Managed Money Reporter Newsletter — Issue 198, September 2003

Editors: Carl Spiess & Allan McGlade

Featured Articles

Markets Moving Again 

It is gratifying that our recommended long-term buy and hold strategy has paid excellent dividends over the past five months which is a period that market timers refer to as the "sell in May and go away" period.

Markets have continued a nice upward climb over the last 6 months, and many funds are now showing positive one year returns for the first time in quite a while.  One year returns to August 31st show 73% of funds have a positive one year return.

Many individuals were tempted to review their asset allocation, and make their accounts more conservative a year ago when markets were testing their bottoms.  Most held on through the downturn, and have now been rewarded.  Traditionally, September and October have been difficult months for the markets.  (Although we suspect that traditional adage may also be turned on its head this year.)  

Yet, now may be the time to revaluate, and see if there are some gains worth locking in.  If you would like a review of your asset allocation, or if your goals have been changing recently, please contact us.

A Tax Efficient Balance

In the last month, Allan and I have met with many clients as part of our ongoing account reviews, and one particular scenario has come up several times.

It is a situation where a client has a balanced registered portfolio (RSP or RRIF), consisting of bonds and equities, and is also accumulating savings in a taxable account.  Clients may be taking advantage of high daily interest savings like the Scotia Money Master account, or investing in savings bonds, while they decide what to do with money they are putting aside.

Unfortunately, the non-registered interest savings is taxed fully as interest income, cutting returns in half.  Then, inflation eats up the other half.  We have a better solution.

We have been recommending to clients that we sell the equities or funds in their registered accounts, and then repurchase the same or similar investments in their non-registered accounts, with the money that was sitting in low interest investments.  Then, we use the money from the equities, to buy longer term higher rate bonds, in the registered account.

Graphically, it looks like this:
In the "Before" pie chart, left, 1/3 of the portfolio is taxable interest savings.  In the "After" pie chart, below, we replaced the interest savings with higher rate bonds, and have included all the interest bearing investments in the sheltered registered environment.  

Importantly, the overall exposure to equities has not changed (1/3 of the overall assets), but the equities are now held in an account where they can generate tax efficient capital gains, or be  part of a systematic withdrawal plan.

We would be pleased to review this process of essentially doubling the rate on a savings account, and putting higher interest investments in a sheltered environment for you.  

For us, it is obviously gratifying if we can replace low interest taxable investments with similarly guaranteed but higher rate investments, without actually having to change a client's overall risk profile.

Due Diligence

Each month, we meet with several fund managers to review their investment process and recent performance.  Of the many manager meetings we attended this month, the most relevant was that of  Jeffrey Moore, fixed income manager of Fidelity's Canadian Asset Allocation, Balanced and Bond funds.

While some investors are reluctant to buy longer term bonds, fearing rising  interest rates, or a bond "bubble", Jeffrey continues to maintain that longer term bonds should be a major part of client portfolios, as he has in our past meetings.  He points to the fact that only once in the last 10 years  has there been a negative 1 year return on bonds, and even that loss was recovered completely in 16 months.   

Longer term interest rates are actually not as low as they seem.  Over the last 5 years, 10 year rates have generally been over 5% and sometimes even above 6%.  Current rates are 5%, which is almost double short term rates.

A strategy of laddering bonds, with various maturities remains a cornerstone of a solid investment plan.  ScotiaMcLeod has a new tool that can graphically chart the amounts and maturity years in your portfolio, and we'd be pleased to provide that information to you.

Scotia Ranked Best Online Banking/Brokerage Service

Scotiabank was recently ranked #1 in Canada for our online services by Gomez Canada.  One of the major features of ScotiaOnline that was highlighted in the report was the single login to see both your investment brokerage accounts, and all your banking information.  The access to Morningstar fund research and ScotiaCaptial stock research was a noted benefit.

Not wanting to rest on our laurels, we recently launched several upgrades, providing even more services.  If you have not yet signed up for online access to your accounts, please click here for more information.

Remember to always follow safe computing practices when using Online services.  See an important message from Scotiabank regarding Email fraud:,,2970,00.html

Income Trusts Volatile - But CI Signature High Income Increases Distributions

The news over the last few months has been mixed for income trusts.  A number of the more recent income trust securities have had to cut or suspend their distributions due to changing business conditions, and others have faced questions about accounting irregularities.  As is often the case, a few bad apples may seem to spoil the whole bushel.  Or perhaps, it demonstrates again the need for diversification and professional management.

Even in these tougher times for income trusts, the CI Signature High Income fund will be increasing its monthly distribution amount.  The fund is largely invested in income trusts (but no single issuer is more than 3% of the portfolio) and currently 25% of the portfolio is in bonds.

The performance of the fund means that its unit value has risen, allowing CI to increase its distribution to maintain its yield.  Effective September 30, 2003, the monthly distribution of the fund will be increasing to $0.070 per unit from $0.065 or annual yield of approximately 7%.  For more information on this fund or how best to invest in the income trust or high yield markets, please contact us.

Fund News

CI Acquires Synergy Funds

CI funds has purchased Synergy funds, and an integration of the fund families will no doubt occur, however the Synergy name and unique mandates of many of the Synergy funds will remain.  For more information please visit: 

AGF Asset Allocation Fund Changes

AGF has announced a proposed merger of the AGF World Balanced Fund into the AGF American Tactical Asset Allocation Fund. The fund will then be renamed back to the AGF World Balanced Fund. (Tax Loss provisions favour this format, although curiously, the World balanced fund will then assume the lower track record of the ATAA fund.)  John Arnold and Rory Flynn of AGF International Advisors will continue as managers of the AGF World Balanced Fund have a great track record at transitioning funds.

The AGF Canadian Tactical Asset Allocation fund will be renamed the Canadian Real Value Balanced Fund.  The fund will now be managed by Keith Graham, one of the industry's most successful and reputable Canadian equity managers.  Keith joined AGF Sept. 3rd and will be building AGF's new Canadian Value Platform.  Keith had previously managed balanced funds at AIM/Trimark.

A unitholder vote for approval of the changes will occur on the 25th of September. 

E&P Caps Balanced Fund

Elliott & Page has announced the capping of the Advisor and F Classes of the Elliott & Page Balanced Fund to new purchases.  Announcements about a future merger of the fund with another in the Elliott & Page family are expected in the future.

Templeton Growth Returns to 4 Star Status

Templeton Growth Fund has returned to its former 4 star status according to Bellcharts/Morningstar.  While the fund under performed in 2002, we are pleased that Templeton clients have been rewarded in the last several months with significant out-performance of most of its peers and the broader markets.  We will continue to monitor this fund and advise if any changes are recommended.

Mutual Fund Reporter Recommended Website of the Month 

A site we have often recommended to clients,, has a wealth of information.  New this month on their site is their Marginal Tax Rate Calculator.  Use it yourself, to see why holding equities outside a registered environment is so much better than regular interest bearing investments.


Contact Us

T.  416.863.RRSP (7777)
F.  416.863.7479

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