Briefly:

(April 15, 2005) Morningstar’s Natural Resources index gained 11.5% in the first quarter, fuelled by continuing demand for commodities and soaring oil prices. Overall, 23 of the 32 Morningstar indexes were positive in the first three months of the year, though returns were generally modest.

Middlefield Growth led the pack among resource funds, advancing 23%. The positive trend in resources spilled over into Canadian equity funds, Morningstar says, thanks to their holdings of energy and mining stocks.

Trusts were tepid, with the median Canadian income trust fund rising just 2.4% in Q1, despite the resource rally. Funds in the sector were held back by slowing momentum in the broader income trust market, Morningstar says.

Funds focused on technology suffered the biggest setback, falling nearly 6%. The median precious metals fund lost 3.4% and foreign equity funds were also mostly weaker. Fixed income and money market funds were flat.

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B.C. court upholds market ban

(April 15, 2005) A former resource company president who has banned from the B.C. securities market for 17 years has lost his court appeal.

John Walter Scott Roeder headed Keywest Resources, which was listed on the now-defunct Vancouver Stock Exchange. He was banned by the British Columbia Securities Commission in 1995 for a variety of offences, including shuffling money back and forth between the company and his personal accounts, failing to disclose material changes and issuing false news releases.

In 2000, Roeder applied to the commission to have the 1995 order revoked, alleging that BCSC staff counsel were in a conflict of interest at the original hearing. The commission dismissed Roeder’s application in 2003.

He appealed to the B.C. Court of Appeal and on April 4, in a unanimous judgment, the court dismissed the appeal, finding that the BCSC acted reasonably in making its 1995 order.

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Mavrix reduces fees on bond fund

(April 15, 2005) Mavrix Fund Management is lowering the management expense ration (MER) on its strategic bond fund to 1.34%, effective immediately. The fund’s MER was 2.41%.

“For fixed income fund investors, we know that a penny saved is indeed a penny earned, so the reduction will benefit the existing and new unit holders of the fund going forward,” said Mavrix president Mal Spooner. “We’ve developed sufficient scale to enable us to offer this core bond fund with a more competitive fee structure within its peer group while maintaining a very competitive trailing service fee schedule.”

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Real Assets applauds fast-food giant

(April 15, 2005) Social investment firm Real Assets says McDonald’s deserves credit for responding to a shareholder resolution on health issues.

A recently-released 34-page report discloses efforts by McDonald’s to adjust its business model to promote healthier products, active life styles and better nutritional information for consumers.

“Instead of beating around the bush, we went straight to the top and asked McDonald’s to report to investors on the policies, plans and strategies to address this major health issue,” says Real Assets president Deb Abbey. “Rather than sending an army of lawyers to fight our proposal, McDonald’s agreed to put together a committee of independent board members to review and report on the company’s response to this important issue.”

“The high level response to shareholder concerns and the willingness to publicly disclose board diligence on this issue demonstrates good governance and forward thinking,” says Abbey. “This corporation is working to enhance shareholder value, meet the expectations of its customers, and address society’s concerns. While there is always room for improvement on the overall social impact of McDonald’s, they deserve credit for not ducking this issue and responding appropriately to the concerns of their shareholders.”

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Aegon Canada appoints new president

(April 15, 2005) Aegon Canada has appointed Paul Reaburn as president and CEO. Reaburn also assumes responsibility for Aegon’s subsidiaries, which include Transamerica Life, Aegon Fund Management and Money Concepts.

“I’ve held financial services management positions in Canada and the United States for over 25 years and AEGON Canada represents a very exciting opportunity,” Reaburn said in a release.

Over the past eight years, Reaburn held a number of executive positions at Aegon USA, mostly recently serving as chief operating officer at Aegon Financial Partners.

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Rice to acquire Ascot Financial

(April 15, 2005) Rice Financial Group is expanding into B.C., announcing an agreement on Friday to purchase the assets of Port Coquitlam-based fund dealer Ascot Financial.

Financial terms were not released.

“We look forward to enhancing Rice’s presence in the B.C. marketplace, and building upon Ascot’s stellar reputation for prudent and profitable financial advisory services,” said Rice Financial president Mal Anderson.

“Rice’s size and stability together with Ascot’s established brand create a formidable union designed to meet the changing needs of B.C. investors,” added Philip Armstrong, president of Jovian Capital, Rice’s parent company.

Ascot founder and president Reid Liske said that while he received a number of offers to consolidate over the years, Rice was the only company to recognize and appreciate his desire to prosper in a partnership without sacrificing autonomy.

“The majority of my friends are either co-workers or clients of Ascot and I wanted to insure their interests were kept a priority,” he said. “The alliance with Rice is a great opportunity to join a national organization with the resources to duplicate the current net incomes of Ascot representatives, and add value to the service our clients are already receiving.”

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Election talk weighing on loonie, expert says

(April 14, 2005) The possibility of another federal election is hurting both the loonie and foreign investment in Canada, according to Andrew Busch, a Chicago-based strategist with BMO Nesbitt Burns.

“If you don’t know what’s happening in a country, how can you invest there?” Busch asked in a Toronto speech sponsored by the Economic Club. “This is a really exciting time to be in Canada — to have political ideas kicked around. But it’s not a good thing for the Canadian dollar or for Canadian financial markets.”

Busch added that if the Liberal government falls, more uncertainty will be created since the federal budget, which includes a proposal to eliminate the foreign property rule, may not pass.

But the Canadian dollar will likely lose ground compared to its U.S. counterpart no matter what happens in Ottawa, Busch believes, noting that the greenback appears to have bottomed out and a rally is likely in the cards.

That would be a welcome development, he added. “You don’t want too strong of a currency, especially given recent declines in Canadian exports.”

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CFA Institute introduces corporate governance handbook

(April 14, 2005) The CFA Centre for Market Integrity, the policy-setting arm of the CFA Institute, has launched a corporate governance guide on listed companies, intended to help analysts and investors assess a firm’s governance policies and associated risks.

The CFA Centre says the manual can assist investors in making decisions and can be used by market participants to develop a better understanding of what investors are looking for in companies.

“A number of studies have shown that there is a strong positive link between good corporate governance practices, profitability and investment performance,” says CFA Centre executive director Kurt Schacht.

The guide does not advocate specific best practices nor does it recommend any particular corporate governance system. “Rather, it targets potential investors, existing shareowners, analysts and issuers of financial securities and demonstrates to them the primary corporate governance risks they should consider,” Schacht explained.

The manual includes a directory of existing and proposed corporate-governance codes from around the world. It also describes major areas of risk that investors should consider, including issues related to board independence, codes of ethics and shareholder rights.

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Resource sector drives economic growth

(April 14, 2005) The Canadian economy grew 2.8% in 2004, boosted by energy exports and investment, says Statistics Canada.

“Record high oil prices followed a decade of heavy investment in energy, especially the tar sands,” the agency said. “Economic growth was evenly distributed, as no major industry or province suffered a loss last year.”

Rising energy prices challenged the soaring loonie as the year’s most important economic story. “Since oil prices bottomed out during the Asian crisis in 1998, the share of energy in exports has more than doubled from 7% to 16%. Canada’s surplus in trade in energy is now almost as large as all other resource exports combined.”

That reliance on the energy sector raises questions about Canada’s vulnerability to a collapse in prices, StatsCan notes, but says the OECD expects oil to remain on the high side.

Meanwhile, the Bank of Canada has slightly reduced its forecast for economic growth in 2005. Gross domestic product will expand by an average of around 2.6%, compared to the 2.8% figure the bank predicted three months ago. The central bank is sticking to its forecast of 3.3% growth in 2006.

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Enforcement director leaves SEC

(April 14, 2005) Stephen Cutler — the man who prosecuted some of the largest financial investigations in U.S. history — is leaving his position as enforcement director at the Securities and Exchange Commission.

The 43-year old took the post in 2001 and oversaw the Enron and WorldCom probes, among others, as well the agency’s investigation into market timing in the mutual fund industry.

During Cutler’s tenure, the commission obtained judgments in enforcement actions totalling more than $6 billion US in penalties and disgorgement.

“I have had the very good fortune to work with an extraordinary group of colleagues during an historic period for the commission and our capital markets,” he said. “I am proud to have been a part of the agency’s efforts and considerable accomplishments in the enforcement arena.”

Cutler plans to return to the private sector.

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Surging energy prices bolster Alberta’s coffers

(April 14, 2005) Alberta posted a massive $4.5 billion dollar surplus last year — 10 times more than forecast — thanks to higher energy prices.

For 2005, Finance Minster Shirley McLellan expects a $1.5 billion surplus, however that projection is based on conservative estimates for oil: $42 a barrel this fiscal year and $32 in 2006-07.

McLellan introduced Alberta’s budget on Wednesday, boosting spending on education and health care, but offering little in the way of tax cuts. There were no changes to business taxes, however personal taxes will continue to be indexed to inflation.

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B.C. regulator bans Alberta trader

(April 13, 2005) The British Columbia Securities Commission has fined an Alberta man $10,000 and banned him from the securities market for four years. James Harvey Cameron admitted to illegally distributing securities in B.C.

Between May 2002 and August 2003, Cameron’s firm, Venture Trading, sold securities to at least 90 individuals, raising $4.2 million overall and $1.5 million in B.C.

“The company violated securities laws when it distributed securities to eight B.C. individuals without complying with the registration and prospectus requirements, or exemptions from these requirements,” says the BCSC. “Venture Trading raised $143,500 through this illegal distribution.”

Venture Trading also gave false information about the monthly return of its preferred shares on the company website, the regulator says.

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Consumer confidence stays strong

(April 13, 2005) Canadian consumers are generally confident about the state of the economy, according to a survey conducted by Decima Research for Investors Group.

The index of consumer confidence stands at 88, unchanged from the last survey in November, 2004.

“Steady consumer confidence at this level is good news for the Canadian economy — although fuel prices are high, we have not experienced any traumatic economic or geopolitical surprises to upset consumer confidence,” said Charles Feaver, vice-president of research for Investors Group.

“With interest rates stable and the market continuing upward throughout the period, it is not surprising that consumer confidence remained relatively high this quarter,” added Decima vice-president Tony Coulson.

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Ethical announces fund manager change

(April 13, 2005) Ethical Funds is replacing Alliance Capital Management Canada as manager of the Ethical North American Equity Fund, with Manning & Napier Advisors stepping in to fill the role, effective May 13.

“We’re very pleased to have selected this five-star U.S. equity manager, and we’re confident they will meet our investors’ goals by delivering financial, social, and environmental performance,” said Elaine McHarg, Ethical’s senior vice president. “Their multi-strategy approach has helped to protect gains in periods of market downturns.”

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Investor protection fund signs deal with U.S. counterpart

(April 13, 2005) The Canadian Investor Protection Fund has signed a memorandum of understanding with the U.S. Securities Investor Protection Corporation aimed at increasing cooperating between the two groups.

The agreement will facilitate mutual cooperation and assistance in the event of the insolvency of a brokerage firm that does business in both nations, according to a joint release issued Wednesday.

“The globalization of the investment industry creates the need to work collaboratively across borders,” said CIPF president Rozanne Reszel.

“The MOU provides for cooperation and efficient handling of claims from investors where there are cross-border issues,” added SIPC president Stephen Harbeck. “We will also exchange information on a regular basis.”

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Interest rates remain stable

(April 12, 2005) The Bank of Canada maintained its key overnight lending rate at 2.5%, but hinted that rates will eventually move higher. The central bank said its outlook for the Canadian economy had not changed since its last rate announcement in March.

“As the economy moves back to its production capacity in the second half of 2006, core inflation is projected to return to the 2% target around the end of next year,” the Bank explained in a press release. “In line with this outlook, a reduction of monetary stimulus will be required over time.”

The bank pointed out there remain both upside and downside risks, relating largely to global economic performance and its affect on Canada. The Bank of Canada last raised rates in October 2004.

Today’s decision came as no surprise to economists, who were instead looking for clues as to the timing of the next rate hike. “We expect the first rate hike on the path toward a more neutral monetary policy will likely come by the fall,” said TD’s Carl Gomez.

“We still are of the view that the Bank of Canada will leave rates unchanged until the fourth quarter of the year when we expect rates to rise by about a half a percentage point by year’s end,” added RBC’s Derek Holt. The next interest rate announcement is set for May 25.

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Ernst & Young Investment Advisers becomes I-3

(April 12, 2005) Ernst & Young LLP has announced the sale of its investment advisory division to an internal management group. Ernst & Young Investment Advisers has been re-named I-3 Advisors, with I-3 denoting “information, innovation and independence.”

The new firm will continue to provide independent investment advice to high net worth individuals and institutional clients, Ernst & Young says.

The unit’s president, June Ntazinda, will now assume the title of CEO at I-3. Eight other Ernst & Young Investment Advisers staffers are joining the new firm.

The transaction affects Ernst & Young operations in all provinces except Quebec, where these assets have been sold to Normand Coulombe, formerly a senior member of Ernst & Young Investment Advisers in Quebec.

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No recovery in sight for greenback

(April 12, 2005) The U.S. dollar is not about to recover any time soon, as the “twin deficits” continue to mount, according to a report from Scotia Economics.

“Foreign investors are being relied on to finance America’s enormous twin deficits. They already own $2 trillion or 50% of all marketable Treasury securities, bulking up on these investments at the expense of other U.S. dollar-denominated alternatives,” says Warren Jestin, Scotiabank’s chief economist.

Jestin says foreign investors’ appetite for U.S. assets appears to be nearing its limit.

So far there is no sign of the American deficit picture improving. Last year’s trade deficit topped $700 billion and is expected to set a new record this year. On Tuesday, the U.S. Commerce Department revealed a record trade gap of $61 billion for February, topping estimates of $58.5 billion. And the budget deficit is expected to set its own new record at $440 billion for 2005.

Jestin says the twin deficits are likely to peak in 2005, with only a slight fall-off in 2006.

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OSFI gets strong approval ratings

(April 12, 2005) The Office of the Superintendent of Financial Institutions has received high marks from the banks, insurance companies and pension plans that it regulates.

Consultations held last year show that 92% of industry respondents are satisfied with the performance of the federal regulator, up from 89% in 2002.

OSFI has improved its ability to communicate expectations to financial institutions, the report says, and contributed to public confidence in the financial industry.

“The results show that ratings of OSFI’s overall performance as a regulator and its performance on a number of specific measures relative to other regulators have improved,” the regulator said. “OSFI is seen as having improved its ability to effectively execute a principles-based approach, allowing for more flexibility and a greater focus on material issues.”

Still, the report also identified areas that need work, such as staff knowledge and expertise, as well as consultation with industry on international accords.

“While we are naturally pleased with these results, we are also mindful of some of the areas for improvement that were identified,” said OFSI superintendent Nick Le Pan. “We are in the process of addressing these issues and will continue to work closely with the institutions we regulate.”

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Canadians anticipating higher mortgage rates

(April 11, 2005) Nearly half of Canadian homeowners expect mortgage rates to rise over the next 12 months. However, more than 40% believe that rates will stay the same.

The survey — conducted by The Strategic Counsel for CIBC — indicated that Canadians anticipate only moderate rate increases in the next year, with predictions that the five-year rate will climb to about 6.64%. That’s not much higher than the current rate offered by the big banks, currently sitting around 6.25%.

And most Canadians believe mortgages remain affordable, despite the possibility of rising rates.

“The overwhelming majority (81%) of homeowners say they can afford their mortgage payments, even if rates go up by one or two per cent,” said Paul Mims, vice-president, CIBC Mortgages and Lending. “On average, homeowners say mortgage rates need to reach 9.75% to become unaffordable, and that doesn’t look like it’s in the cards anytime soon.”

The poll also found that although most Canadian homeowners think that a variable-rate mortgage can save money, a strong majority (70%) are going fixed rate.

“Some people would rather pay a bit of a premium to have the security of a fixed rate,” suggested Mims.

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GGOF offers free online CE credits

(April 11, 2005) Guardian Group of Funds has launched an online continuing education program for advisors.

The courses have been approved for CE credits by Advocis, the IDA, La Chambre de la sécurité financière, and the IQPF.

Advisors must first register for the site, download the course material and complete the test. Those who score more than 65% receive an electronic certificate of completion.

The number of credits varies by course and accrediting organization, but most are between 1 and 1.25 credits, GGOF says.

Six of the eight modules offered (Small Cap, Asia, U.S. Market, Correlation, Style, Income Trusts) are already online — Dividends and High Yield Bonds will be posted later.

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Social investing moving to the mainstream: survey

(April 11, 2005) The majority of the world’s money managers believe that socially responsible investing will become a common component of the investment process within 10 years, according to a Mercer Investment Consulting survey.

Nearly 90% of the two hundred investment managers questioned said that active ownership will be a mainstream practice within 10 years. Nearly three-quarters expect that social and/or environmental criteria will be integrated into the investment process, while 65% predicted that screening would be the norm in 10 years.

“In the past, it was just a small group of organizations that were interested in SRI, but there are a growing number of mainstream investors who believe these issues can have an impact on long-term investment performance,” says Mercer’s Tim Gardener. “Investment managers’ views are clearly changing.”

On a regional level, the managers’ responses varied. U.S. managers were the most skeptical, with more than 60% saying they believe that screening and the integration of social and/or environmental factors will never become a mainstream investment practice. Among Asian and Australian managers, on the other hand, 85% predicted that all three SRI-related practices will become mainstream within 10 years.

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