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March 20, 2017

Guardianship Law Changes Could Impact Advisors

The Law Commission of Ontario has released a report that recommends a comprehensive plan to reform Ontario’s laws and policies regarding powers of attorney (POA), guardianship, and healthcare consent. LCO’s ‘Final Report on Legal Capacity, Decision-making, and Guardianship’ responds to public concerns regarding misuse of powers of attorney, elder abuse, excessive intervention in the lives of persons who have disabilities to make independent decisions, barriers to access to justice, and the widespread lack of understanding about Ontario's complex laws in this area. The changes could have a positive impact on financial advisors with clients who require the assistance of the person appointed to act on their behalf under a POA as currently, advisors cannot accept POA appointments. Many of the LCO’s recommendations are aimed at making the powers granted by POA easier to administer and suggest that transactions around POAs should be more transparent and accountable. Recommended changes include documents that clearly define a POAs responsibilities, better communication among persons identified in the POA instrument, and the naming of a separate person as monitor, who would have access to all information and accounts related to the POA. In addition, the commission proposes that a body be created to deal with disputes instead of relying on the court system.

CFOs Should Prioritize Employee Engagement

Employees' personal commitment to the job is a crucial factor in a business's success. Yet Canadian executives aren’t making it a priority, says research from global staffing firm Robert Half. While over half (52 per cent) of CFOs think their workers are more engaged on the job compared to three years ago, 88 per cent are not concerned about the level of commitment. Robert Half says executives should not take employee engagement ‒ or loyalty ‒ for granted. “An engaged employee is inherently more dedicated to ensuring that their efforts are in line with business goals,” says Greg Scileppi, Canadian president, Robert Half International Staffing Operations. “Cultivating staff commitment should be an ongoing and evolving priority for executives. Take time to get to know your teams; learn what makes them happy at work, and provide a culture that underscores their value to the company while promoting their wellbeing, to keep them motivated, enthusiastic and loyal.”

Focus Shifts On Trump Agenda

Now that Donald Trump has assumed office as president of the U.S., focus has begun to shift to parts of his agenda that could prove to be growth depleting, accompanied by ‘bad’ inflation, says Erik Weisman, a fixed income portfolio manager with MFS. In the article ‘Labour And Capital In The Age Of Trump’ at the Private Wealth Canada website, he says in the early days of his administration, his attention has been focused squarely on international trade and immigration, which has created concern among investors. Additionally, there are general concerns that whatever fiscal policy emerges from the new administration will take longer to unfold and be smaller than the markets have priced in to date.

Private Investors Should Support Gender Equality Efforts

International efforts to achieve gender equality should be bolstered by contributions from private investors, recommends a white paper by UBS AG's wealth management division. The paper examines how wealthy individuals can contribute to the United Nations' (UN) efforts to empower females and achieve gender equality by 2030, which suggests that these efforts could “benefit significantly from greater input from private individuals.” The report states that “as governmental and non-governmental organization resources are stretched ever more thinly, corporate and individual wealth offers new pathways to supporting gender parity, reducing gender-based violence and discrimination, and unlocking the full potential of roughly half of the world's population.” The UN's initiative has only received 2.6 per cent of donations toward its sustainability-related causes, says the report. “Within private wealth, one driver may be that only two per cent of wealth managers treat and serve women as a distinct group with specific interests,” the report says, citing analysis by UBS Unique and BCG. The report emphasizes three key areas, which, it says, have “almost universal relevance for women's professional and personal lives.” These include improving maternity provisions; relieving the burden of unpaid domestic work; and increasing participation in science, technology, engineering, and math (STEM) education. UBS Wealth Management will leverage its existing initiatives to mobilize gender-lens wealth. In addition, the firm announced plans to partner with UN Women to create a Gender-Lens Investing Institute.

Rate Hike Poses Questions

Investors need to ask three key questions in the wake of the U.S. Fed’s interest rate hike, says Nigel Green, founder and CEO of deVere Group. “This rate rise by the world’s defacto central bank confirms that we’re in a new era of higher inflation and higher interest rates. Investors will now need to position themselves accordingly,” he says. However, while rates are beginning to normalize, it may take a couple of years or so to get there and when they do the global economy will look very different to how it does today. Investors now need to determine if their portfolios are truly diversified; if they are prepared for dollar swings; and if they are prepared for inflation. “Investors who answer these questions honestly and then take affirmative action will find that they do not need to accept lower returns in this new era of higher rates and inflation,” he says.

CI Launches Global Real Estate Fund

CI Institutional Asset Management, a division of CI Investments Inc., has launched a global real estate fund in association with CBRE Global Investment Partners. Through the CI Global Private Real Estate Fund, high net worth investors and smaller Canadian institutions can now gain exposure to CBRE Global Investment Partners Global Alpha Fund, an open-ended fund with direct investments in over 1,900 properties in North America, Europe, and the Asia-Pacific region. “Investing in a global portfolio of private real estate offers many benefits, including attractive returns, diversification, low or negative correlation to stock and bond markets, a potential inflation hedge, and stable income,” says Neal Kerr, president of CI Institutional Asset Management.

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March 13, 2017

GDP Expected To Grow By Two Per Cent

The Canadian economy is showing strength in employment, housing starts, and a rebound in energy investment says the ‘RBC Economic Outlook’ report. RBC Economics expects real gross domestic product (GDP) to grow by two per cent in 2017, followed by a slightly firmer 2.1 per cent in 2018. Consumers will continue to support growth in 2017 while Canadian exports are projected to accelerate slightly following a subpar performance in 2016. Federal government spending on infrastructure projects will provide more significant support in 2017 and this activity is expected to add almost half a percentage point to the national growth rate. At the same time, a slowdown in real estate activity is likely to weigh down growth as lack of affordability and legislative changes cool some overheated urban housing markets. While a steady, modest increase in energy prices is positive for the Canadian dollar, a more significant factor in 2017 will be the interest rate differential between Canada and the U.S. The Bank of Canada is expected to start tightening in 2018, which will stabilize the interest rate differential next year.

Gender Diversity Slowly Climbs At Top Companies

Gender diversity at the top of Canadian corporations is coming incrementally, but a tipping point may soon be within sight, says global talent acquisition firm Rosenzweig & Company. The ‘Rosenzweig Report on Women at the Top Levels of Corporate Canada’ shows there are now 48 women in the highest executive positions at Canada's 100 biggest publicly-traded companies – CEOs, CFOs, and others. This is critical when it comes to changing corporate culture and enhancing diversity. The key positions are up from 42 the previous year and more than double the 23 women with those jobs in the first report in 2006. Women now hold 9.02 per cent of these important jobs, compared to 7.9 per cent a year ago, and only 4.62 per cent in 2006.

Rousseau Named CFO Of Year

Michael Rousseau, executive vice-president and chief financial officer of Air Canada, has been named Canada’s ‘CFO of the Year’ for 2017. Now in its 15th year, the award honours senior financial leaders who have made significant contributions to business in Canada with demonstrated quality, insight, and integrity. The award is presented annually by Financial Executives International Canada (FEI Canada), PwC Canada, and Robert Half. Rousseau joined Air Canada as executive vice-president and chief financial officer in 2007. He leads the company’s overall financial strategic direction, including all aspects of financial reporting and planning, investor relations, treasury, and controller’s operations. The selection committee also acknowledged Benita Warmbold, senior managing director and chief financial officer of Canada Pension Plan Investment Board, with a ‘Special Recognition Award’ in the areas of social responsibility and mentoring. Warmbold has made significant contributions to her community, her profession, and mentoring staff, especially in advancing and supporting women in their careers. The awards will be presented at a gala in Toronto, ON, in May.

Number Of Billionaires Continues To Grow

The world's billionaires are now worth $8 trillion, greater than the GDPs of Germany and France combined, says the ‘Hurun Global Rich List,’ published by the China-based Hurun Report research unit. It says there are now 2,257 billionaires in the world ‒ up three per cent from last year. Their combined fortunes jumped 16 per cent over 2016, to the equivalent of 11 per cent of the world's annual GDP. Their wealth was also larger than every country's individual GDP, other than the U.S. and China. The number of billionaires has exploded over the past five years, rocketing 55 per cent higher. Because much of the world's wealth is hidden or difficult to find, the actual number of billionaires may be closer to 5,000, says Rupert Hoogewerf, Hurun Report's chairman and chief researcher. The report says China once again led the U.S. in the sheer number of billionaires, 609 to 552. China added 41 net new billionaires last year, while the U.S. netted an additional 17. Bill Gates and Warren Buffett still hold the top spots with $81 billion and $78 billion respectively. Two-thirds of the world's billionaires are self-made rather than inherited, it says.

Every Strategy Will Look Like Hedge

Going forward every investment strategy will look more like a hedge fund of 10 years ago, says Barry Allan, a founding partner at Marret Asset Management. In the ‘Allocating to Alternative Strategies to Improve Portfolio Performance’ session at Alternative IQ’s ‘Showcasing Canada’s Award Winning Hedge Funds’ event, he said looking broadly at how hedge strategies have evolved over the past 15 years, it is not that hedge funds have lost ground, it is that long strategies have become more hedge-like. Long only strategies have become more long-short and the average mutual fund has more hedging tools in it that it ever had. Brian D’Costa, founder and president of Algonquin Capital, said one of the issues with hedge funds is there is an awkward fixation with size. Hedge fund managers become millionaires by growing the size of their fund so there is a motivation to get bigger, to reach institutional size. However, many strategies that generate returns are not institutional size and some strategies are no longer viable as they get bigger. Jason Landau, a portfolio manager at Waratah Capital Advisors, said there is always a place in portfolios for strategies which deliver alpha. As well, if there is a pullback in equities, investors will again value hedge funds. And, he noted, it has been nearly 10 years since the last downturn in 2008.

ESG Incorporation Challenges Remain

Environmental, social, and governance investing is important to the alternative investment management industry, although incorporation challenges remain, says a survey from the Chartered Alternative Investment Analyst Association and private equity manager Adveq. It found 77 per cent of CAIA members ‒ including asset owners, asset managers, and consultants ‒ say ESG investing is more important now than it was three years ago and 78 per cent predict ESG investing will be more important three years from now than it is today. However, only 52 per cent of asset owners and managers now incorporate ESG factors into their investment decisions with ethical principles, constituents’ demands, and business opportunities driving their incorporation. Holding some investors back, particularly in the U.S., is the emphasis on short-term earnings, along with the low funding levels at some public pension funds where officials might feel they can’t afford the long-term play that is responsible investing. The biggest hurdles to ESG incorporation are a lack of standardized, comparable data on material sustainability issues; managing varied constituency requirements; finding suitable investments; and a lack of ESG-dedicated resources.

Environment Key Area Of Proxy Focus

The environment and corporate political activity remain key areas of focus for shareholder proposals this proxy season, says a report by non-profit shareholder advocacy groups As You Sow, Sustainable Investments Institute, and Proxy Impact. Environment-related proposals accounted for 26 per cent of the 430 shareholder proposals filed as of February 15, followed by political activity at 21 per cent; human/labour rights, 18 per cent; and sustainability, 12 per cent.Within environment, climate change remains a primary focus, although the total number of proposals focused solely on climate change dropped to 82 this year from 94 this time last year, says ‘Proxy Preview 2017.’ Investors continue to encourage more carbon tracking and risk management disclosure. Corporation political activity also remains a key issue for shareholder activists, although the percentage of political activity-related proposals is down six percentage points from last year to 20 per cent. For the fifth straight year, lobbying disclosure proposals surpassed proposals on election spending. With human rights, the Israeli-Palestinian conflict remains a big focus, accounting for some 20 proposals. New this year are proposals that focus on banks and energy companies’ indigenous-rights policies, inspired by the Dakota Access Pipeline controversy.

Private Equity Satisfies Investors

Private equity investors indicated that they were very satisfied with the asset class and its performance in 2016 and will commit more capital to the asset class in 2017 than the year before, says a Preqin survey. This comes despite the level of unspent capital held by fund managers reaching a record high, with subsequent impacts on asset valuations and deal-making competition. There are concerns among fund managers that these pressures will affect future performance. However, although some investors have expressed reduced confidence in private equity’s ability to meet their objectives, almost half now expect their portfolios to outperform public markets by more than four per cent.

ETFs Cross $120 Billion Mark

Canadian ETF Industry assets crossed the C$120 billion mark in February, on a continued combination of strong net issuance and market gains, says the Canadian ETF Association. This is 35.9 per cent higher than year ago. With continued favourable flows and markets, the pace of growth in assets under management (AUM) for the industry has grown, relative to its longer term growth profile of +20 per cent compounded for the past five years to the end of February. Flows into equities continue to dominate (64.6 per cent of net inflows for February), with preferreds continuing to capture a notable size of flows on a relative basis.

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March 6, 2017

Chinese Luxury Prices Spike Highest

The three cities that saw the biggest spikes in luxury real estate prices last year were all located in China, says the Wealth Report, an annual publication by the Knight Frank real estate firm. Shanghai experienced the biggest annual price increase for prime residential real estate as prices jumped 27.4 per cent in 2016. Beijing saw the second-biggest increase, with price growth of 26.8 per cent, followed by Guangzhou, which experienced a 26.6 per cent gain. However, prices in the Chinese city remain half of what they are in Shanghai. Seoul, South Korea; and Auckland, New Zealand; rounded out the top five with prices rising roughly 16 per cent. Last year's top-ranked city for price growth, Vancouver, BC, fell to seventh place. Monaco is still the most expensive luxury real estate market in the world with $1 million buying just 182 square feet of prime space.

Confiscation Of Gold Unlikely

The probability of gold confiscation or expropriation to generate government solvency is unlikely, says Nick Barisheff, founder, president, and CEO of Bullion Management Group Inc. In the article ‘The Myth Of Gold Confiscation’ at the Private Wealth Canada, he says what the U.S. government is more likely to do is increase taxation; require tax-advantaged pensions and retirement accounts to include an allocation to government bonds; or reduce entitlement spending.

Affluent Investors Remain Neutral

The ‘Spectrem Affluent Investor Confidence’ indices remained essentially unchanged in February. The index edged downward one point to seven, while the ‘Millionaire Investor Confidence Index’ dipped two points to 10. Each is, however, up markedly from February 2016 (10 points and eight points, respectively), but remain in neutral territory. "For the second consecutive month, there has been a higher number of affluent investors indicating interest in moving off the investment sidelines in the coming month, just not necessarily into equities," says George H. Walper, Jr., Spectrem’s president.

CIBC Lowers Minimum

CIBC Asset Management Inc. has lowered the minimum initial investment amount of the Renaissance Real Assets Private Pool to $10,000 from $150,000. This change will make real-asset investing available to more Canadian investors. The pool is suitable for clients who seek long-term capital growth and income through investments in securities of companies throughout the world that engage in real assets sectors. The pool is managed by Brookfield Investment Management Inc.

Robust Case Can Be Made For Low Volatility

There is a robust case to be made for investors to consider a strategic allocation to an actively managed low-volatility strategy and to maintain the allocation through at least one ‒ if not more than one ‒ market cycle to benefit from the defensive attributes of these strategies over the longer term, says an MFS white paper. The case for a strategic allocation rests on evidence that low-volatility strategies have avoided downside in falling markets, it says. These strategies have yield and defensive biases and have come to be seen, in some cases, as proxies for low-yielding bonds, raising a concern about the timing of a tactical allocation in a rising rate environment. Analysis based on prior periods of rising rates since 1987 suggest that it is best to maintain exposure to low volatility during a period of rising rates.

Stock Market Indexes Increase

Forty-one of the 44 Morningstar Research Inc increased during February, including 20 indices that increased by more than two per cent. The combination of positive stock market indexes outside of Canada with a depreciated Canadian dollar resulted in strong performance for all foreign equity fund categories in Canada for the month. Funds in the Greater China equity and U.S. equity categories were the top performers as both increased by 5.1 per cent for the month. Stock markets in Shanghai, Hong Kong, and Taiwan were up 2.6 per cent, 1.6 per cent, and 3.2 per cent, respectively, with currency effects also providing a boost in all three cases. The only fund indices to lose ground in February were the ones that track the precious metals equity, energy equity, and natural resources equity categories, which were down 2.1 per cent, 2.3 per cent, and 2.4 per cent, respectively. All fixed income fund categories showed gains for the month, with increases ranging from 0.3 per cent for Canadian short-term fixed income to 1.7 per cent for Canadian long-term fixed income.

Hedge Fund Outlook Positive

The outlook for the global hedge fund industry remains positive, even as recent returns have disappointed, says research by Credit Suisse. Its latest annual hedge fund investor survey indicates that institutional investors expect a 3.5 per cent increase in fund inflows in 2017 with 87 per cent of investors planning to maintain, or increase, their hedge fund exposures next year. Yet, only 30 per cent of investors say their hedge fund portfolios met or exceeded their return expectations, down from 45 per cent last year. However, for 2017, they are targeting annual returns of 7.2 per cent for their hedge fund portfolios. The most popular strategies in the year ahead are expected to be global macro-discretionary, fixed income arbitrage/relative value, and emerging markets equity.

Active Produces Over Longer Term

DALBAR Inc.’s analysis of active and passive investing shows no clear winner. Over the longer term, active investments produced better results, reflecting the tendency for investors to remain invested for longer periods. Shorter term results show passive investments ahead, driven in part by the unexpected post-election run-up in the markets. The explanations for why active investments caught up with the superior investment statistics of the passive funds include better investor retention during market downturns, asset allocation, and capital preservation strategies of active investments. It concludes that the choice of active or passive investing should be based largely on the needs and preferences of the investor and the cost of providing asset allocation and capital preservation strategies that are not available in passive funds.

Grand Touring To Open New Locations

Canada's premier luxury automotive retailer, Grand Touring Automobiles, returned to the ‘Canadian International AutoShow’ with a display featuring many of its high-end vehicles. It is set to open a multi-storey retail and service facility this year in downtown Toronto, ON. The official dealer partner of Aston Martin, Bentley, Bugatti, Jaguar Land Rover, Karma, Lamborghini, and Rolls-Royce, it recently presented a collection of cars at the ‘Canadian International Auto Show.’

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February 27, 2017

Denial About Fraud Persists

Incidents of fraud are rising every year, yet an overwhelming majority of Canadian business and C-suite executives say they are confident in their ability to prevent it. The disconnect could be due to a dangerous combination of overconfidence and naiveté when it comes to fraud detection and prevention, says an Ipsos survey conducted for accounting firm MNP LLP. The survey reveals that half of Canadian businesses either suspect or know for certain that their business has experienced fraud or scams in the last year, yet an overwhelming majority (eight in 10) say they are confident in their ability to prevent it. Almost 90 per cent feel at least somewhat equipped to deal with it. Survey respondents were twice as likely to identify fraud as a serious issue in the wider industry in which they work than in their own place of business. MNP says this denial and ‘won’t happen to me’ attitude puts the advantage in the hands of criminals and makes Canadian businesses vulnerable. It says fraud is a serious threat no matter the size or the industry of the organization. All businesses must take preventative measures utilizing best practices, training, and technology.

Budget Should Raise Limits

To help Canadians preparing for retirement and already retired, the limits for registered retirement saving plan (RRSP) and defined contribution pension plan savers should be increased, says the C.D. Howe Institute’s ‘Getting Real: A Shadow Federal Budget for 2017.’ It also calls for the elimination of mandatory drawdowns from registered retirement income funds (RRIFs). This is one of 10 measures the report sets out to follow a path back toward balance and to inspire confidence among savers and investors. It shows how the federal government can cut the deficit while boosting economic growth and opportunities for Canadians.

Emerging Economy Size Could Be Twice Developed

Emerging economies could be twice the size of developed markets by 2050, making up almost 50 per cent of world gross domestic product, says a PricewaterhouseCoopers report. ‘The Long View: How will the global economic order change by 2050?’ expects the seven emerging markets, known collectively as the E-7, will grow at an average rate of almost 3.5 per cent over the next 34 years. The E-7 is made up of Brazil, China, India, Indonesia, Mexico, Russia, and Turkey. This group is set to account for about 50 per cent of world GDP by 2050, compared with 37 per cent now.However, to realize this growth potential, the governments of emerging markets countries need to implement structural reforms to improve macroeconomic stability, diversify their economies away from undue reliance on natural resources as is currently the case, and develop more efficient political and legal institutions.

Porsche Wins Value Award

Porsche received an ‘ALG Canadian Residual Value Award’ for both the 718 Boxster in the premium sports car segment, and the Panamera in the premium executive segment. The annual award honours vehicles and brands that are forecast to retain the highest percentage of their manufacturer's suggested retail price after a three-year period for premium brands. ALG is an industry benchmark for projecting future vehicle values and depreciation data. Award winners are determined through careful study of the competition in each segment, historical vehicle performance, and industry trends. Vehicle quality, production levels relative to demand, and pricing and marketing strategies represent key factors that impact ALG's residual value forecasts.

Assets In ETFs Reach Record High

Assets invested in ETFs/ETPs listed globally reached a new record high of US$3.689 trillion at the end of January 2017, surpassing the prior record of US$3.546 trillion set at the end of December 2016, says ETFGI, an independent research and consultancy firm on trends in the global ETF/ETP ecosystem. ETFs/ETPs gathered a record level of US$62.13 billion in net inflows in January, marking the 36th consecutive month or three years of net inflows. Record levels of assets under management were reached at the end of January for ETFs/ETPs listed globally at US$3.689 trillion, in the United States at US$2.641 trillion, in Europe at US$598.76 billion, in Asia Pacific ex Japan at US$132.87 billion, and in Canada at US$88.84 billion.

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