Nortel exposure haunts fund industry

(November 22, 2004) A report in the Globe and Mail this morning again warned that the New York Stock Exchange could delist Nortel before the end of the year, if it fails to meet a December deadline for reporting its audited financial statements for 2003.

The NYSE has discretion on the matter and could offer Nortel up to three months reprieve, but the company has already missed three self-imposed deadlines. In Toronto, the TSX has not indicated it would accept such a move, but delisting in New York would have serious consequences for the company’s stock in Toronto as well.

Before being delisted from the TSX, Nortel would likely face expulsion from the S&P/TSX indices, which would be another blow to share value, as indexers would be forced — some might say allowed — to sell off their Nortel holdings.

While Nortel has been purged from many investment portfolios, further drops in its stock price would have a major effect on some investment funds.

According to Morningstar Canada, the biggest percentage risk is assumed by CI Multi-Manager Opportunities, a hedge fund that had 22.5% or its portfolio in Nortel (as of the end of October). The actual dollar value is pretty low, however, since the fund has only $330,000 in investments, or under $75,000 in Nortel.

Other large exposures to Nortel, as of October 31, were found in Mavrix Canadian Strategic Equity and Mavrix Growth, with the company accounting for 6.4% and 6.2% of their portfolios, respectively. As of June 30, Caldwell Canada, Caldwell Balanced and Caldwell America had 6.9%, 6.7% and 6.4% exposures to Nortel respectively.

According to Morningstar Canada, the funds with the largest shareholdings of Nortel are Fidelity True North Series A, at 19 million shares and Fidelity Canadian Asset Allocation Series A, which holds 15 million, both as of June 30. Investors Summa C held 8.5 million shares as of October 31, accounting for 1.7% of its portfolio.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com