Briefly:

(July 9, 2004) An annual review of investment counsel and portfolio managers conducted by the Ontario Securities Commission (OSC) reveals no significant improvement in overall compliance with regulatory guidelines. And although no new compliance problems have emerged, the number of deficiencies has actually increased in some categories, the regulator says.

The most common deficiency involved problems with policies and procedures manuals, with the OSC reporting 97 such instances, compared to 83 in the previous review period. Other frequent deficiencies included the lack of a fairness policy with regards to allocation of investments and issues surrounding the maintenance of books and records.

The most negative trend was in the area of portfolio management with 82% of firms experiencing issues in this area as compared to 59% in the prior year.

The commission also found a sharp rise in problems related to proxy voting, an area investigators focused on during the review period. “Recent compliance field reviews have shown that many advisors have inadequate written policies and procedures on proxy voting,” the OSC says. “Also, we noted that proxies were not always voted and there was no process to deal with contentious matters.”

OSC compliance manager Marianne Bridge calls the rise in deficiencies in certain categories “unfortunate,” adding she hopes firms will use the report as a learning tool and review the noted deficiencies and suggested guidelines.

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June saw better employment stats

(July 9, 2004) Canada’s unemployment rate edged higher in June to 7.3%, according to Statistics Canada, but analysts say this is a good sign, indicating more Canadians have returned to the job hunt.

The number of jobs increased by 25,000, supporting this theory. Since August 2003, there have been 316,000 new jobs created, a gain of 2%. Even better, there has been a net loss of part-time jobs, with the tally of preferable full-time positions hitting 342,000.

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Lunch with Buffett sells for more than $200,000 US

(July 9, 2004) It’s not as pricey as last year, but lunch with investor guru Warren Buffett still fetched more than $200,000 US this week in a charity auction. An unidentified online bidder won the 10-day E-bay auction with an offer of $202,100 US and gets a lunch for eight at a steak house in New York City, hosted by Buffett, head of Berkshire Investments and one of the world’s richest men.

All proceeds from the auction go to the Glide Foundation, a San Francisco-based anti-poverty group.

In 2003, David Einhorn, head of Greenlight Capital, paid $250,000 US for his lunch with Buffett.

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Standard Life launches new products

(July 8, 2004) Standard Life Mutual Funds today announced the introduction of a fund of funds series, as well as a new global dividend growth fund.

Standard’s four new Managed Portfolios — available for a minimum deposit of $25,000 — are intended to match portfolios with investor profiles: conservative, moderate, growth and aggressive.

“Portfolios are rebalanced every quarter to stay on track, offering advisors and investors alike the opportunity for growth and peace of mind,” Standard Life said in a release.

In addition, the Montreal-based company is launching the Standard Life Global Dividend Growth Fund, which has a similar mandate to the Canadian Dividend Growth Fund.

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Rockwater acquires stake in Fairway Capital

(July 8, 2004) Rockwater Capital is taking a 35% ownership stake in Fairway Capital, an alternative investment management firm based in Toronto.

“Fairway presents a unique investment opportunity for us within the alternative asset management field,” said Rockwater president William Packham. “The principals of Fairway have proven track records in an area that has experienced rapid growth over the past few years and we are pleased to partner with them.”

“This deal represents two growth oriented companies recognizing an opportunity to prosper together while remaining independent,” added Fairway chair and CEO Andrew McKay.

Fairway’s Diversified Income and Growth Trust began trading on the TSX in March.

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Scandals affecting U.S. fund flows

(July 7, 2004) The scandals that have plagued the U.S. mutual fund industry this year have sparked an “epic flight to quality,” according to researchers at Morningstar in Chicago.

“Those who think that investors and advisors haven’t been bothered by the bear market or the scandal haven’t been watching fund asset flows,” says Russel Kinnel, Morningstar’s director of mutual fund research.

Kinnel says the latest report on mutual fund flows from Boston-based Financial Research Corporation reveals a “remarkably lopsided” marketplace. The researcher divided the 25 largest American fund companies into two camps: those tainted by the fund scandal and those that were unaffected.

“The tainted fund firms have suffered $21 billion in redemptions through May,” Kinnel reports. “The untarnished companies have hauled in $125 billion in net inflows.”

A handful of fund firms are attracting the bulk of the new money south of the border, Kinnel notes, including American Funds ($44 billion), Vanguard ($32 billion), Barclays ($19 billion) and Fidelity ($11 billion).

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Rockwater enters retail fund market

(July 6, 2004) Rockwater Capital is introducing three new retail mutual funds, under the Disciplined Leadership brand name. According to Rockwater’s final prospectus, the style-neutral Canadian equity, U.S. equity and income funds will focus on capital preservation and absolute returns.

“Investment styles circulate in and out of favour as markets change,” the prospectus says. “We believe it is important to have a process that recognizes those changes and allows for the orderly transition of portfolios.”

Rockwater is folding five former pooled funds into the trio of retail offerings, available for a minimum investment of $5,000.

“Merging the Disciplined Leadership pools into publicly available mutual funds will enhance distribution, allowing more Canadians to have access to the Disciplined Leadership approach to investing,” says Stuart Raftus, head of wealth and asset management at Rockwater.

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Institutional investors urge U.S. to move on expensing stock options

(July 6, 2004) Eighteen international investors — including the Ontario Teachers’ Pension Plan — are asking U.S. regulators to implement proposed reforms requiring stock options to be expensed.

In a joint letter to the Financial Accounting Standards Board (FASB), institutional investors from Canada, Australia, the Netherlands, Norway, Sweden and Britain warn that the U.S. will be out of step with the global investment community if it does not adopt proposals for the mandatory expensing of options.

Canadian companies are already required to expense all stock-based compensation, but the practice remains optional in the U.S.

“We are concerned about the political pressure on FASB to withdraw or amend this proposal which would be a significant step backward,” says Teachers’ vice-president Robert Bertram. “Shareholders have the right to know how stock option plans, which can seriously dilute shareholder value, will affect the company’s bottom line.”

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Western Financial buys two insurance agencies

(July 6, 2004) Western Financial Group has acquired Page Insurance in Drumheller, Alberta, and Bru Agencies in Hanna, Alberta.

“These well-known and respected offices each enjoy the largest market share in their communities,” said Western Financial president and CEO Scott Tannas in a statement. Western Financial is the parent of the WFG Agency Network, Bank West and The Western Mutual Fund Company, whose clientele now totals 180,000.

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Franklin Templeton introduces trust company

(July 6, 2004) Aiming at high net worth investors, Franklin Templeton Investments has set up a trust company to offer investment management, trust and executor and other wealth management services. Fiduciary Trust Company of Canada builds on the former Bissett Private Client service.

“The needs of Canada’s high net worth investors have evolved,” said Franklin Templeton president and CEO Don Reed in a statement. “They are looking for help on issues such as estate planning and wealth management; they need access to trustee services, and want advice on cross-border and offshore financial solutions.”

Fidelity Trust will house all of Franklin Templeton’s private client business in Canada.

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Fund industry slowly changing

(July 5, 2004) Faced with poor market returns, scandal and investor skepticism, the fund industry is transforming the way it does business, according to a study by KPMG entitled “Raising the performance bar: Challenges facing global investment management in the 2000s”.

“There is a growing recognition that a business model that works in a bull market cannot succeed in today’s low nominal return market environment,” said Harry Ort, national industry leader of KPMG’s financial services practice. “What is clear, however, is that something in the industry has to change.”

As a result, fund managers around the world are focusing more on their core strengths, while outsourcing back office functions. But the study warns the changes may not be enough, stressing that “new ways of thinking” are more important than “new ways of working,” while the industry appears reluctant to change rapidly.

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National Bank fund approved for short selling

(July 5, 2004) National Bank Securities’ five-year-old Canadian Opportunities has received regulatory approval to include short selling as one of its investment strategies.

“Short selling,” said National Bank Securities president and CEO Charles Guay in a statement, “gives investors two advantages over the traditional management approach. They will be able to take advantage of market opportunities to increase the fund’s potential return and better control portfolio risk.”

National Bank joins two other fund complexes, Dynamic and Accumulus, in offering limited short-selling. Short sales, which are slated to begin in September, will be capped at 10% of the fund’s assets.

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Clarington launches balanced fund

(July 5, 2004) Clarington Funds has announced a new balanced fund, the Clarington Canadian Growth and Income Fund managed by Jarislowsky, Fraser.

“With Jarislowsky, Fraser, we’ve added another top-notch portfolio manager for investors to choose from and rounded out our diverse Canadian fund offerings,” said Clarington vice-president, product management, Eric Frape in a statement. Clarington’s stable of managers includes Seamark, KBSH, QVGD Investors and Beutel Goodman.

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IPOs head higher

(July 5, 2004) The past two quarters have seen the best level for Canadian IPOs since the tech boom of 2000, with 47 new issuers taking in $2.7 billion. However, there was some weakening in the income trust market.

“It is interesting to note that in the face of growth in the total number of IPOs so far this year, market activity for income trusts continues to decline. This confirms a trend we identified in our year-end IPO survey for 2003,” said PricewaterhouseCoopers IPO practice leader Eric Slavens in a statement.

Where, in past years, income trusts may have accounted for more than half of IPO activity — and the vast majority of the dollar value of new offerings — that level is down to 22%. Mining has become the top sector, with Centerra Gold the largest offering. Slavens noted that the IPO business is highly volatile, and issuers have “to be mindful of the swings in markets and investors tastes.”

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(07/05/04)