Briefly: “BoC vows to be “relentless” on inflation stability” and more of Tuesday’s news

Mark Carney, the governor of the Bank of Canada, is using the word relentless to describe the Bank’s resolve to keep inflation under control.

Controlling inflation is the best focus of monetary policy to ensure the economic and financial well-being of Canada during a period of financial turmoil, Carney said Tuesday in a speech to the Halifax Chamber of Commerce.

“In time, the global financial crisis will end, and the global economy will recover, although the speed with which this will happen is subject to a high degree of uncertainty,” the governor said. “The relentless focus of monetary policy on inflation control is essential in this time of financial crisis and global recession,” he said.

Carney noted that the Bank’s inflation-targeting framework, established jointly with the Government of Canada, takes a symmetrical approach to controlling inflation. This means that the BoC worries as much when inflation falls below the target of 2% as when it rises above target.

Carney said the possibility of Canada entering a prolonged deflationary environment is remote. He emphasizes Canada’s labour, product and capital markets are flexible; its banking system is one of the soundest in the world; and households, businesses and the public sector have considerable financial flexibility.

“The advantages of [Canada’s monetary policy] framework have been demonstrated, with inflation brought down and kept low and stable since the early 1990s, and they are equally relevant in times of disinflationary pressures,” he said.

• • •

Desjardins offers dividend growth fund

The Fédération des caisses Desjardins du Québec has launched the new Desjardins Dividend Growth Fund, with the stated goal of generating income and providing capital growth.

The fund will invest entirely in common shares of dividend-paying companies, with a maximum of 30% of the portfolio allocated to foreign companies to access industries that are not well represented on the Canadian market.

The fund will be managed by the venerable Jarislowsky Fraser investment house. The fund will aim for a portfolio of between 50 and 60 securities, preferably in non-cyclical large cap companies.

• • •

Manulife launches DCA fund

Manulife Mutual Funds has added a new dollar-cost averaging fund to its current lineup of mutual funds.

The Manulife Dollar-Cost Averaging Fund will provide investors with a systematic means of investing in the financial markets over time and will provide a rate of return equivalent to the interest rate offered by the Manulife Bank Investment Savings Account.

When an investment is made in the Manulife Dollar-Cost Averaging Fund, the money is automatically dollar-cost averaged over a 12-month period into one or more Manulife mutual funds.

“Current market conditions make the introduction of a dollar-cost averaging fund an ideal solution for investors who are unsure about the best time to invest,” says Jeff Ray, assistant vice-president with Manulife Mutual Funds. “Studies show that dollar-cost averaging can be a smart way to take advantage of volatile markets.

The fund will initially provide an investment return of 3.5% (annualized) until March 31, 2009. After this date, the return is expected to be equivalent to the rate of interest offered by the Manulife Bank Investment Savings Account.

• • •

U.S. institutional investors hammered in 2008

News of pension plan losses will come as a surprise to nobody, but there is yet more data to prove that 2008 was a bleak year for U.S. institutional investment plan sponsors, which have lost a quarter of their asset values, according to a Northern Trust report.

Northern Trust’s performance measurement database suggests that the median U.S. institutional plan posted a 25% loss for 2008, including a 13.1% loss in the fourth quarter.

“These results confirm that institutional investors were not spared from the impact of the global financial crisis in 2008, despite their efforts to diversify beta sources in recent years,” says Paul d’Ouville, global director of investment risk and analytical services with Northern Trust. “While U.S. equities were the primary source of negative results, the markets provided few safe havens, and last year’s extraordinary environment could prompt a reassessment of risk models and investment strategies by large institutional investors.”

According to the report, investment managers hired by plan sponsors were in line with their benchmarks, and allocations to private equity and fixed income contributed to plan returns. Foundations and endowments fared marginally better due to larger allocations to private equity, which returned -5.7% in 2008, compared to the U.S. equity program return of -37.5% and the international equity program return of -43.2% for the year.

The Northern Trust Universe represents the performance results of more than 300 large institutional investment plans — with a combined asset value of approximately $600 billion — that subscribe to Northern Trust performance measurement services.

• • •

U.K. pension plans raise longevity assumptions

Pension plans in the U.K. are increasing the life expectancy assumptions for funding valuations in reaction to regulatory pressure, according to a Mercer report.

Mercer’s latest valuations survey of 196 pension plans finds that the median lifespan assumed for active and deferred members is expected to be 89 years and one month, compared to last year’s valuations of 88 years and two months.

“Trustees continue to fund their plans, assuming greater life expectancy for their members,” says Harry Sime, principal and leader of Mercer’s valuation and funding group. “The Pensions Regulator’s proposals on the use of an additional mortality trigger have had an impact, as has the influence of analysis based on membership data.”

The extended assumed life expectancy is due to the greater use of the long cohort projection — used by 27% of plans in 2008, compared to 3% in the previous year — and the introduction of underpins to the rates of improvement.

“The trend toward higher life expectancy assumptions is expected to continue with this being achieved by greater use of underpins and more adoption of the long cohort projection basis,” explains Sime. “A key objective for trustees is to be able to justify the assumptions they have used, noting that their approach should be both evidence-based and prudent.”

(01/27/09)