Managed Money Reporter Newsletter — Issue 239, July/August 2007

Editors: Carl Spiess & Allan McGlade

Featured Articles

Market Volatility Rears Its Head

By Carl Spiess, CFP, CIM, FMA, FCSI, MBA, Director

Well, it has been a long time since we have had to update our market volatility page. However, August has been a roller coaster as markets have begun to reflect some of the concerns about Sub Prime (high risk) mortgages in the US. The overall economic situation continues to be strong, with record low unemployment in Canada. We do not feel that this is a time to get out of equities, but if you are feeling nervous about your stock market exposure, the recent recovery may provide an opportune time to review.

Here is ScotiaMcLeod's recent research report to clients:

The following chart helps to put the last 12 months in perspective:

Source: Reuters

But it is important to note that on Friday the 17th of August, the TSX was down over 500 points and below 12,500 mid day, which basically was back to beginning of year values. The chart above only shows the ending value just below 13,000. Fortunately, markets have recovered significantly from there, with the following week being the best week so far this year for the Canadian market. Hopefully, this demonstrates the danger of panic selling.

It is worth considering how far we have come from 5 years ago (recovering from 9/11) and 10 years ago (remember the Asian flu after the collapse of Long Term Capital Management in 1997). It is now almost 20 years since the "Black Monday" of October 1987, which was a good example of a downturn that came quickly, was not linked to a recession, and proved to be a good time to keep invested, rather than selling into a decline. In summary, over 5 year periods, declines are rare, but in any one day, one week, one month or one year period, we need to be aware that a market decline can come at any time, and would not be unexpected after a 5 year bull market.

Source: Reuters

Please contact us if you want to review your overall exposure to the markets, especially if you are retiring in the next 24 months or are looking to use your investment account for a shorter term purpose.

More on Market Volatility

Funds Limit Exposure to Asset Backed Commercial Paper

Most mutual fund groups have released statements in the last week that they either have no exposure to Asset Backed Commercial Paper (ABCP) in their portfolios, or have repurchased the paper directly from their funds to ensure that their money market funds do not suffer a short term loss. Some of the ABCP has been unpriced as a result of the short term credit crunch that has been making headlines. Since prices of most money market funds rarely change from $10 a share, a short term drop could have shocked investors. Globe Investor had a good article on this topic recently (see link, below) and the major Canadian Banks have been working to help the market for this paper function smoothly.

Please contact us if you have questions about what is held in your specific investment portfolio.

More on Asset Backed Commercial Paper

Summer Reading

If you are looking for more background on the markets, please see the earlier summer edition of Investment Portfolio Quarterly.

A New Addition to the Team

We would like to welcome a new addition to Investment Associate Christopher Kelly's family. Thomas Edward Douglas Kelly was born August 16th, to Chris and Amanda Kelly. We are pleased to report that everyone is doing well - although Chris may be a little sleepier next time you call us.

Other than that, we are pleased that there continue to be no changes to your investment team:

Trimark Fund Manager Changes

AIM Trimark Investments is making changes to portfolio management responsibilities on several funds following the departure of Geoff MacDonald. The main portfolio manager changes are:

  • Trimark Income Growth Fund - New Lead Manager is Don Simpson
  • Trimark Canadian Endeavour Fund - New Lead Manager is Clayton Zacharias
  • Trimark North American Endeavour Fund - New Lead Manager is Jayson Whiting
  • Trimark Global Endeavour Fund - Lead Portfolio Manager remains Jeff Hyrich

All four of these lead managers were hired and mentored by Geoff Macdonald while at Trimark. This change comes on the heels of the departure of Patrick Farmer, AIM/Trimark's former Chief Investment Officer. We will be monitoring the funds to see if future changes are required, but at present are not recommending any changes.

More on AIM Trimark Changes

  • AIM Trimark press release

Ontario LRIF/LIF Changes

Effective July 27, 2007, owners of existing Ontario LIFs are no longer required to purchase an annuity by the end of the year in which they reach age 80. They may continue their variable LIF payments past age 80, similar to how a RIF works.

Effective January 1, 2008, the following regulations will come into effect:

  • The LIF will provide more flexible payments by calculating the maximum based on the greater of a percentage of the market value (this is the current way the maximum is calculated) or the amount of investment earnings of the LIF in the previous year.
  • Owners of a LIF will have a one-time opportunity to withdraw up to 25% of the amount in their LIF.
  • Owners of Ontario locked-in accounts who are non-residents of Canada for at least two years will have the ability to withdraw the money in their account.
  • After December 31, 2008, Ontario LRIFs will no longer be available for purchase, and the above noted changes must be implemented to the LIF.

Please let us know if you have any questions about these changes, we will be contacting LIF investors directly with their options in the future.

Manulife Changes Fund Names

The Elliott and Page fund names will be changed to Manulife funds and the Manulife MIX funds will be changed to Manulife Corporate Class. This will simplify their fund lineup.

  • Manulife press release

Mutual Fund Reporter Recommended Web site of the Month

Most people have visited Wikipedia, but it is always good to keep it in mind when looking for information on a specific topic. I particularly like when it addresses theories which are controversial. As Wikipedia is edited by its users, it presents a market consensus of its own. Their page on the efficient market hypothesis is a good one. I love it when someone on TV says "experts agree the market is going up (or down)", in reality 1/2 of the experts expect it to go up, the other 1/2 expect it to go down, that is what sets the current market level:


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