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November 13, 2017

Financial Retention Keeps Talent

The effectiveness of financial retention agreements to ensure that acquired talent remains with the new company during a merger or acquisition has improved over the past three years, saysWillis Towers Watson. Its ‘2017 Global M&A Retention Study’ found that 79 per cent of acquirers are successful in retaining at least 80 per cent of their employees with agreements through the end of the retention period. In its prior survey (2014) on global M&A retention, 68 per cent met this threshold. However, it’s a different story one year after the retention period ends. After that one year, only about one-half of these companies retain at least 80 per cent of employees who signed agreements. “It’s a tale of two results. Acquirers have made good strides at keeping key talent for an initial period, but there’s room for improvement one year later,” says Mary Cianni, global M&A practice lead at Willis Towers Watson. “Companies are not using the retention period to capture hearts and minds to keep talent on board for the long term ‒ and help ensure success of the merger over a longer period.” Cash bonuses, most commonly expressed as a percentage of base salary, remain the primary financial award in retention agreements for senior leaders (77 per cent) and other key employees (80 per cent).

Global Commerce Transformation Offers Opportunity

Global commerce has been transformed over the past two decades offering new opportunities for investors. Rapid advancement in technology, free trade agreements, and the rise of multinationals in emerging markets has transformed the structure of the economic world today, changing the ways of thinking about global investing, not only in terms of opportunities but also portfolio allocations decisions. In the article ‘Shifting Global Trade Patterns Bring New Opportunities’ at the Private Wealth Canadawebsite, the Capital Group’s Robert Lovelace, vice-chairman and portfolio manager; and David Polak, an equity investment specialist, examine some of these opportunities.

Exotic Car Club Celebrates One Year

The Twenty7 Social Club has celebrated its first birthday. One year ago, the club opened its doors, providing members a place in the Greater Toronto, ON, Area to network with like-minded individuals, lovers of exotic vehicles and motorsports. It is a place where members are surrounded by a fleet of Twenty7 cars including a Ferrari F430, a Porsche Cayman S, Audi R8, Mercedes-AMG GTS, and a Maserati MC Stradale. Alternatively, if a member owns an exotic vehicle, the club offers them a climate controlled, secure garage, that is accessible 24/7 with a personal fob system. The 26,000-square-foot facility is located near Toronto Pearson Airport and features a clubhouse bar and lounge, two private boardrooms, a VIP premium lounge with a boardroom, a main event space with a full-functioning kitchen, and a garage which can be used for car storage.

Hedge Funds Get Opportunity To Outperform

Hedge funds and private equity managers will get more opportunities to outperform now that central banks around the world have started to normalize their monetary policies, says J.P. Morgan Asset Management. Its ‘2018 Long-Term Capital Market Assumptions’ notes that with central banks buying bonds and other securities for years to keep interest rates low, global assets have been rising in lockstep and hedge funds and others have had fewer opportunities to distinguish themselves with winning picks. Now that central banks are starting to pull back from that strategy, securities and sectors will theoretically rise and fall based on fundamental characteristics. However, manager selection is particularly important when it comes to alternative investments and can add a significant amount of outperformance. For example, the median private equity manager is expected to return 7.25 per cent, whereas those in the top quartile will return in the mid-teen range.

Fund Indices Increase In October

All but one of the 44 Morningstar Research Inc. fund indices increased during October, with a majority of the indices increasing between two per cent and four per cent. Nine indices increased by more than four per cent. The best-performing fund index for the month was the one that tracks the Asia Pacific Equity category, which increased 7.7 per cent. Along with the currency effect, funds in this category benefited from strong gains by Japanese stocks, with the Nikkei 225 Index gaining 8.1 per cent for the month when measured in local currency. South Korean stocks, which on average account for 10.7 per cent of fund assets in this category, were also a major contributor, with the KOSPI Composite Index gaining 5.4 per cent and the South Korean currency appreciating by 5.9 per cent against the loonie. The fund index that tracks the Asia Pacific ex-Japan Equity category was the second-best performer in October with a 7.1 per cent increase. Funds in this category typically hold a majority of their assets in stocks from South Korea and Greater China. Canadian stocks had a solid month in October, as the S&P/TSX Composite Index broke through the 16,000 mark for the first time and ended the month with a 2.7 per cent total return. However, without the benefit of currency effects, funds that invest in domestic equities underperformed their foreign peers.

ESG Continues To Grow

More than a quarter of the $88 trillion assets under management globally are now invested according to environmental, social, and governance (ESG) principles, says a McKinsey & Co. study. It says sustainable investing with ESG integration into portfolios is growing at a rate of 17 per cent a year. ESG accounted for $22.89 trillion, or 26 per cent, of professionally managed assets in Asia, Australia, New Zealand, Canada, Europe, and the U.S. at the start of 2016. That compares with 21.5 per cent in 2012. European investors lead in sustainable investing, with 52.6 per cent of the region’s assets invested according to ESG factors at the beginning of 2016. Just over half of assets in Australia and New Zealand were invested in sustainable strategies, while 37.8 per cent of Canadian investments followed ESG principles. In the U.S., 21.6 per cent of assets were allocated to sustainable investments at the start of last year, while Asia was much farther behind on the trend. Only 3.4 per cent of Japanese assets were in sustainable investments, while Asian countries outside Japan had less than one per cent of assets tied to ESG.

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November 6, 2017

Planning Now Can Save Taxes For Canadians

For most Canadians, their tax bill isn’t top-of-mind until the last minute, but they may be able to take advantage of certain tax savings if they start before the end of the year, says CIBC Financial Planning & Advice. Its report, ‘2017 Year End Tax Tips,’ provides an overview of some notable tax-planning opportunities that should be considered before the end of December. These are in light of recent tax change proposals by the federal government. The tips include the new deadline for tax-loss selling, charitable donations for first-time donors, home renovation tax credits, and planning for private corporation business owners. For investors, tax-loss selling to offset capital gains realized on other investments is an important tax savings strategy. New for 2017, Canada has adopted a shorter settlement period for equity and long-term debt market trades. This means that, rather than the previous three-business-day settlement period, trades are now settled in two business days. To ensure that your trade settles in 2017, your trade date must be no later than December 27, 2017. Secondly, federal and provincial tax credits for charitable donations can result in combined tax savings of up to 50 per cent of the value of your gift in 2017. But, 2017 is the last year you can claim the federal First-Time Donor's Super Credit (FDSC) if neither you nor your spouse or common-law partner has claimed the donation tax credit from 2008 to 2016. Third, many Canadians may not be aware of the tax credits available for home renovations related to accessibility for seniors and people with disabilities. The non-refundable ‘Home Accessibility Tax Credit’ is equal to 15 per cent of up to $10,000 of expenses per year towards renovations that permit individuals to gain access to, or to be more mobile or functional within their homes, or reduce their risk of harm within their homes or from entering their homes. Lastly, for private corporations, some of the recently proposed tax changes could impact income sprinkling and passive investment income earned within corporations. These changes could result in tax rates of more than 40 per cent (depending on the province) when small business income is distributed as dividends to family members after 2017 and may be of particular concern for families that have implemented estate freezes.

Canadian Stock Market Treads Water

The Canadian stock market is treading water which means investors can look at the equity market in several ways, says Optimum Asset Management. Its financial outlook for September says a person who invested during the 2008 financial and economic crisis in a fund that replicates the S&P/TSX Index would have seen their investment double in slightly less than 10 years, without even taking re-invested dividends into account. However, going by the levels of the index, someone who put the same amount into the same fund in 2007, at the market’s peak, would have the same amount of money 10 years later. A similar situation occurred in the United States from 2000 to 2012, a period when the U.S. market generated no return. Even so, after that lean period, the market rebounded and generated substantial returns for the next four years. This phenomenon suggests that after periods on no return, stock market value should increase in the years to come. Moreover, the Canadian market has an attractive price-earnings ratio (in terms of 2018 forecast earnings), which confirms its upside potential in the months to come, it says.

Inflation Pressures Remain Steady

Inflation pressures continue to remain steady in spite of tighter monetary policy from Central Banks. However, this backdrop could finally be changing, says Unigestion’s Cross-Asset Solutions (CAS) team. Its inflation nowcaster’s diffusion index – which measures the percentage of improving inflation data – has started to increase for the first time since April this year, says its ‘Macro Investment Views Q4 2017: Should I stay or should I go?’. This is a significant development with three key factors behind it. The Bloomberg commodity index rose by eight per cent between mid-June and mid-September, reflecting both the consequence of a weaker U.S. dollar and stronger demand, especially for oil. The U.S. dollar has also had a significant influence on inflation over the past three years: a rising dollar in 2015 saw global growth slow down considerably. The currency’s recent decline is having the reverse effect and now increasing import prices for many economies which are tied to it. The last piece of the inflation puzzle focuses on central banks – more precisely the Federal Reserve (Fed) and the European Central Bank (ECB). If inflation gains momentum, the Fed will have to act again this quarter.

Opportunities Exist To Harvest Gains

This year has offered attractive opportunities to harvest gains in equities by trimming some Canadian equity positions, says the ‘HSBC Asset Management Canada 2017: Market Review and Outlook.’ These profits are being taken after realizing several years of robust equity returns. This makes it prudent to continue to make some marginal moves to rebalance positions back into bonds as stocks extend their rally. Within fixed income, many good-quality corporate bonds are supported by solid company balance sheets. These corporate bonds also offer higher yields than government bonds, which means they can cushion the effects of rising rates to some extent because they pay investors a higher level of income than government bonds.

Canadian Real Estate Still Performs Well

The Canadian real estate industry is still performing well, says ‘2018 Emerging Trends in Real Estate,’ by PwC Canada and the Urban Land Institute (ULI). However, despite the industry’s steady performance, these is a concern of potential headwinds resulting in some real estate investors rebalancing their portfolios and others taking a more defensive posture. The report shows major pension funds and large institutional investors (including REITs), which already own the majority of Class A properties, given current pricing, are continuing to focus on developing new Class A properties. These new properties could fuse commercial, retail, and service properties alongside residential developments building new urban communities. Demand will remain high for the best assets in Toronto, ON, as institutional capital and other investors continue to seek stable long-term opportunities. But these same investors will be careful about their decisions as they seek yield either in development or elsewhere in the world, it says. In Montreal, QC, many institutional players have begun divesting older stock properties to focus on new developments aimed at attracting millennial and seniors’ markets. This is placing some pressure on owners of older buildings to compete and contributing to a growing divergence between new and old.

Retail Assets Outpace Institutional

Retail asset growth has managed to outpace institutional asset growth in the U.S. on a one-, three-, five-, and 10-year basis, reaching more than $19 trillion as of the end of 2016, says Cerulli Associates. Retail assets continue to outgrow institutional by almost 2½ per cent ‒ 7.6 per cent to 5.2 per cent. “Retail assets are growing due to the number of Baby Boomers nearing retirement and beginning to withdraw assets out of retirement plans and into retirement income products, such as individual retirement accounts (IRAs),” says Jennifer Muzerall, associate director at Cerulli. “Another driving factor in retail asset growth is the declining asset base of certain institutional segments, mainly the corporate defined benefit space.” Although institutional market share is greater than retail, asset managers will be pressured as assets continue to retreat from institutional channels, she says. This means more managers are beginning to explore delivery of products and strategies through retail intermediaries.

VC Rebounds

Venture capital (VC) managers in the U.S. rebounded in the first quarter of the year from the previous quarter, returning 3.3 per cent, compared to -0.1 per cent in the fourth quarter of 2016, says a Cambridge Associates benchmark index. While venture capital performance bounced back in the first quarter of 2017, 2016 performance was mixed and dragged down returns. “Venture funds in the U.S. underperformed large cap and tech companies in recent time periods amid particularly strong public equity market performance whereas over longer periods, VC managers have outperformed public market indexes by a wide margin,” says Theresa Hajer, managing director and co-head of U.S. venture capital research at Cambridge Associates.

Hedge Funds Have Highest Monthly Return

Hedge funds made gains of +1.43 per cent in September, the highest monthly return seen since January. This has continued 2017’s strong run of performance as the ‘Preqin All-Strategies Hedge Fund’ benchmark has seen year-to-date gains reach +8.28 per cent, the highest return at this stage of the year for the benchmark since 2013. Event driven strategies funds generated the greatest return of any top-level strategy (+2.12 per cent), following incremental gains made in August (+0.19 per cent). Equity strategies funds posted returns of +1.93 per cent, bringing 2017 year-to-date returns to +10.72 per cent. In addition, all top-level strategies recorded positive monthly returns for the seventh time this year.

Fidelity Expands Private Investment Lineup

Fidelity Investments Canada ULC has expanded its Fidelity Private Investment Program line-up with the launch of Fidelity Global Asset Allocation Private Pool managed by portfolio managers Geoff Stein and David Wolf. Fidelity Global Asset Allocation Private Pool is a global balanced portfolio strategy designed for risk-conscious investors seeking long-term capital growth. It will invest the majority of its assets outside of Canada, taking advantage of market trends and a bigger opportunity set from around the world.

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October 30, 2017

Billionaire Wealth Increases 17 Per Cent In 2016

The collective wealth of the world's billionaires rose by 17 per cent in 2016 to US$6 trillion after falling the year before, says the ‘UBS/PwC Billionaires Report 2017.’ The report shows the total wealth of the world's richest people grew at about double the rate of global stock markets in 2016, as tracked by the MSCI World Index. Asia's wealthy led the way and the region's billionaires now outnumber their American counterparts for the first time. In total, there are 1,542 billionaires in the world. The total number of Asian billionaires rose by almost 25 per cent in 2016 to 637, compared to 563 in the U.S. The combined wealth of Asian billionaires also grew by almost 33 per cent from $2 trillion. Still, the U.S. maintains the largest concentration of billionaire wealth, with a combined $2.8 trillion, driven by American billionaires' involvement in tech, financial services, and materials. In Europe, the population of billionaires largely held steady in 2016; their collective wealth grew by five per cent to just over $1.3 trillion.

Institutional Support Key To Increasing Women On Boards

The support of institutional investors is key to driving any meaningful increase in female representation on corporate boards and in the executive suites, says a review authored by lawyers at Torys LLP. “While they have traditionally engaged with boards behind closed doors to advocate for governance or other strategic initiatives, institutional investors are becoming more openly vocal about the value of a diverse board that includes women,” says the report, as increased scrutiny on board composition has become a growing area of focus for big investors. As examples, it cites the Canadian Coalition for Good Governance’s gender diversity policy and the Ontario Teachers’ Pension Plan, which expressly encourages gender diversity on boards. The number of women have increased in recent years with the total percentage of board seats occupied by women increased to 14 per cent compared with 12 per cent last year and 11 per cent in 2015 when the report was first published.

Strategic Approach Needed To Achieve Transparency

A “collaborative partnership between the buy and sell sides” to develop industry standards and a “more nuanced conversation about transparency” between asset managers and investors can lead to an increasingly strategic approach for achieving transparency objectives, says a Northern Trust white paper. ‘Alts Transparency: Finding the Right Balance’ is a follow-up to an industry-wide survey conducted earlier this year by the Economist Intelligence Unit for Northern Trust which confirmed that transparency remains a top priority among alternative investors. It outlines key steps investment managers and investors can take to potentially achieve greater transparency in alternative investments such as hedge funds, private equity, infrastructure, real estate, and natural resources. A central recommendation is that organizations consider developing a transparency ‘tool kit’ to facilitate decision-making and achieve consistent standards, processes, and controls. This includes identifying stakeholders from executive leadership to operations teams to trustees and fiduciaries; prioritizing transparency objectives, ranking key questions, and establishing best practices for due diligence, investment performance, and annual reviews.

Advisors Turn Bullish

After a relatively flat quarter, Canadian investment advisors have turned quite bullish on Canadian equities, energy, and a number of other industry benchmarks, says the ‘Q4 2017 Advisor Sentiment Survey’ by Horizons ETFs Management (Canada) Inc. The survey shows Canadian investment advisors have turned positive on equity indices after extremely high levels of bearish sentiment in the ‘Q3 2017 Advisor Sentiment Survey.’ On the S&P/TSX 60 Index, 62 per cent of advisors in the fourth quarter survey stated they are bullish on the Canadian blue-chip equity index, compared to the 42 per cent surveyed last quarter. Similarly, bullish sentiment on Canadian financials and energy has also picked up since last quarter, rising to 62 per cent from 54 per cent on financials and 53 per cent versus 40 per cent on energy equities.

Investors Struggle By Chasing Benchmarks

How investors go about evaluating the success or failure of their investments is a common challenge in financial planning that even causes very sophisticated people to lose their way, says Darren Coleman,and author of ‘RECALCULATING ‒ Find Financial Success and Never Feel Lost Again.’ In the article ‘Chasing Benchmarks’ at the Private Wealth Canada website, he says a logical way to do that is to focus on the rate of return needed to achieve or meet your goals. However, most investors instead struggle to try and match the performance of some other benchmark.

Inflation Pressures Remain Steady

Inflation pressures continue to remain steady in spite of tighter monetary policy from Central Banks. However, this backdrop could finally be changing, says Unigestion’s Cross-Asset Solutions (CAS) team. Its inflation nowcaster’s diffusion index – which measures the percentage of improving inflation data – has started to increase for the first time since April this year, says its ‘Macro Investment Views Q4 2017: Should I stay or should I go?’. This is a significant development with three key factors behind it. The Bloomberg commodity index rose by eight per cent between mid-June and mid-September, reflecting both the consequence of a weaker U.S. dollar and stronger demand, especially for oil. The U.S. dollar has also had a significant influence on inflation over the past three years: a rising dollar in 2015 saw global growth slow down considerably. The currency’s recent decline is having the reverse effect and now increasing import prices for many economies which are tied to it. The last piece of the inflation puzzle focuses on central banks – more precisely the Federal Reserve (Fed) and the European Central Bank (ECB). If inflation gains momentum, the Fed will have to act again this quarter.

Opportunities Exist To Harvest Gains

This year has offered attractive opportunities to harvest gains in equities by trimming some Canadian equity positions, says the ‘HSBC Asset Management Canada 2017: Market Review and Outlook.’ These profits are being taken after realizing several years of robust equity returns. This makes it prudent to continue to make some marginal moves to rebalance positions back into bonds as stocks extend their rally. Within fixed income, many good-quality corporate bonds are supported by solid company balance sheets. These corporate bonds also offer higher yields than government bonds, which means they can cushion the effects of rising rates to some extent because they pay investors a higher level of income than government bonds.

Investment Managers Suffer Incidents

Just over half of registered firms surveyed reported a cybersecurity incident last year, says a report by the Canadian Securities Administrators. Its survey of firms registered as investment fund managers, portfolio managers, and exempt market dealers found 51 per cent of firms had an incident. The most common incident was phishing, with 43 per cent saying they were victims of this. Malware incidents were reported by 18 per cent of firms and 15 per cent saw fraudulent eMail attempts to transfer funds or securities.

Private Equity Real Estate Accelerates

Following a relatively slow opening quarter of the year, private equity real estate deal activity has accelerated through the subsequent two quarters, says Preqin. The third quarter saw 1,170 deals announced globally, worth a combined $56 billion. Preqin expects these figures to rise by around five per cent as more information becomes available. This represents a continued uptick in deal volumes from the second quarter, surpassing the 1,147 deals seen in that quarter, although overall deal values fell from $68 billion. Smaller single-asset deals drove activity as the quarter recorded fewer large portfolio deals than the previous quarter. Residential and hotel assets saw significant increases in their share of deal values, while industrial and retail assets continued to diminish.

Hedge Fund Assets Hit New Peak

Hedge fund industry assets hit a new peak of $3.152 trillion as of September 30 ‒ the fifth consecutive quarter of record-breaking assets under management, says Hedge Fund Research. Combined asset growth for hedge funds and hedge funds of funds was 1.6 per cent in the quarter, 4.3 per cent year-to-date, and 6.1 per cent for 12 months. Fully 97 per cent of asset growth in the third quarter was the result of investment performance gains ‒ $50.3 billion from investment returns and $1.7 billion was from net inflows. Third-quarter net inflows, while positive, significantly lagged the $6.7 billion of inflows in the quarter ended June 30, but were a dramatic improvement over net outflows of $28.2 billion in the third quarter of 2016. If the current pace of investment and positive investment performance continues, the global hedge fund industry likely will end the year with positive net inflows, in contrast to net outflows of $70.3 billion in 2016. Macro funds received the highest net inflows of $4.2 billion in the quarter, with performance gains of $3.5 billion. Event-driven strategies followed with $3.5 billion of net inflows and $12.4 billion of investment performance.

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October 23, 2017

Men Dominate Alternative Funds

Just under one in five employees at alternative fund management firms are female, says a Preqin overview. Its ‘Women in Alternative Assets’ report says this rate varies widely by role and consistently declines according to seniority. The highest proportion of women is seen among junior employees, where they constitute 29 per cent of the workforce. However, in each asset class the representation of women falls according to seniority and overall senior alternative assets staff consist of 11 per cent women. In the same way, women are best represented in investor relations/marketing teams, as high as 53 per cent at venture capital firms. The rate of women in investment teams is much smaller, as low as 10 per cent at hedge funds. The board of directors for an average alternative assets fund, meanwhile, only comprises five per cent female members.

Monetization Theme Of Quarter

Monetary policy ‘normalization’ returned as a major theme this quarter, says a Mawer ‘Market Overview.’ As indicators for the global economy continued to show signs of strength, central bankers in major economies such as the U.S., Canada, China, and Europe have signaled that the end of a very loose monetary era is nigh. Markets may be facing an important inflection point. For Canadian investors, this monetary environment has landed close to home, with not one but two rate increases in the past three months, it says. Canada has been leading the pack among those countries that are tightening their monetary policies, resulting in the Canadian dollar strengthening appreciably versus a basket of major currencies. However, it views the increase in the Canadian dollar as a temporary headwind and the long-term case for investing globally remains compelling.

ESG Impact On Returns Concerns Investors

Nearly half of investors in Europe worry that investing with environmental, social, and governance (ESG) principles in mind will negatively impact returns over the long term, says Schroders’ ‘2017 Institutional Investor Study.’ In it, 47 per cent of investors in Europe cited long-term performance concerns as a barrier to adopting an ESG-oriented investment strategy. Europeans, on the margin, were the most concerned about hampering performance, with 45 per cent of Asian investors and 42 per cent of North Americans responding the same way. When asked if sustainability characteristics were relevant to infrastructure investing specifically, roughly one in five Asia-based institutional investors and a quarter of Europeans said they are. The results also show that investors had very different ideas when it came to equity investments, though. The vast majority ‒ 83 per cent in Europe, 77 per cent in North America ‒ deem sustainability as an important consideration when investing in shares. Additionally, there is considerable wariness around the use of social impact funds to generate profit. Globally, just nine per cent of investors said that profit would be their main motivation for using specialist social impact funds with a focus on human rights, poverty, or social welfare. However, 14 per cent of North Americans and just five per cent of Europeans saw profit as the main motivation for using these strategies.

Majority Of Active Managers Fail To Outperform

The majority of active managers across all categories failed to outperform their respective benchmarks, with the exception of Canada dividend and income equity, says the ‘SPIVA Canada Scorecard’ results for mid-year 2017. The scorecard reports on the performance of actively managed Canadian mutual funds versus that of their benchmarks, corrected for survivorship bias. Domestic equities, despite a slow start during the first four months in the trailing 12-month period, posted strong low-double-digit gains, with the S&P/TSX Composite and the S&P/TSX 60 returning 11.05 per cent and 12.38 per cent, respectively. Most of this return came after the U.S. election in November 2016. However, compared with other international markets, Canadian equity markets posted relatively weaker returns over the one-year period. This, in turn, led to a higher percentage of active managers outperforming the benchmark, when compared with results from the second half of 2016. Nevertheless, the majority of active managers investing in domestic equity underperformed the benchmark, with only one-third of Canadian equity funds outperforming the S&P/TSX Composite over the one-year period.

Relationships With Advisors Are Valuable

A relationship with an advisor provides an in-depth understanding of financial and personal situations and ongoing guidance and advice for life’s major moments, says Keith Pangretitsch, managing director, Canada private client, at Russell Investments Canada Limited. In his article, ‘Your advisor... worth nearly 3%?’, he says wealth planning is one of the most important services an advisor can provide and it requires an in-depth understanding of an individual’s entire personal and financial situation to help ensure they get it right. Professional guidance to uncover and comprehend what’s most important to an investor takes time and knowledge. The full story is available on the Private Wealth Canada website here.

Canadian Bond Market Busy

The Canadian bond market was unusually busy during the quiet summer months of 2017 as the Bank of Canada unexpectedly raised interest rates twice, says Leon Frazer & Associates’ ‘Q3 ‒ 2017 Quarterly Review.’ Probabilities for a single interest rate increase for the Bank of Canada in 2017 sat at nearly zero at the beginning of the second quarter and six months later, market participants are assigning a greater than 50 per cent probability for a third hike before the end of the year. The doubling of administered short-term interest rates from 0.5 per cent to one per cent sent reverberations through the entire Canadian bond market, it says as Canadian benchmark bonds of all maturities were down during the quarter, with 30-year long bonds declining more than six per cent. It estimates the Bank of Canada will follow the U.S. Federal Reserve on a more gradual path of interest rate increases going forward.

ETF/ETP Assets Reach New High

Assets invested in ETFs/ETPs listed in Canada have increased 28.2 per cent in the first nine months of the year to reach a new record of US$108 billion at the end of September 2017, says ETFGI’s September 2017 preliminary Canadian ETF and ETP industry insights report. ETFs and ETPs listed in Canada gathered US$13 million in net outflows in August and US$13.87 billion in year-to-date net inflows which is more than the US$9.46 billion in net inflows at this point last year and US$1.17 billion more than the US$12.7 billion net inflows gathered in all 2016. Equity ETFs/ETPs experienced net outflows of US$409 million in September, bringing year-to-date net inflows to US$6.4 billion, which is much greater than the net inflows of US$4.02 billion over the same period last year and more than the US$6.21 billion gathered in all 2016. Fixed income ETFs and ETPs gathered US$202 million in net inflows in September, growing year-to-date net inflows to US$3.69 billion, which is less than the same period last year which saw net inflows of US$4.32 billion. Commodity ETFs/ETPs had net outflows of US$1 million in September. Year-to-date, net inflows are at US$40 million, compared to net inflows of US$243 million over the same period last year.

Mackenzie Launches China Equity Fund

Mackenzie Financial Corporation has launched the Mackenzie All China Equity Fund, which will be sub-advised by China Asset Management Co., Ltd. (China AMC). Recently, Mackenzie Investments acquired a 12.9 per cent interest in China AMC and, together with Power Corporation of Canada, the indirect parent company of IGM Financial (the parent company of Mackenzie Investments), Mackenzie Investments and Power hold a 27.8 per cent interest in China AMC. As the second largest economy in the world and consistently with one of the highest growth rates, China offers investors scale, scope, and diversification opportunities for portfolios.

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October 16, 2017

Business Owners Need To Start Retirement Planning Sooner

The majority of Canadian small business owners don't have a detailed retirement plan in place despite little interest in expanding their business, says a study by the Canadian Imperial Bank of Commerce (CIBC). In fact, the report shows that 78 per cent of aging business owners haven't prepared any sort of formal plan to prepare for an upcoming retirement or an unexpected emergency. These findings are surprising given that many small business owners are no longer planning to grow their business. Among these owners, 42 per cent say they’re happy with the size the business is now; 36 per cent say they plan to close, sell, or transfer the business; and three per cent say there is not enough cash flow to expand. CIBC says letting go of a business can be made difficult by tax consequences. The biggest mistake owners make is not having these conversations early enough. It’s important to involve a team of experts including lawyers, accountants, and financial advisors to achieve a higher evaluation, maximize retirement income, and reduce the overall tax bill.

Technology Platforms Make Inroads

Cracks in the traditional wealth management value proposition are allowing companies offering technology investing platforms to make inroads with Canadian investors, says research from Accenture Consulting. ‘Powering Hybrid Advice In Canada’ at the Private Wealth Canada website shows four of 10 Canadian investors say they do not ‘get what they pay for’ when using a traditional wealth advisor, leading investors to explore other options such as self-investing via robo-advice. As well, seven of 10 already use at least one digital tool or service when investing.

Barometer Uses Technical Analysis In Investment Approach

Barometer Capital Management Inc. uses technical analysis as part of its investment approach to understand markets and their risks and build investment portfolios. It uses a ‘Disciplined Leadership Approach’ for both sides of its active investment process ‒ buying and selling. This is a tactical approach that focuses on market leadership to identify the best trends for clients’ exposure, says Adam Jacobson, a senior research analyst. It is designed to recognize change via daily monitoring and adjusting the portfolio accordingly using point and figure (P&F) charts to define market breadth – the percentage of stocks that are in uptrend. Expanding breadth is constructive, while deteriorating breath suggests higher risk. P&F charts have been around for more than a 100 years, but have moved from being a paper-based system to using sophisticated computer systems that use the P&F methodology. The information gathered is combined with macro view analysis of economic trends, credit spreads, positioning, earnings growth, and more. This top down, bottom up approach can be used to look at individual securities, funds, or sectors. “It allows us to grind down the list to an approachable list of securities,” says Brian MacNicol, portfolio analyst. “We identify trend changes – higher highs and lower lows – by identifying breakouts. Basically, we look for good companies getting better that are showing absolute and relative strength versus the index.” The company is an independent active portfolio management firm that manages portfolios for private investors, foundations, endowments, and pension plans through segregated accounts, pooled funds, and prospectus funds.

Future Of Low Vol Bright

The future of low volatility equity investing is bright even in the spectre of Trumponomics, says Dr. Jean Masson, of TD Asset Management. Speaking at the ‘The Trump Effect ‒ What Does It Mean to Equity Markets and Low-volatility Investing’ at the CPBI Atlantic 2017 Regional Conference, he said low volatility equity strategies could benefit from U.S. President Donald Trump’s proposal to cut corporate taxes for domestic firms. Currently, they pay among the highest taxes in the developed world which puts them at a disadvantage. Putting them more in line with rest of the word would give them a boost, he said. As well, Trump’s positions on trade would also likely have no effect on low volatility equity investors as most of these stocks are small cap which are usually domestic companies. Trade restrictions would boost domestic manufacturing in the U.S. although it would hurt any companies involved in importing or exporting.

Proposed Tax Changes Unlikely To Promote Fairness

The federal government's proposed changes to the tax treatment of passive investments in a private corporation will not achieve its goal of promoting tax fairness, says a report by the C.D. Howe Institute. ‘Off Target: Assessing the Fairness of Ottawa's Proposed Tax Reforms for ‘Passive’ Investments in CCPCs’ shows the proposals outlined in the government’s consultation paper risk delivering a blow to the retirement planning of many small business owners. And, that unfavourable impact would be in addition to the potential negative consequences of the proposed changes to entrepreneurship in the small business sector overall. Some of the possible changes involve ending passive investment income tax refundability for private corporations and other tax-assisted saving opportunities.

Optimism Increases For Wealthy Investors

Optimism and confidence in the American economy jumped significantly in September, says Spectrem Group. Its ‘Millionaire Investor Confidence Index’ (SMICI) jumped nine points to 19, its highest level since April, while the ‘Spectrem Affluent Investor Confidence Index’ (SAICI) moved up six points to 13, the highest level it has reached since September of 2014. Both indices now stand in mildly bullish territory. The monthly indices track changes in investment sentiment among the 17 million households in the U.S. with more than $500,000 of investable assets (SAICI) and those with $1 million or more (SMICI). Among non-millionaires, the percentage of those not investing in the coming month fell to its lowest level since March, an indication that affluent investors are becoming more active in the markets. While the number of millionaires intending to stay on the investment sidelines increased slightly to 32 per cent, it is still well below the 38 to 39 per cent reported in May and June. The ‘Spectrem Household Outlook,’ which measures long-term confidence in four financial factors impacting a household's daily economic life, rose among millionaires to 36.91, its highest level since 2011. More than four out of 10 (43.8 per cent) millionaires also invested in stock mutual funds in September, the highest percentage in five months, and a clear sign of increased optimism.

Aussie Wealth To Decrease Generation By Generation

Young Australians may never catch up with Baby Boomers when it comes to personal wealth, says data from the Australian Bureau of Statistics. The data shows households populated by 65- to 75-year-olds are way ahead. In fact, they’re $480,000 wealthier than the same age group was about 12 years ago. Each age group analyzed is wealthier than its counterpart a dozen years ago, but for 25- to 34-year-olds, it’s only a matter of $40,000. This is because of the property they own. Baby Boomers may have been able to pay off their mortgages and take advantage of the generous super tax breaks on offer for people nearing retirement, such as the ability to put large, taxed sums into their super funds just before retirement, but the younger generations are dealing with different issues. Home ownership for those in the 25- to 34-year-old age group has fallen dramatically since 1981, with less than half of that demographic now owning houses, as opposed to the previous 60 per cent. And, it’s not because Millennials prefer to travel or spend on luxury items; survey responses show an overwhelming majority do still want to own a house, but they consider it unaffordable in the current economic climate. So, while Australia may be considered a wealthy nation, with most of the wealth attributed to the older generations, it’s unlikely that this trend will continue.

iA Clarington Launches Yield-enhancing Funds

iA Clarington Investments Inc. has launched three funds and a sub-advisory relationship with PineBridge Investments LLC, a global asset manager with more than US$85 billion in assets under management. Designed for investors who may not be receiving the income they need from traditional, domestic fixed income, these iA Clarington funds offer the yield-enhancing potential of active, high-conviction exposure to a wide range of geographic regions and income-producing asset classes.

Private Credit Market Grows 14-fold

The size of the global private credit market is on course to break the $1 trillion mark by 2020, says research by the Alternative Credit Council (ACC), the private credit affiliate of the Alternative Investment Management Association (AIMA). ‘Financing the Economy 2017 shows the industry, which manages approximately $600 billion in assets, has grown 14-fold since 2000. Based on its current growth rate, the sector will reach $1 trillion in assets by the end of the decade, the ACC forecasts. It says small-to-medium-sized businesses remain a dominant feature of the lending market. Around a third (34 per cent) of total committed capital is now being lent to SMEs and the mid-market. Large businesses receive around a fifth (22 per cent) of all lending.

Record-breaking Year Possible

The signs are promising for a record-breaking year for private capital fundraising markets, says Preqin. The first half of the year saw 742 private capital funds secure a total of $391 billion from investors, surpassing the previous record of $384 billion raised by funds closed in the first half of 2008. And given that fundraising fell in the second half of that year as the global financial crisis came to the fore, if 2017 maintains this momentum it seems likely that the year will set new fundraising records. However, the third quarter may represent a slight stumble in that progression as fundraising levels have fallen compared to recent quarters. Preqin does expect fundraising totals for the third quarter to rise by up to 10 per cent as more information becomes available, but it seems likely that this quarter will come to represent a drawback from the recent frenetic pace of activity.

Majority Of Funds Improve In Quarter

Twenty-nine of the 44 Morningstar Canada Fund Indices increased during the third quarter, including 11 that increased by two per cent or more. However, five of the 15 fund indices with negative results were down by one per cent or more. The best performing fund index for the third quarter was the one that tracks the greater China equity category, which increased 8.1 per cent. This fund category has dominated the Canadian marketplace since the beginning of the year, including chart-topping performances in July and August. Three sector-specific fund categories were among the top performers. The energy equity fund index had the second-best result for the quarter with a 6.8 per cent increase, which included a 10.3 per cent increase in September that was the best among all categories for the month. The natural resources equity and financial services equity fund indices followed with increases of 4.1 per cent and 3.9 per cent, respectively, for the quarter and were ranked third and second for the month of September, up 3.1 per cent and 4.9 per cent, respectively. The biggest losers in the third quarter were fixed income fund categories, with four of eight fund indices ending the period in negative territory.

Mackenzie Financial Launches Responsible Funds

Mackenzie Financial Corporation has launched two products to answer Canadian investor demand for sustainable, responsible, and impact investments that also offer competitive returns. The Mackenzie Global Sustainability and Impact Balanced Fund provides an exposure to a positive environmental and social impact while the Mackenzie Global Leadership Impact Fund provides investors with an opportunity to impact social and governance change with a focus on promoting the benefits of women in leadership.

BMO AM Launches ETFs

BMO Asset Management Inc. (BMO AM) has introduced five exchange-traded funds (ETFs). They include the BMO Shiller Select US Index ETF, an ETF that offers exclusive access to the cyclically adjusted price earnings (CAPE) methodology – an equal-weight strategy that combines value and momentum, leveraging the research of Professor Robert Shiller. The Canada Value Index ETF offers investors factor-based access to Canadian companies with higher value characteristics relative to their peers. The MSCI EAFE Value Index ETF provides investors factor-based access to international companies with higher value characteristics relative to their peers. The MSCI USA Value Index ETF offers investors factor-based access to U.S. companies with higher value characteristics relative to their peers. The High Yield US Corporate Bond Index ETF offers investors access to unhedged U.S. high yield corporate bonds.

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Private Wealth News Archive 2011
Private Wealth News Archive 2010


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