Briefly:

(March 18, 2005) The S&P 500 starts the transition to a floating index on Friday. In a float-adjusted model, the number of shares of a company reflects only the shares available to investors, not the total shares outstanding.

After the markets close, Standard & Poor’s will implement half-share adjustments for a number of its indexes, including the benchmark S&P 500. The change will not affect the index’s closing values.

Beginning on Monday, the official values quoted will be half-float versions. The S&P 500 will go “full-float” on September 16.

“Over the last few years, float adjustments have become the accepted standard for capitalization-weighted indexes,” S&P said in a statement. “Free float enhances liquidity through adjustments for stocks where a significant portion of the shares outstanding is not available to investors.”

The float adjustments will affect each company’s weight in the index.

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MFDA establishes allegations against salesperson

(March 18, 2005) The MFDA says it has established a number of allegations against an Ontario salesperson, but the self-regulatory organization has yet to announce disciplinary action against Robert Roy Parkinson.

A hearing panel of the MFDA’s Ontario Regional Council concluded that between November 2000 and February 2003, Parkinson solicited and accepted $337,000 from clients, but failed to account for the money. He also provided false account statements and order forms to clients and abandoned his business as a mutual fund salesperson without notifying clients.

The panel says it will issue written reasons and appropriate sanctions against Parkinson “in due course.” It’s the MFDA’s first disciplinary proceeding against an individual sales rep.

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Foresters appoints new CEO

(March 18, 2005) Financial services organization Foresters has named an insurance industry veteran as its new president and chief executive officer. George Mohacsi joined the firm in 2002 as senior vice-president.

He has more than 30 years experience in life insurance. “George brings his broad experience and proven success in managing life insurance operations to the role of CEO,” said Foresters chair Christopher Wansbrough in a statement.

“I am honored to have been appointed by the board and am deeply appreciative of their faith in my insurance industry experience, leadership capabilities and knowledge of Foresters heritage to lead this wonderful organization at a critical time in its growth,” added Mohacsi.

Foresters — a fraternal benefit society known for its involvement in children’s charities — offers a number of insurance and investment products, including life insurance and annuities.

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Bank ombudsman to step down

(March 17, 2005) Michael Lauber will retire as head of the Ombudsman for Banking Services and Investments at the end of June, the organization announced on Thursday.

Lauber was hired in 1996 to head the Canadian Banking Ombudsman, set up to investigate complaints by banks’ small business customers. In 1998, its mandate was expanded to included individual bank consumers. Clients of fund dealers and fund companies were added in 2002, and the service was re-named.

“The Ombudsman for Banking Services and Investments is a strong team, and we are privileged to have benefited from Mike Lauber’s diligence and effectiveness,” said OBSI chair Dr. Peggy-Anne Brown. “Canadians have been well-served by his independence, his integrity and his impartiality.”

There’s no word yet on who will replace Lauber.

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Canadians ditch record amount of foreign stocks

(March 17, 2005) Canadian investors sold off a record $3.2 billion worth of foreign stocks in January, but continued to buy foreign bonds, Statistics Canada says. Sales of U.S. stocks, at $2.4 billion, accounted for most of the January divestment.

Canadians purchased $717 million in foreign bonds in January, solely in U.S. treasuries.

BMO Nesbitt Burns chief economist Sherry Cooper notes that the StatsCan data precedes the scrapping of the foreign content limit, announced by Ottawa in late February. “After showing almost no interest in foreign stocks in 2004, the new year has started out on a soft note,” she says.

Meanwhile, foreign investors bought $1.8 billion in Canadian securities. “Their investment consisted entirely of Canadian debt instruments as foreign holdings of Canadian stocks remained unchanged,” the agency said.

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National net worth rises 6%

(March 17, 2005) Canada’s national net worth grew 6% last year to $4.3 trillion, Statistics Canada reports. That’s more than $132,000 per capita.

The increase resulted from stronger growth in economy-wide non-financial assets (such as housing) as well as from a reduction in net foreign debt, the agency says.

Household borrowing continued to rise in the fourth quarter, led by strong demand for mortgages. Growth in total household debt outpaced that of personal disposable income, resulting in a debt-income ratio of 105.8%, up from 105.1% in the third quarter.

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Desjardins Securities hit with nearly $2 million in fines

(March 17, 2005) Desjardins Securities has been fined a total of $1.96 million fine by RS, the country’s stock market regulator. The Montreal-based firm, its president and former chief compliance officer failed to follow trading compliance and supervision obligations between 2002 and 2004 and, in multiple cases, failed to record client consent to trade alongside on a client order ticket, RS says.

The firm was fined $1.5 million and ordered to pay $125,000 in costs. Company president Jean-Pierre de Montigny was fined $300,000 while former compliance officer Jean-Luc Brunet was ordered to pay $35,000.

“A culture of compliance begins at the top,” said RS vice president Maureen Jensen. “At [Desjardins Securities], the continued lack of daily testing and the other compliance and supervisory failings were the result of a culture within the firm that did not place importance on having effective trading supervision and compliance systems. These systems are essential for market integrity.”

The contraventions of trading rules, though serious, did not result in harm or financial loss to clients, Jensen added, and neither the company nor its employees gained from the infractions.

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Foreign investment gap narrows

(March 16, 2005) Canada’s international investment position improved during the fourth quarter of 2004, as net liabilities to non-residents declined by 1.3% from the third quarter to $190.8 billion. On a year-over-year basis, net liabilities declined 12.5% from $218.0 billion at the end of 2003.

The improvement came about largely due to the higher value of the Canadian dollar, which slashed $19.5 billion from the value of international assets, which totaled $945.1 billion by the end of the quarter. International liabilities dropped $12.4 billion to $1.136 trillion, with the stronger dollar erasing $14.8 billion in value.

While the dollar remained virtually unchanged against the euro and appreciated just 0.5% against the British pound, it gained 7.9% against the U.S. dollar — by far the most relevant foreign currency in Canada.

Canadian investors had more of an appetite for foreign debt than equity, increasing their bond portfolios by 9.6% to $56.9 billion, with the U.S market absorbing the lion’s share of the growth. Equity investment remained stable, at about $438.4 billion, as transactions added $8.3 billion, but exchange rates wiped out $8.6 billion.

Direct investment assets in the U.S. declined $6.1 billion to $191.2 billion, while the total for all other countries reached a record of $247.3 billion.

Foreign investors preferred Canadian stocks over bonds, holding a record $109.9 billion in equities at the end of the year. The value of bond holdings dropped $2.5 billion in Q4 to $405.1 billion, again, largely due to currency exchange rates.

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CIBC replaces fund auditors

(March 16, 2005) CIBC Asset Management has announced it will replace Deloitte & Touche and PricewaterhouseCoopers as auditors for a number of its mutual funds. The funds will now be audited by Ernst & Young.

The change will affect CIBC Mutual Funds, CIBC Balanced Index Fund, CIBC Family of Managed Portfolios, Imperial Pools, Talvest and Renaissance Mutual Funds, Frontiers Pools, and Axiom Portfolios.

The move will come into effect on or about June 30, 2005, CIBC says.

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Teachers’ pension plan up nearly 15%

(March 15, 2005) The Ontario Teachers’ Pension Plan — one of the country’s largest — beat its benchmark in 2004, with a rate of return of 14.7%. Net assets rose to $84.3 billion from $75.7 billion the previous year.

Net income from investments in 2004 was $10.8 billion, down slightly from 2003. “We were particularly pleased to provide value for teachers and taxpayers by beating the market benchmarks by more than 4% for the second year in a row,” says Teachers’ president Claude Lamoureux.

“Over the past few years, we have successfully diversified and Bob Bertram and his team have been able to find investments with good returns, while reducing the overall risk in the fund,” he added.

Still, the plan’s funding shortfall continues to grow. An actuarial study conducted by Mercer shows that, as of January 1, 2005, future pension benefits were 84% funded, down from 94% a year earlier.

“Low interest rates may be good for your mortgage or car loan, but they are hard on pension plans,” explained Lamoureux. “Low rates mean this pension plan must have more money in the fund today to be prepared to pay pensions 70 years from now.”

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WorldCom CEO convicted of fraud

(March 15, 2005) Former WorldCom CEO Bernard Ebbers has been convicted of numerous fraud charges relating to an $11 billion accounting scandal in 2003.

Ebbers, who was born in Canada, was found guilty on Tuesday of securities fraud, conspiracy and false regulatory filings by a New York City jury, who deliberated for eight days.

During the trial, the 63-year-old insisted he knew nothing of the accounting irregularities going on around him at the telecom giant.

Ebbers will be sentenced in June.

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Offshore investing booming

(March 14, 2005) Canadian offshore investments reached $88 billion in 2003, Statistics Canada reports, up from $11 billion in 1990.

The offshore centres, mostly tax havens in the Caribbean, as well as some European nations such as Switzerland, accounted for more than 20% of direct investment abroad in 2003.

The largest growth took place in Barbados, Bermuda, the Cayman Islands, the Bahamas and Ireland, the agency says. “By 2003, these five were among the 11 nations with the most Canadian assets.”

Meanwhile, the share of Canadian direct investment going to the U.S. is on the decline. “In 2000, Canadian enterprises held fewer assets in the United States than in all other countries combined,” StatsCan says.

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Fund committee seeks comment on FPR

(March 14, 2005) The Canadian Investment Funds Standards Committee is seeking input on Ottawa’s move to eliminate the 30% foreign property rule.

Last month, the CIFSC reduced the number of its fund categories to 34 from 35, adding a new category and merging two others. The committee has no plans to revise those changes (scheduled to take effect May 31) based on the federal government’s announcement.

“The consensus of the committee is that even without federally-mandated foreign property quotas, limits on foreign exposure will continue to be used for the purpose of defining the various Canadian categories,” CIFSC said.

But the committee wants to know if it still makes sense to maintain restrictions on foreign exposure in the categories that currently have them. And, “If CIFSC continues to set limits on foreign exposure, what should those limits be?”

CIFSC is also asking for feedback on Standard & Poor’s recent decision to include income trusts in the TSX, beginning later this year. “Should there be different domestic equity categories for funds that include income trusts in their holdings and those that do not and should there continue to be a Canadian Income Trust category?”

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Sentry Select notes raise $167 million

(March 14, 2005) Sentry Select Capital’s fifth series of principal-protected notes has raised $35.1 million in gross proceeds, the firm announced today. In total, the series raised $167.7 million.

Backed by National Bank, the Sentry Select Principal-Protected Blue-Chip Notes Series are linked to the performance of a benchmark portfolio, comprised of 15 Canadian income trusts, 15 Canadian stocks and 15 U.S. stocks, chosen by Sentry Select.

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