980 web site.
On the oil side, our analysts have increased their price forecasts in both 2008 and 2009…not great news for those of us that drive, or heat our homes, but very good for those who are invested in the energy sector, as most experts still agree that most energy companies are not yet priced for the impact of elevated energy prices.
Scotia Economics upped their forecast price for 2008 to 140 US…and they note that both oil and natural gas are likely to continue their price climb due to growing demand, subsidies in many Asian economies, and unexpectedly low growth of supplies outside of the OPEC countries.
Conversely, many other commodity price forecasts from our economic outlook are significantly lower than their current price…this includes pulp and paper products, zinc, nickel, and copper…although uranium, a substitute in the energy market, are seen going higher..
The slowing global economy should curb some commodity demand. This is great if you are worried about inflation, but not so if you are heavily exposed to materials or commodities in your portfolio…this may not seem important, but many Canadian equity funds have massive commodity exposure…and this includes the very popular category of index funds, as more than half of the Canadian index is now represented by energy and materials stock. As of a few days ago, Scotia’s portfolio advisory group noted that, if you add in financials, 75% of the index is covered by three key sectors…meaning many other sectors, like conglomerates, consumer products, healthcare, utilities, manufacturing, and even transport and technology are badly under represented by our index…meaning investors need to look elsewhere to cover these vital parts of the economy.
Fact is, if the economy does slow globally, and it appears it is, materials, energy, and financials may take their lumps…meaning investors focused in Canada may have real problems with return.
It is always good to diversify…right now, I believe it is critical.
Friday, May 23, 2008
The Value of Diversification
This is Jeff Wareham, ScotiaMcLeod wealth advisor, with some thoughts for investors outgrowing their mutual funds…
This week, we have seen lots of volatility, in energy, material, telecommunication, and even financial stocks. The market has seen new records, as has oil. As I have mentioned a number of times, there is great value in diversifying, so that up days in one sector protect you from losses in another. Tune in tomorrow morning, as I discuss the very topical issue of commodities in the global market…hear what Scotia Economics has to say about the ongoing boom in this area, which is so important to the Canadian economy.
Learn more about diversifying, in a market that is dominated by the global commodity story.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
This week, we have seen lots of volatility, in energy, material, telecommunication, and even financial stocks. The market has seen new records, as has oil. As I have mentioned a number of times, there is great value in diversifying, so that up days in one sector protect you from losses in another. Tune in tomorrow morning, as I discuss the very topical issue of commodities in the global market…hear what Scotia Economics has to say about the ongoing boom in this area, which is so important to the Canadian economy.
Learn more about diversifying, in a market that is dominated by the global commodity story.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
Wednesday, May 21, 2008
Diversity in Portfolios
This is Jeff Wareham, ScotiaMcLeod wealth advisor, with some thoughts for investors outgrowing their mutual funds…
Yesterday was a perfect example of why I have been discussing the need for investors to diversify their portfolios…Canada and the US moved in opposite directions, driven by inflation of material and energy prices. With the move in the Canadian markets over the last few years, about half of our market’s value comes from material and energy stocks…investing in our index amounts to a pretty risky bet on the long term price of commodities, especially for more conservative investors. Although commodities may benefit in a rapidly growing global economy, an economic slowdown will dramatically impact their value. Many equity funds will want to keep up with the index’ return, so they are likely to focus in the material and energy sector, and as a result, portfolios focused on Canadian equity may become riskier as fund managers mirror the index.
Now is the time to ensure you are properly diversified.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
Yesterday was a perfect example of why I have been discussing the need for investors to diversify their portfolios…Canada and the US moved in opposite directions, driven by inflation of material and energy prices. With the move in the Canadian markets over the last few years, about half of our market’s value comes from material and energy stocks…investing in our index amounts to a pretty risky bet on the long term price of commodities, especially for more conservative investors. Although commodities may benefit in a rapidly growing global economy, an economic slowdown will dramatically impact their value. Many equity funds will want to keep up with the index’ return, so they are likely to focus in the material and energy sector, and as a result, portfolios focused on Canadian equity may become riskier as fund managers mirror the index.
Now is the time to ensure you are properly diversified.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
Tuesday, May 20, 2008
May 19, 2008
Many listeners are joining us today from their cottages…on Saturday, I discussed the implications of the family cottage on your estate plan…I shared a number of ideas to mitigate the impact of capital gains taxes on your estate. Three key ideas came from the show…using life insurance, gifting the cottage outright, and using a family trust…each of these ideas has its plusses and minuses…and they require the guiding hand of an advisor.
This weekend, enjoy your cottage, but realize that, at some point, you will either need to deal with the issue of taxation on your beloved getaway, or your executor will have to deal with it on your behalf.
This weekend, enjoy your cottage, but realize that, at some point, you will either need to deal with the issue of taxation on your beloved getaway, or your executor will have to deal with it on your behalf.
Monday, May 19, 2008
radio show excerpt on cottage sucession
as part of the Saturday Beyond Funds Radio Show, I reviewed an excerpt from an article on cottage succession planning, which I found very informative...
here is some of the content...
"The Family Cottage - All is Calm and Peaceful, Or Is It?Douglas Buchmayer, May 31, 2006
Some families are defined by the cottages they keep. Others wish they were. In what seems to be one of the most popular sources of family recreation, the cottage is often regarded as the family jewel, emotionally and otherwise. But families (like cottages) tend to age over time, and families (unlike cottages) tend to get endlessly larger and more diverse. Few families can imagine not being able to “go to the cottage”, but almost all families recognize that over time the dynamics of family ownership will soon become more complex. If not property planned, succession of the family cottage can very well become the family nightmare.
Cottage succession planning normally involves three major considerations: capital gains tax exposure, shared ownership and use, and the desire for perpetual family ownership.
Cottages that have been family owned for decades were usually acquired at a fraction of what they are worth today. There are several methods available for dealing with the capital gains tax liability to make it less cumbersome on those who have to pay it. One common approach is for the parent owners to buy life insurance in an amount capable of paying such liability. Another method is to gift the cottage to the children now. Parents could do this while taking back a life interest, thus ensuring they will have guaranteed use of the cottage for the rest of their lives. Gifts of real property to family members attract no land transfer tax. Under the income tax act, however, such a transfer will trigger a deemed disposition at fair market value. Although the tax liability becomes immediately payable by the parents, at least the value of the cottage is effectively “frozen” until (if ever) the children decide to dispose of their interests in it. Furthermore, the tax circumstances of the parents are more predictable today than they may be upon their deaths.
Whenever land is owned by two or more persons (not being spouses) a written joint use and ownership agreement should be in place. The roles, rules and responsibilities of those who choose a common roof are often assumed but rarely defined. These issues and many more can be dealt with in a simple joint use and ownership agreement. Buyout provisions, dispute resolution formulas and life insurance requirements, to name but a few, are ironed out in advance. The agreement can be registered against the land to ensure longevity and enforceability.
Some families toy with the notion of keeping the cottage “in the family”, suggesting perpetual family ownership. Co-ownership together with a joint use and ownership agreement is perhaps the simplest method of encouraging perpetual ownership, but it lacks the bridge of continuity. Corporations and family trusts offer better solutions.
Corporations are separate entities and have indefinite existences (until dissolved or amalgamated). There are two types of corporations: the for-profit and the non-share corporation. The term “corporation” is often synonymously associated with business corporations; that is, corporations that exist for the purpose of making a profit. The non-share corporation, however, exists for the purpose of fulfilling non-profit objects. Whether you decide to hold a cottage in a business corporation or a non-share corporation will depend on your goals and objectives.
A simpler and less regulated method of ownership is a family trust. The benefit of holding a cottage in a family trust is there are no filing or reporting requirements. The biggest problem with the family trust is the 21-deemed disposition rule, which would essentially realize the capital gains on a cottage property every 21 years. Furthermore, the rule against perpetuities will prevent the trust from having an indefinite existence as the trust must collapse and its property vest in a person within “a life in being plus twenty one years”. This means that the trust can only exist for the longest lifetime of any one beneficiary presently alive, plus 21 years.
Whatever cottage families decide to do as they contemplate the needs and desires of the next generation, they should only proceed after careful consideration and proper professional advice. The cost of such advice will pay for itself many times over when the planning envisioned achieves the balance and harmony sought to be gained."
It was published by Douglas Buchmayer, of Drache LLP, in May, 2006
I think this will continue to be one of the biggest estate planning issues over the next few years, especially in this area, with the massive number of cottages around London.
here is some of the content...
"The Family Cottage - All is Calm and Peaceful, Or Is It?Douglas Buchmayer, May 31, 2006
Some families are defined by the cottages they keep. Others wish they were. In what seems to be one of the most popular sources of family recreation, the cottage is often regarded as the family jewel, emotionally and otherwise. But families (like cottages) tend to age over time, and families (unlike cottages) tend to get endlessly larger and more diverse. Few families can imagine not being able to “go to the cottage”, but almost all families recognize that over time the dynamics of family ownership will soon become more complex. If not property planned, succession of the family cottage can very well become the family nightmare.
Cottage succession planning normally involves three major considerations: capital gains tax exposure, shared ownership and use, and the desire for perpetual family ownership.
Cottages that have been family owned for decades were usually acquired at a fraction of what they are worth today. There are several methods available for dealing with the capital gains tax liability to make it less cumbersome on those who have to pay it. One common approach is for the parent owners to buy life insurance in an amount capable of paying such liability. Another method is to gift the cottage to the children now. Parents could do this while taking back a life interest, thus ensuring they will have guaranteed use of the cottage for the rest of their lives. Gifts of real property to family members attract no land transfer tax. Under the income tax act, however, such a transfer will trigger a deemed disposition at fair market value. Although the tax liability becomes immediately payable by the parents, at least the value of the cottage is effectively “frozen” until (if ever) the children decide to dispose of their interests in it. Furthermore, the tax circumstances of the parents are more predictable today than they may be upon their deaths.
Whenever land is owned by two or more persons (not being spouses) a written joint use and ownership agreement should be in place. The roles, rules and responsibilities of those who choose a common roof are often assumed but rarely defined. These issues and many more can be dealt with in a simple joint use and ownership agreement. Buyout provisions, dispute resolution formulas and life insurance requirements, to name but a few, are ironed out in advance. The agreement can be registered against the land to ensure longevity and enforceability.
Some families toy with the notion of keeping the cottage “in the family”, suggesting perpetual family ownership. Co-ownership together with a joint use and ownership agreement is perhaps the simplest method of encouraging perpetual ownership, but it lacks the bridge of continuity. Corporations and family trusts offer better solutions.
Corporations are separate entities and have indefinite existences (until dissolved or amalgamated). There are two types of corporations: the for-profit and the non-share corporation. The term “corporation” is often synonymously associated with business corporations; that is, corporations that exist for the purpose of making a profit. The non-share corporation, however, exists for the purpose of fulfilling non-profit objects. Whether you decide to hold a cottage in a business corporation or a non-share corporation will depend on your goals and objectives.
A simpler and less regulated method of ownership is a family trust. The benefit of holding a cottage in a family trust is there are no filing or reporting requirements. The biggest problem with the family trust is the 21-deemed disposition rule, which would essentially realize the capital gains on a cottage property every 21 years. Furthermore, the rule against perpetuities will prevent the trust from having an indefinite existence as the trust must collapse and its property vest in a person within “a life in being plus twenty one years”. This means that the trust can only exist for the longest lifetime of any one beneficiary presently alive, plus 21 years.
Whatever cottage families decide to do as they contemplate the needs and desires of the next generation, they should only proceed after careful consideration and proper professional advice. The cost of such advice will pay for itself many times over when the planning envisioned achieves the balance and harmony sought to be gained."
It was published by Douglas Buchmayer, of Drache LLP, in May, 2006
I think this will continue to be one of the biggest estate planning issues over the next few years, especially in this area, with the massive number of cottages around London.
Sunday, May 18, 2008
Radio Show May 17th, Economic Outlook from ScotiaMcLeod
ScotiaMcLeod’s Economic Outlook
May 13, 2008
SCOTIA ECONOMICS’ OUTLOOK
As the United States remains at risk of a more protracted economic
slowdown with the deleveraging of the consumer and financial sectors,
U.S. Gross Domestic Product (GDP) growth is expected to expand only
1.2% this year and 1.5% in 2009.
The Canadian economy has weakened further against the backdrop of
the intensifying U.S. slowdown - led by the manufacturing sector and
the ongoing erosions in exports. Currently, Scotia Economics is calling
for output growth to expand by 1.3% and 1.9% respectively in Canada
for 2008 and 2009.
Core inflation should remain well below the Bank of Canada's 2%
target throughout 2008-09, as the Canadian dollar continues to smother
the imported inflation that the rest of the world is facing. In the U.S.,
slowing growth is also expected to dampen inflation.
Internationally, Scotia Economics is expecting global growth to slow
both this year and next in response to the slower trajectory in the U.S..
However, growth in Brazil, Russia, and China should continue to
outperform.
INTEREST RATE OUTLOOK
Scotia Economics is forecasting the Bank of Canada to reduce interest
rates by 0.50% to 2.50% at the next policy meeting on June 10th and
then remain on hold for the balance of the year.
In the near term (3-6 months) the Canadian yield curve will likely
move lower, while the 12-month forecast suggests that the curve will
flatten in shape with yields increasing the most in the 2 - year and 30 -
year Government bonds.
We recommend purchasing bonds within the five-to-ten year time
horizon where both the corporate and provincial sectors provide value.
The Federal Reserve is now expected to remain on hold for the time
being, yet it will likely give way to another round of interest rate cuts in
the fourth quarter of 2008. Scotia Economics is forecasting a
cumulative 0.75% rate reduction expected to leave the Fed Funds rate
at 1.25% by the end of the year.
The U.S. Treasury yield curve is expected to flatten in shape over the
summer months, and then steepen again going in the fall as the markets
begin to price in more Fed cuts. Scotia Economics is forecasting yields
to return to their current position over the next 12 months. (See Chart)
Based on this forecast, the most attractive returns will be in five-year
bank or industrial bonds/debentures. The five-year term with the
additional yield pick-up in corporate issues delivers the highest
expected returns over the next 12 months...
ScotiaMcLeod’s Economic Outlook
CURRENCY OUTLOOK
As the Fed has signalled a pause in its easing campaign, the U.S. dollar
is likely to strengthen in the near term, as Central banks in Canada and
the U.K. trim their overnight rates in response to weakening domestic
conditions.
However, looking one year forward Scotia Economics is forecasting a
weaker U.S. dollar, reflecting the deep-seated fiscal and trade shortfalls
and a multi-year period of economic underperformance.
The Canadian dollar is forecast to outperform all currencies other than
the Japanese Yen...
EQUITY STRATEGY
At the start of Q2/08, Scotia Capital portfolio strategist Vincent Delisle
raised his equity weighting to 65% and reduced bonds to 25%. Delisle
believes bonds offer an unattractive proposition at current levels, and
expects lacklustre performance in coming years as rate normalization
eats away at total returns.
Delisle maintained a 10% overweight cash position, looking to
reallocate money into equities under the following considerations:
lower levels and/or when further signs of bottoming emerge.
Lower Levels: Indices could pull back in coming weeks as the flow of
weak data intensifies and confirms recession status. Moreover, most
benchmarks are at overbought levels and we expect a consolidation
period to develop through the summer.
Signs of Bottom: Among recent positive improvements, Delisle notes
the narrowing of credit spreads and that the yield curve has stopped
steepening. However, leading indicators are still heading south and
house prices have not troughed yet. Delisle would consider reducing his
defensive cash position and buying the next pullback as it should
coincide with the worst of the U.S. economic cycle.
Vincent Delisle has been gradually moving away from a short US $
strategy and went underweight Golds at the end of March. As the Fed
hinted at a pause in rate cuts, the dollar could find needed support. His
sector strategy is overweight Financials,. Telecom, Discretionary,
Staples, Technology and Industrials.
Tara Quinn, MBA – Associate,
Portfolio Advisory Group
...
(Disclaimer)
ScotiaMcLeod’s Economic Outlook
Scotia Capital is a member of the Canadian Investor Protection Fund (CIPF). ScotiaMcLeod is a division of Scotia Capital Inc. (•SCI•). This report has
been prepared by SCI on behalf of the Investment Executive. Opinions, estimates and projections contained herein are our own as of the date hereof
and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed
reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither SCI nor its affiliates accept liability
whatsoever for any loss arising from any use of this report or its contents. This report is not, and is not to be construed as, an offer to sell or solicitation
of an offer to buy any securities and/or commodity futures contracts. SCI, its affiliates and/or their respective officers, directors or employees may from
time to time acquire, hold or sell securities and/or commodities and/or commodity futures contracts mentioned herein as principal or agent. SCI and/or
its affiliates may have acted as financial advisor and/or underwriter for certain of the corporations mentioned herein and may have received and may
receive remuneration for same.
The content may have been based, at least in part, on material provided by Credit Suisse First Boston Corporation ("CSFB"), our correspondent
research service. CSFB has given ScotiaMcLeod general permission to use its research reports as source materials, but has not reviewed or approved
this report, nor has it been informed of its publication. CSFB may from time to time have long or short positions in, effect transactions in, and make
markets in securities referred to herein. CSFB may from time to time perform investment banking or other services for, or solicit investment banking or
other business from, any company mentioned in this report
.
This research and all the information opinions and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or
in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without in each case
the prior express consent of SCI. SCI is a wholly owned subsidiary of a Canadian chartered bank. SCI is a member of The Securities and Futures
Authority Limited E&O.E. U.S. Residents Scotia Capital (U.S.A) Inc. (•SCUSAI•), a wholly owned subsidiary of SCI, accepts responsibility for the contents
herein, subject to the terms and limitations set out above. Any U.S. person wishing further information or to effect transactions in any security
discussed herein should contact SCUSAI at 212-225-6500.
May 13, 2008
SCOTIA ECONOMICS’ OUTLOOK
As the United States remains at risk of a more protracted economic
slowdown with the deleveraging of the consumer and financial sectors,
U.S. Gross Domestic Product (GDP) growth is expected to expand only
1.2% this year and 1.5% in 2009.
The Canadian economy has weakened further against the backdrop of
the intensifying U.S. slowdown - led by the manufacturing sector and
the ongoing erosions in exports. Currently, Scotia Economics is calling
for output growth to expand by 1.3% and 1.9% respectively in Canada
for 2008 and 2009.
Core inflation should remain well below the Bank of Canada's 2%
target throughout 2008-09, as the Canadian dollar continues to smother
the imported inflation that the rest of the world is facing. In the U.S.,
slowing growth is also expected to dampen inflation.
Internationally, Scotia Economics is expecting global growth to slow
both this year and next in response to the slower trajectory in the U.S..
However, growth in Brazil, Russia, and China should continue to
outperform.
INTEREST RATE OUTLOOK
Scotia Economics is forecasting the Bank of Canada to reduce interest
rates by 0.50% to 2.50% at the next policy meeting on June 10th and
then remain on hold for the balance of the year.
In the near term (3-6 months) the Canadian yield curve will likely
move lower, while the 12-month forecast suggests that the curve will
flatten in shape with yields increasing the most in the 2 - year and 30 -
year Government bonds.
We recommend purchasing bonds within the five-to-ten year time
horizon where both the corporate and provincial sectors provide value.
The Federal Reserve is now expected to remain on hold for the time
being, yet it will likely give way to another round of interest rate cuts in
the fourth quarter of 2008. Scotia Economics is forecasting a
cumulative 0.75% rate reduction expected to leave the Fed Funds rate
at 1.25% by the end of the year.
The U.S. Treasury yield curve is expected to flatten in shape over the
summer months, and then steepen again going in the fall as the markets
begin to price in more Fed cuts. Scotia Economics is forecasting yields
to return to their current position over the next 12 months. (See Chart)
Based on this forecast, the most attractive returns will be in five-year
bank or industrial bonds/debentures. The five-year term with the
additional yield pick-up in corporate issues delivers the highest
expected returns over the next 12 months...
ScotiaMcLeod’s Economic Outlook
CURRENCY OUTLOOK
As the Fed has signalled a pause in its easing campaign, the U.S. dollar
is likely to strengthen in the near term, as Central banks in Canada and
the U.K. trim their overnight rates in response to weakening domestic
conditions.
However, looking one year forward Scotia Economics is forecasting a
weaker U.S. dollar, reflecting the deep-seated fiscal and trade shortfalls
and a multi-year period of economic underperformance.
The Canadian dollar is forecast to outperform all currencies other than
the Japanese Yen...
EQUITY STRATEGY
At the start of Q2/08, Scotia Capital portfolio strategist Vincent Delisle
raised his equity weighting to 65% and reduced bonds to 25%. Delisle
believes bonds offer an unattractive proposition at current levels, and
expects lacklustre performance in coming years as rate normalization
eats away at total returns.
Delisle maintained a 10% overweight cash position, looking to
reallocate money into equities under the following considerations:
lower levels and/or when further signs of bottoming emerge.
Lower Levels: Indices could pull back in coming weeks as the flow of
weak data intensifies and confirms recession status. Moreover, most
benchmarks are at overbought levels and we expect a consolidation
period to develop through the summer.
Signs of Bottom: Among recent positive improvements, Delisle notes
the narrowing of credit spreads and that the yield curve has stopped
steepening. However, leading indicators are still heading south and
house prices have not troughed yet. Delisle would consider reducing his
defensive cash position and buying the next pullback as it should
coincide with the worst of the U.S. economic cycle.
Vincent Delisle has been gradually moving away from a short US $
strategy and went underweight Golds at the end of March. As the Fed
hinted at a pause in rate cuts, the dollar could find needed support. His
sector strategy is overweight Financials,. Telecom, Discretionary,
Staples, Technology and Industrials.
Tara Quinn, MBA – Associate,
Portfolio Advisory Group
...
(Disclaimer)
ScotiaMcLeod’s Economic Outlook
Scotia Capital is a member of the Canadian Investor Protection Fund (CIPF). ScotiaMcLeod is a division of Scotia Capital Inc. (•SCI•). This report has
been prepared by SCI on behalf of the Investment Executive. Opinions, estimates and projections contained herein are our own as of the date hereof
and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed
reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither SCI nor its affiliates accept liability
whatsoever for any loss arising from any use of this report or its contents. This report is not, and is not to be construed as, an offer to sell or solicitation
of an offer to buy any securities and/or commodity futures contracts. SCI, its affiliates and/or their respective officers, directors or employees may from
time to time acquire, hold or sell securities and/or commodities and/or commodity futures contracts mentioned herein as principal or agent. SCI and/or
its affiliates may have acted as financial advisor and/or underwriter for certain of the corporations mentioned herein and may have received and may
receive remuneration for same.
The content may have been based, at least in part, on material provided by Credit Suisse First Boston Corporation ("CSFB"), our correspondent
research service. CSFB has given ScotiaMcLeod general permission to use its research reports as source materials, but has not reviewed or approved
this report, nor has it been informed of its publication. CSFB may from time to time have long or short positions in, effect transactions in, and make
markets in securities referred to herein. CSFB may from time to time perform investment banking or other services for, or solicit investment banking or
other business from, any company mentioned in this report
.
This research and all the information opinions and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or
in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without in each case
the prior express consent of SCI. SCI is a wholly owned subsidiary of a Canadian chartered bank. SCI is a member of The Securities and Futures
Authority Limited E&O.E. U.S. Residents Scotia Capital (U.S.A) Inc. (•SCUSAI•), a wholly owned subsidiary of SCI, accepts responsibility for the contents
herein, subject to the terms and limitations set out above. Any U.S. person wishing further information or to effect transactions in any security
discussed herein should contact SCUSAI at 212-225-6500.
Friday, May 16, 2008
May 16, 2008
As we head into the 24th of May weekend, many of our listeners will be headed to the cottage…many will spend the weekend cleaning, repairing, and preparing for a summer of family fun. Cottages are also frequently a valuable investment, with a great deal of emotional value, and I find this is a common issue that is overlooked in many financial plans. Years of enjoyment may also mean years of appreciation, and that increase in value may mean a large tax issue is lurking in your estate. Passing a cottage from one generation to the next may be desirable, but is it achievable?
A properly crafted financial plan can deal with this, along with many other issues. As you clean your cottage, think about the value of making sure your estate plan is just as tidy.
A properly crafted financial plan can deal with this, along with many other issues. As you clean your cottage, think about the value of making sure your estate plan is just as tidy.
Wednesday, May 14, 2008
May 14, 2008
Record oil prices, commodity prices, and a new smart phone have carried Canadian markets back to the highs reached last fall…but the rest of the world, and many segments of the Canadian market, are still a long way from last year’s peak. With so much of the Canadian index’ recovery tied to a few sector stories, you really may need to consider global rebalancing, and rotating the sectors in which you are invested in Canada.
This may sound complicated…it isn’t, but it is a good reason to sit with your advisor, and have a heart to heart about where your money should be as global markets recover.
This may sound complicated…it isn’t, but it is a good reason to sit with your advisor, and have a heart to heart about where your money should be as global markets recover.
Monday, May 12, 2008
May 12, 2008
As the Canadian market has snuck back to near it’s high of last fall, it may be tempting to follow the old adage of “sell in May and go away.” As I discussed on Saturday’s show, it may be prudent to look globally right now, as the Canadian market has been caught up in a massive surge in commodities, and many foreign markets have not recovered like ours. In my opinion, I believe it is time to rebalance in May, not go away…I believe we will see some short term repricing, especially in commodities, but global markets are still underpriced versus their historical norms. An investor with time to be patient will likely find that today was a good time to be shopping around the world.
Have you outgrown your mutual funds?
Have you outgrown your mutual funds?
May 10 Beyond Funds Radio Show
Beyond Mutual Funds
Show Content, May 10, 2008
Good morning…this is ScotiaMcLeod Wealth Advisor Jeff Wareham, with Beyond Funds Market Weekly, for May 10, 2008.
Is it just me, or has virtually no one noticed the resurgence of the Canadian market...the TSX came within 100 points of it's all time high thursday, and no one seems too excited...the charging recovery in the Canadian market has not been accompanied by a similar resurgence elsewhere, as most global markets are well off of their all time highs...Toronto’s TSX closed the week at 14521, while the dow in New York ended the week at 12745, more than 1000 points below its all time high of 14001, and the Nasdaq finished at 2445, less than half of its record of over 5000 during the tech bubble. The Standard & Poors index finished the week at1388, about 11 percent from its all time high, reached last fall.
Again this week, the record breaker was crude oil, finishing at 126.03, up about 700 percent in the last ten years.
Gold remained below $900 per ouce, finishing at 887.80, driven lower by a slightly stronger $US, which finished the week at 100.59 versus the Canadian Dollar.
So Toronto appears a shining light in a globally uncertain market...and this presents an opportunity for Canadian investors to look globally, and diversify into other solid markets that may take longer to recover…let me share some thoughts on why…
A disciplined investment process begins with determining the asset mix that is right for you. Life, markets and your portfolio all change with time, so decisions made yesterday may not hold true with new information tomorrow. This is the reason that your investment strategy is not just about the markets. When you buy a house, have a child or approach retirement your investment goals will change. As your goals change, so might your asset allocation. For example, the asset allocation of a very aggressive investor would not be suitable for someone who is retiring in the coming years. Just as major life events change us, we can also look at major market events as changing the way we look at our portfolio. For some investors this may be an opportunity for reflection. You may ask yourself if your “normal” asset allocation is still valid once you have considered any changes in your life. If that answer is yes, then when markets change as they do, it may also be time to consider rebalancing your portfolio back to its original mix.
Because market movement fluctuates between asset classes, it is the natural course for a portfolio to change its look. Asset classes do not change at the same rate. Over time, stocks may grow faster than bonds making the growth in your portfolio uneven. For example a portfolio of 60% equities and 40% bonds could drift to 70%/30%, or alternatively the other way to 50%/50%. Regardless of the direction of the change in your portfolio, it is necessary to remember the importance of the reasoning behind your original asset allocation. Although it may seem counter intuitive to sell in an asset class that is doing well or buy into one that is not that is precisely what is required if the fundamental principle of “buy low – sell high” is to be followed. By rebalancing your portfolio, you are staying the course and increasing the potential to improve returns without increasing risk.
Disciplined rebalancing can provide comfort by taking the emotion out of your investment decisions. It does not seem natural to sell a portion of your investments that have done well and buy more of those that have been more sluggish. This discipline allows a reassuring way to buy when it is difficult and sell…that is, when it seems counterintuitive. When markets are down human nature would have us get out rather than buy low, but a disciplined rebalancing process can prevail in the long run.
Although at times the changes in the market may not be large enough for an investor to feel that there is any need to rebalance, the benefit to doing so can be significant over the long run with compounding returns.
For a beginning investor, doing this is relatively easy. You can sit down with an advisor, either in a bank or an investment planning firm, and discuss with the advisor what you are trying to accomplish. They will likely discuss your options, and recommend a fund or group of funds that may be rebalanced automatically to meet your needs. Most of the major banks, like Scotia, have individual funds designed to meet the needs of beginning investors, and many of the independent firms have funds that are designed to rebalance automatically as you approach your goal…for example, if you are accumulating money to retire in 2025, you might choose Fidelity’s Clearpath 2025, which starts with a higher level of equity, but becomes less and less equity oriented, and therefore aggressive, as 2025 approaches.
This type of strategy is a great starting point, but this show is called Beyond Funds Market Weekly…and let me be clear…I feel that as an investor’s wealth grows, so does their need for more sophisticated, but not necessarily more complicated, financial solution…frequently, this is a solution beyond mutual funds.
Why?
First and foremost is the bottom line…a recent study indicated that 91 percent of Canadian mutual funds fail to meet the benchmark against which they are measured…there is no way to sugar coat it…that is awful. One of the main reasons for this is that fund management fees in Canada are the highest in the developed world…at a bit over two and one half percent, they are approximately double those of the United States. That may seem to be logical, when you consider the relative size of the markets…but this logic fails, when you discover that Australia, with a much smaller population than Canada, has lower annual fees than the Americans, let alone Canada.
That two and one half percent average may not sound too bad…until you consider that the long term average gross return of the Canadian equity market is a bit over ten percent…so 2.5% represents one quarter of an investor’s return on their capital going back to the fund manager…and the impact of that can be staggering. The Ontario Securities Commission produced an excellent web based tool, at www.investored.ca, which allows a fund investor to calculate the impact on their portfolio…and I will happily walk anyone through it one on one…I recently worked through an example, where, based on a pretty average fund expense and rate of return, an investor had paid more in fees after 22 years than they had originally invested! Let me be clear…a $300,000 investment cost over $300,000 in fees!
Funds are a great starting point…for a few hundred dollars, a starting investor gets access to professional money management for a small, invisible monthly fee. An investor paying 2.5% on $500.00 only pays 12.50 per year! What a bargain!
Unfortunately, the process is a bit too democratic…a $500,000 investment gives the investor the exact same access to their portfolio manager, for 1000 times more in cost…in this example, $12500.00
Very few investors want to retire on less than this $500,000 threshold…so this discussion is relevant to most our listeners…after the break, I will share with you ten strategies for investors outgrowing their mutual funds…stay tuned.
Welcome back to segment two of Beyond Funds Market Weekly…I am your host, ScotiaMcLeod Wealth Advisor Jeff Wareham…before the break, I was discussing investor alternatives beyond mutual funds…I do not have time today, but I will briefly discuss each one, and dig deeper into them in upcoming shows.
Here are ten options for investors outgrowing mutual funds…the list is not exhaustive, but it gives you an idea of your options.
Individual stocks, bonds, GICs and cash
Managed money
Discretionary management
Exchange traded funds
Annuities
Segregated Funds
Corporate Class Funds
Structured Products
Trusts
Hedge Funds
Looking at them one at a time
Individual stocks, bonds, GICs and cash
-Traditionally, investors who wished to hold individual stocks and bonds would deal with a stock broker, who charged a commission for every purchase and sale they did. Although many brokers still follow this model, more and more are going to a model where they choose to charge a fee based on the value of the assets that their clients have with them, and do not charge commissions on each trade…both models have their strengths and weaknesses, and some investors even have both types of accounts, depending on what they are looking for…for example, a client may want to pay for equity advice, but prefer to buy only GICs in their fixed income accounts.
-Most brokers are licensed to deal in insurance and mutual funds, and can choose among a variety of investment products depending on the level of involvement an investor seeks, the amount invested, and the comfort of the client with risk.
Managed money
-Some clients may recognize the expensive nature of mutual funds, but may like the due diligence and research of fund firms…for these investors, managed solutions, many of them offered by major mutual fund firms, or even pension management firms, may be an alternative. The investment advisor, in consultation with the client, determines the client’s asset allocation, and entrusts the management of the money to the money management firm. Generally, the fund manager uses pooled funds, and the asset allocation of the funds is rebalanced, by either the manager, or the advisor. Often, the fees are segregated from the fund and billed to the investor, so on non registered money, the investor is much better off, as they may deduct these fees from their other income…a huge advantage for a higher net worth investor.
Discretionary management
-this option involves engaging a Portfolio manager, and in most cases, the investor deals both with their advisor, and with a portfolio manager. The manager uses both pooled funds and individual stocks and bonds to achieve the investor’s asset goals, and the advisor looks after ensuring the financial plan is executed.
Exchange traded funds
As I mentioned…most mutual funds fail to beat the market…an exchange traded fund or index mutual fund is designed to track the performance of a particular index…with the underlying theory being “you can’t beat the market.”
More and more narrowly focused versions of these have been coming to market recently, tracking such narrow indices as ‘twice the negative return of a barrel of oil,” but the most useful ones, in my opinion, are those that track the return of various indices, which offer the opportunity for global diversification without the challenge of selecting the best company in a distant market…global ETFs offer a direct competitor to international mutual funds at a fraction of the cost…although because they have small, embedded management expenses, they will never beat their index, as their return will be approximately the return of the index, less their management fees…so the down side is that they will never beat “the index,” but the up side is that they will never lag the index by a great deal…in fact, most index funds in Canada rank in the top quarter of equity mutual funds…and the ETFs would as well, if they were measured that way.
Annuities
Perhaps the oldest long term investment vehicle in the market is the annuity…investors put a lump sum up front, and receive a fixed payment for the balance of a time period…generally for life…defined benefit pension plans are generally based on annuity rates, and some are actually purchased using an annuity. Low interest rates and inflexibility have left annuities on the sidelines in recent years, but many investors are giving them a second look, especially with non-registered money, as a strategy called the insured annuity has allowed healthy investors to garner a cash flow much higher than the after tax cash flow of bonds or GICs…but this is a very long term strategy, and like every other solution I have discussed, really requires the guiding hand of an advisor.
Segregated Funds
A much newer solution from the insurance world is the segregated fund…which is covered under totally separate legislation than a mutual fund, but is essentially a mutual fund with a guarantee provided by an insurance company…early versions have frequently been plagued by even higher management fees than traditional mutual funds, and some have had such poor performance that the insurance guarantees are likely to kick in over the next few years…and many were designed with very flexible insurance costs, which have skyrocketed as the insurance companies faced the risk of paying out their guarantees. Having said that, some really novel product has come to market recently, which has led to phenomenal inflow to vehicles like Manulife’s GIF. The big attraction is that the latest generation have very retirement friendly guarantees…for example, many guarantee that the invested principal is the least that can pay out over twenty years of retirement…and some increase the benefit for every year that the principal is left untouched…investors may like to remain in the equity market, but have security of their principal…and older investors may choose these funds as a hedge against inflation, and an estate planning vehicle…as an insurance contract, they may avoid probate fees, and pay out like any other insurance proceeds…again, an advisor is key to avoid any undesired consequences.
Corporate Class Funds
Many major mutual fund companies offer corporate class mutual funds…and these may be attractive to investors who are seeking tax efficient income…the mechanics are a bit beyond what I want to get into today, but because these funds are set up as shares in a corporation, income that might have been traditionally allocated to an investor as interest or dividend income may be converted to capital gains income…which may be taxed at a significantly lower rate…other companies have set up fixed distributions of the invested capital, which reduce further the immediate tax on income…although any tax planning strategy should involve your lawyer and wealth advisor.
Structured Products
In the declining interest rate environment of the last few years, many fund management companies developed so called structured products…the lion’s share of these are issued with a guarantee of principal at maturity, and provide a distribution of income during the life of the product, based on some formula…generally, the coupon was meant to exceed the rate of interest on a bond or GIC…some of these have real merit, but I find they are often highly complex, and the liquidity…the ability to cash them in early…is often at the issuing firm’s discretion…so, at the risk of repetition…work with an advisor on this solution.
Trusts
Almost every solution I have discussed can be held in a trust…so why create a separate category? Trusts are not simple, but with the guiding hand of a lawyer, accountant, trust officer, and advisor, investors with significant assets may find trusts an effective way to grow and distribute wealth, while reducing taxes…I recently hosted two trust specialists on the show, and encourage anyone wanting to know how to integrate a trust into your financial plan to contact me directly, and I will put you in touch with a specialist in this area.
Hedge Funds
The final alternative to mutual funds that I will discuss today is hedge funds…these will be the topic of a future show, as they have garnered massive attention in the media recently. A good hedge fund is designed to move in low correlation to the market…a fancy way of saying that their change in value should bear little resemblance to the movement of the equity or bond market… but some are very costly, and may only provide access to your money a few times per year…there are many strategies, and frequently a good hedge fund is only available to accredited investors, so work with an advisor to select the best solution…
I have given you a lot to think about today…but the key message is this…many advisors hold themselves out as being capable of solving every financial need for a client, yet frequently they offer only mutual fund solutions…which may be very expensive as your investments grow…seek out an advisor with a disciplined process, that can help you select the right solution, beyond mutual funds…not just what they are able to offer.
That brings us to the end of this week’s episode of Beyond Funds Market Weekly…thank you for tuning in…if you have questions or comments, visit www.beyondfunds.ca and email me, or call me, Jeff Wareham, at 519-660-3260.
This blog is for general information purposes only. You should not undertake
any investment or portfolio assessment or other transaction on the basis of
this publication, but should first consult your investment advisor, who can
assess all relevant particulars of any proposed investment or transaction.
When making recommendations, we take a complete look at your financial
situation, including risk tolerance and objectives to determine a strategy
or strategies best suitable to your individual needs. Call today and find
out whether your portfolio can benefit.
Show Content, May 10, 2008
Good morning…this is ScotiaMcLeod Wealth Advisor Jeff Wareham, with Beyond Funds Market Weekly, for May 10, 2008.
Is it just me, or has virtually no one noticed the resurgence of the Canadian market...the TSX came within 100 points of it's all time high thursday, and no one seems too excited...the charging recovery in the Canadian market has not been accompanied by a similar resurgence elsewhere, as most global markets are well off of their all time highs...Toronto’s TSX closed the week at 14521, while the dow in New York ended the week at 12745, more than 1000 points below its all time high of 14001, and the Nasdaq finished at 2445, less than half of its record of over 5000 during the tech bubble. The Standard & Poors index finished the week at1388, about 11 percent from its all time high, reached last fall.
Again this week, the record breaker was crude oil, finishing at 126.03, up about 700 percent in the last ten years.
Gold remained below $900 per ouce, finishing at 887.80, driven lower by a slightly stronger $US, which finished the week at 100.59 versus the Canadian Dollar.
So Toronto appears a shining light in a globally uncertain market...and this presents an opportunity for Canadian investors to look globally, and diversify into other solid markets that may take longer to recover…let me share some thoughts on why…
A disciplined investment process begins with determining the asset mix that is right for you. Life, markets and your portfolio all change with time, so decisions made yesterday may not hold true with new information tomorrow. This is the reason that your investment strategy is not just about the markets. When you buy a house, have a child or approach retirement your investment goals will change. As your goals change, so might your asset allocation. For example, the asset allocation of a very aggressive investor would not be suitable for someone who is retiring in the coming years. Just as major life events change us, we can also look at major market events as changing the way we look at our portfolio. For some investors this may be an opportunity for reflection. You may ask yourself if your “normal” asset allocation is still valid once you have considered any changes in your life. If that answer is yes, then when markets change as they do, it may also be time to consider rebalancing your portfolio back to its original mix.
Because market movement fluctuates between asset classes, it is the natural course for a portfolio to change its look. Asset classes do not change at the same rate. Over time, stocks may grow faster than bonds making the growth in your portfolio uneven. For example a portfolio of 60% equities and 40% bonds could drift to 70%/30%, or alternatively the other way to 50%/50%. Regardless of the direction of the change in your portfolio, it is necessary to remember the importance of the reasoning behind your original asset allocation. Although it may seem counter intuitive to sell in an asset class that is doing well or buy into one that is not that is precisely what is required if the fundamental principle of “buy low – sell high” is to be followed. By rebalancing your portfolio, you are staying the course and increasing the potential to improve returns without increasing risk.
Disciplined rebalancing can provide comfort by taking the emotion out of your investment decisions. It does not seem natural to sell a portion of your investments that have done well and buy more of those that have been more sluggish. This discipline allows a reassuring way to buy when it is difficult and sell…that is, when it seems counterintuitive. When markets are down human nature would have us get out rather than buy low, but a disciplined rebalancing process can prevail in the long run.
Although at times the changes in the market may not be large enough for an investor to feel that there is any need to rebalance, the benefit to doing so can be significant over the long run with compounding returns.
For a beginning investor, doing this is relatively easy. You can sit down with an advisor, either in a bank or an investment planning firm, and discuss with the advisor what you are trying to accomplish. They will likely discuss your options, and recommend a fund or group of funds that may be rebalanced automatically to meet your needs. Most of the major banks, like Scotia, have individual funds designed to meet the needs of beginning investors, and many of the independent firms have funds that are designed to rebalance automatically as you approach your goal…for example, if you are accumulating money to retire in 2025, you might choose Fidelity’s Clearpath 2025, which starts with a higher level of equity, but becomes less and less equity oriented, and therefore aggressive, as 2025 approaches.
This type of strategy is a great starting point, but this show is called Beyond Funds Market Weekly…and let me be clear…I feel that as an investor’s wealth grows, so does their need for more sophisticated, but not necessarily more complicated, financial solution…frequently, this is a solution beyond mutual funds.
Why?
First and foremost is the bottom line…a recent study indicated that 91 percent of Canadian mutual funds fail to meet the benchmark against which they are measured…there is no way to sugar coat it…that is awful. One of the main reasons for this is that fund management fees in Canada are the highest in the developed world…at a bit over two and one half percent, they are approximately double those of the United States. That may seem to be logical, when you consider the relative size of the markets…but this logic fails, when you discover that Australia, with a much smaller population than Canada, has lower annual fees than the Americans, let alone Canada.
That two and one half percent average may not sound too bad…until you consider that the long term average gross return of the Canadian equity market is a bit over ten percent…so 2.5% represents one quarter of an investor’s return on their capital going back to the fund manager…and the impact of that can be staggering. The Ontario Securities Commission produced an excellent web based tool, at www.investored.ca, which allows a fund investor to calculate the impact on their portfolio…and I will happily walk anyone through it one on one…I recently worked through an example, where, based on a pretty average fund expense and rate of return, an investor had paid more in fees after 22 years than they had originally invested! Let me be clear…a $300,000 investment cost over $300,000 in fees!
Funds are a great starting point…for a few hundred dollars, a starting investor gets access to professional money management for a small, invisible monthly fee. An investor paying 2.5% on $500.00 only pays 12.50 per year! What a bargain!
Unfortunately, the process is a bit too democratic…a $500,000 investment gives the investor the exact same access to their portfolio manager, for 1000 times more in cost…in this example, $12500.00
Very few investors want to retire on less than this $500,000 threshold…so this discussion is relevant to most our listeners…after the break, I will share with you ten strategies for investors outgrowing their mutual funds…stay tuned.
Welcome back to segment two of Beyond Funds Market Weekly…I am your host, ScotiaMcLeod Wealth Advisor Jeff Wareham…before the break, I was discussing investor alternatives beyond mutual funds…I do not have time today, but I will briefly discuss each one, and dig deeper into them in upcoming shows.
Here are ten options for investors outgrowing mutual funds…the list is not exhaustive, but it gives you an idea of your options.
Individual stocks, bonds, GICs and cash
Managed money
Discretionary management
Exchange traded funds
Annuities
Segregated Funds
Corporate Class Funds
Structured Products
Trusts
Hedge Funds
Looking at them one at a time
Individual stocks, bonds, GICs and cash
-Traditionally, investors who wished to hold individual stocks and bonds would deal with a stock broker, who charged a commission for every purchase and sale they did. Although many brokers still follow this model, more and more are going to a model where they choose to charge a fee based on the value of the assets that their clients have with them, and do not charge commissions on each trade…both models have their strengths and weaknesses, and some investors even have both types of accounts, depending on what they are looking for…for example, a client may want to pay for equity advice, but prefer to buy only GICs in their fixed income accounts.
-Most brokers are licensed to deal in insurance and mutual funds, and can choose among a variety of investment products depending on the level of involvement an investor seeks, the amount invested, and the comfort of the client with risk.
Managed money
-Some clients may recognize the expensive nature of mutual funds, but may like the due diligence and research of fund firms…for these investors, managed solutions, many of them offered by major mutual fund firms, or even pension management firms, may be an alternative. The investment advisor, in consultation with the client, determines the client’s asset allocation, and entrusts the management of the money to the money management firm. Generally, the fund manager uses pooled funds, and the asset allocation of the funds is rebalanced, by either the manager, or the advisor. Often, the fees are segregated from the fund and billed to the investor, so on non registered money, the investor is much better off, as they may deduct these fees from their other income…a huge advantage for a higher net worth investor.
Discretionary management
-this option involves engaging a Portfolio manager, and in most cases, the investor deals both with their advisor, and with a portfolio manager. The manager uses both pooled funds and individual stocks and bonds to achieve the investor’s asset goals, and the advisor looks after ensuring the financial plan is executed.
Exchange traded funds
As I mentioned…most mutual funds fail to beat the market…an exchange traded fund or index mutual fund is designed to track the performance of a particular index…with the underlying theory being “you can’t beat the market.”
More and more narrowly focused versions of these have been coming to market recently, tracking such narrow indices as ‘twice the negative return of a barrel of oil,” but the most useful ones, in my opinion, are those that track the return of various indices, which offer the opportunity for global diversification without the challenge of selecting the best company in a distant market…global ETFs offer a direct competitor to international mutual funds at a fraction of the cost…although because they have small, embedded management expenses, they will never beat their index, as their return will be approximately the return of the index, less their management fees…so the down side is that they will never beat “the index,” but the up side is that they will never lag the index by a great deal…in fact, most index funds in Canada rank in the top quarter of equity mutual funds…and the ETFs would as well, if they were measured that way.
Annuities
Perhaps the oldest long term investment vehicle in the market is the annuity…investors put a lump sum up front, and receive a fixed payment for the balance of a time period…generally for life…defined benefit pension plans are generally based on annuity rates, and some are actually purchased using an annuity. Low interest rates and inflexibility have left annuities on the sidelines in recent years, but many investors are giving them a second look, especially with non-registered money, as a strategy called the insured annuity has allowed healthy investors to garner a cash flow much higher than the after tax cash flow of bonds or GICs…but this is a very long term strategy, and like every other solution I have discussed, really requires the guiding hand of an advisor.
Segregated Funds
A much newer solution from the insurance world is the segregated fund…which is covered under totally separate legislation than a mutual fund, but is essentially a mutual fund with a guarantee provided by an insurance company…early versions have frequently been plagued by even higher management fees than traditional mutual funds, and some have had such poor performance that the insurance guarantees are likely to kick in over the next few years…and many were designed with very flexible insurance costs, which have skyrocketed as the insurance companies faced the risk of paying out their guarantees. Having said that, some really novel product has come to market recently, which has led to phenomenal inflow to vehicles like Manulife’s GIF. The big attraction is that the latest generation have very retirement friendly guarantees…for example, many guarantee that the invested principal is the least that can pay out over twenty years of retirement…and some increase the benefit for every year that the principal is left untouched…investors may like to remain in the equity market, but have security of their principal…and older investors may choose these funds as a hedge against inflation, and an estate planning vehicle…as an insurance contract, they may avoid probate fees, and pay out like any other insurance proceeds…again, an advisor is key to avoid any undesired consequences.
Corporate Class Funds
Many major mutual fund companies offer corporate class mutual funds…and these may be attractive to investors who are seeking tax efficient income…the mechanics are a bit beyond what I want to get into today, but because these funds are set up as shares in a corporation, income that might have been traditionally allocated to an investor as interest or dividend income may be converted to capital gains income…which may be taxed at a significantly lower rate…other companies have set up fixed distributions of the invested capital, which reduce further the immediate tax on income…although any tax planning strategy should involve your lawyer and wealth advisor.
Structured Products
In the declining interest rate environment of the last few years, many fund management companies developed so called structured products…the lion’s share of these are issued with a guarantee of principal at maturity, and provide a distribution of income during the life of the product, based on some formula…generally, the coupon was meant to exceed the rate of interest on a bond or GIC…some of these have real merit, but I find they are often highly complex, and the liquidity…the ability to cash them in early…is often at the issuing firm’s discretion…so, at the risk of repetition…work with an advisor on this solution.
Trusts
Almost every solution I have discussed can be held in a trust…so why create a separate category? Trusts are not simple, but with the guiding hand of a lawyer, accountant, trust officer, and advisor, investors with significant assets may find trusts an effective way to grow and distribute wealth, while reducing taxes…I recently hosted two trust specialists on the show, and encourage anyone wanting to know how to integrate a trust into your financial plan to contact me directly, and I will put you in touch with a specialist in this area.
Hedge Funds
The final alternative to mutual funds that I will discuss today is hedge funds…these will be the topic of a future show, as they have garnered massive attention in the media recently. A good hedge fund is designed to move in low correlation to the market…a fancy way of saying that their change in value should bear little resemblance to the movement of the equity or bond market… but some are very costly, and may only provide access to your money a few times per year…there are many strategies, and frequently a good hedge fund is only available to accredited investors, so work with an advisor to select the best solution…
I have given you a lot to think about today…but the key message is this…many advisors hold themselves out as being capable of solving every financial need for a client, yet frequently they offer only mutual fund solutions…which may be very expensive as your investments grow…seek out an advisor with a disciplined process, that can help you select the right solution, beyond mutual funds…not just what they are able to offer.
That brings us to the end of this week’s episode of Beyond Funds Market Weekly…thank you for tuning in…if you have questions or comments, visit www.beyondfunds.ca and email me, or call me, Jeff Wareham, at 519-660-3260.
This blog is for general information purposes only. You should not undertake
any investment or portfolio assessment or other transaction on the basis of
this publication, but should first consult your investment advisor, who can
assess all relevant particulars of any proposed investment or transaction.
When making recommendations, we take a complete look at your financial
situation, including risk tolerance and objectives to determine a strategy
or strategies best suitable to your individual needs. Call today and find
out whether your portfolio can benefit.
Saturday, May 10, 2008
Today's Beyond Funds Weekly radio show on AM 980
Hopefully, you got a chance to listen in to my show today...if not, or if you want a copy of the content, log in to the blog over the next few days, as I detail in greater depth the alternatives for investors who are outgrowing mutual funds.
Thursday, May 8, 2008
Is it just me?
Three months ago, the sky was falling...does anyone remember this?
How Advisors Earn Their Keep
Is it just me, or has virtually no one noticed the resurgence of the Canadian market...the TSX is within 100 points of it's all time high today, and no one seems too excited...the charging recovery in the Canadian market has not been accompanied by a similar resurgence elsewhere, as most global markets are well off of their all time highs...and this presents an opportunity for Canadian investors to look globally, and diversify into other solid markets that may take longer to recover...This is for information purposes only, views expressed are those of the author, not Scotia Capital...Best efforts have been made to furnish accurate data...Performance data does not represent future performance. ScotiaMcLeod s a division of Scotia Capital, member CIPF.
How Advisors Earn Their Keep
Is it just me, or has virtually no one noticed the resurgence of the Canadian market...the TSX is within 100 points of it's all time high today, and no one seems too excited...the charging recovery in the Canadian market has not been accompanied by a similar resurgence elsewhere, as most global markets are well off of their all time highs...and this presents an opportunity for Canadian investors to look globally, and diversify into other solid markets that may take longer to recover...This is for information purposes only, views expressed are those of the author, not Scotia Capital...Best efforts have been made to furnish accurate data...Performance data does not represent future performance. ScotiaMcLeod s a division of Scotia Capital, member CIPF.
Wednesday, May 7, 2008
May 7, 2008
Last weekend, Peter Drake and I discussed the state of the global economy…tune in this week, as I dig deeper into sectors that are likely to benefit as the economy recovers, and discuss a number of investment alternatives beyond mutual funds. Canadians pay the highest mutual fund management fees in the world, yet many investors stay in funds because they just do not know or understand their alternatives. The typical fund management fee of over 2.5% will cut approximately one quarter of an equity investor’s return, and about one third of a balanced investor’s return over the long term. If you have accumulated over 250,000 in your portfolio, you really owe it to yourself to consider the question I ask frequently…
Have you outgrown your mutual funds?
Have you outgrown your mutual funds?
Monday, May 5, 2008
Another useful tool
daily market summary
This link provides a summary of the previous day's market activity, in a fairly easy to read and follow form...check it out.
This link provides a summary of the previous day's market activity, in a fairly easy to read and follow form...check it out.
Not sure if you listened to Fidelity Deputy Chief Economist Peter Drake over the weekend, but he and I discussed current economic conditions, and I thought his commentary was very encouraging for the long term.
As the economy recovers, and responds to both interest rate cuts and the fiscal stimulus package, investors need to revisit their investment portfolio, and be prepared for the impact of recovery on equity and bond prices. History tells us that specific segments do well at times like these…has your portfolio been rebalanced to reflect where we are in the economic cycle?
As the economy recovers, and responds to both interest rate cuts and the fiscal stimulus package, investors need to revisit their investment portfolio, and be prepared for the impact of recovery on equity and bond prices. History tells us that specific segments do well at times like these…has your portfolio been rebalanced to reflect where we are in the economic cycle?
Sunday, May 4, 2008
A great article on estate planning
I recommend this article on estate planning, as a part of the overall financial planning process.
Check it out!
Check it out!
Saturday, May 3, 2008
Beyond Funds Radio Show Page
Want to find out more about investor options beyond mutual funds?
Tune in to AM 980 every Saturday at 8:30 AM, or visit the Beyond Funds Weekly Radio Show Facebook Page
Tune in to AM 980 every Saturday at 8:30 AM, or visit the Beyond Funds Weekly Radio Show Facebook Page
Friday, May 2, 2008
North America’s two major markets have quietly crept back to the level at which they entered the year…but does the recovery in the market reflect an improvement in the global economic conditions?
Tomorrow, I am pleased to be joined by Peter Drake, Chief Economist of Fidelity Investments, for a discussion of the state of the global economy, and how it may affect your growing investment portfolio.
Tomorrow, I am pleased to be joined by Peter Drake, Chief Economist of Fidelity Investments, for a discussion of the state of the global economy, and how it may affect your growing investment portfolio.
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