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EdgePoint Wealth joins the list of fund companies introducing separate portfolios for investors residing in provinces that have not harmonized their sales taxes with the federal GST.

The company says the approach is the appropriate course of action that puts the interests of its unit holders first. The company decided to stay away from the blended rate calculation, a formula devised by many companies that works on the concept of having investors in non-HST participating provinces subsidize investors in HST-participating provinces.

Mutual fund companies have different options with regards to how they choose to implement the new tax. The two main approaches include the following:

Blended rate: Mutual fund companies can choose to calculate the HST payable using a “blended” rate, which is based on the residency of unit holders and the value of their investments in each series. All investors, including those in non-HST participating provinces, would be subject to higher MERs as a result of this methodology.

The most significant drawback of this approach is subsidization. A blended rate effectively means that investors in non-HST participating provinces would pay a portion of the provincial sales tax liability of those investors in HST-participating provinces.

The most significant benefit of this approach is that from an implementation perspective, it is the simplest to administer. All unit holders in the series would pay the same MER and effectively the same blended HST rate.

Separate series: Mutual fund companies can choose to create a separate series only available to investors in non-HST participating provinces.

The most significant benefit of this approach is that investors in non-HST participating provinces are not subsidizing investors residing in HST-participating provinces. It does, however, entail more administrative work for the mutual fund company.

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New offerings from Investors Group

Investors Group has added two new equity funds to the firm’s existing product line. The new equity mandates, IG FI U.S. Large Cap Equity Fund and Class and IG FI International Equity Fund and Class, focus on providing opportunities for long-term capital appreciation.

IG FI U.S. Large Cap Equity Fund and Class will invest primarily in equity securities of U.S. companies while IG FI International Equity Fund and Class will invest primarily in equity securities of companies located outside Canada and the U.S.

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AlphaPro changes performance fee rules

AlphaPro Management has adjusted the conditions under which the firm will earn performance fees on three of its ETFs: Horizons AlphaPro North American Value (HAV); Horizons AlphaPro North American Growth (HAW); and Horizons AlphaPro Managed S&P/TSX 60 (HAX).

The ETFs each pay AlphaPro a performance fee equal to 20% of the amount by which the ETF outperforms the following benchmarks applicable to that ETF. Effective immediately, performance fees on the ETFs will only be payable when the performance of the applicable ETF is positive and exceeds the performance of the applicable benchmark.

The performance fee is only payable if the performance is positive, so if the benchmark is down 3% and the ETF loses only 1%, no performance fee will be earned.

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S&P changes pref share index methodology

Standard & Poor’s Canadian Index Services has announced changes to the methodology used in constructing the S&P/TSX Preferred Share Index. The changes will be effective at the close of trading on Friday, July 16, 2010.

The changes include:

• There will be no limit to the number of preferred share issues from any given issuer. Previously, the number of issues per issuer was limited to a maximum of three. • There will be a maximum relative weight of 10% set per issuer. All eligible lines for an issuer will be included in the index and capped on a pro-rata basis to a maximum of 10% of the total index market capitalization. • Preferred shares that have a mandatory conversion or a scheduled maturity or redemption within 12 months of the review period will not be added to the index. Existing index constituents which have a redemption or conversion will be removed on the redemption or conversion date. • A buffer rule for existing index constituents will be applied for the dollar value traded liquidity requirement. Existing constituents must have a minimum average dollar value traded in the 3 months prior to the review date of C$100,000. • The liquidity requirement to get included in the index will increase from C$100,000 to C$200,000. • Effective January 2011 the rebalance scheduled will change from semi-annually to quarterly. Rebalancing will occur after the close on the third Friday of January, April, July and October.

The new methodology will be phased in beginning with the July 2010 rebalancing of the index. The index will rebalance 25% each month from July to October, effective after the close on the third Friday of each month

(07/12/10)