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June 19, 2017

CEOs Confident About Growth

Despite today's economic, geopolitical, and technological uncertainty, Canadian CEOs are more optimistic about their company's growth in the next 12 months than their global counterparts, says the second annual ‘KPMG in Canada CEO Outlook’ survey. In the face of these challenges and uncertainties, it is becoming clear that the time to ‘disrupt and grow’ is now. “This year's Outlook emphasizes that disruption has become a fact of life for Canadian CEOs and their businesses as they respond to heightened uncertainty,” says Elio Luongo, chief executive officer and senior partner at KPMG in Canada. “Importantly, Canadian CEOs see disruption as an opportunity to transform their business model, develop new products and services, and reshape their business so it is even more successful than it was in the past.” The survey says three-quarters of Canada's CEOs see disruption as an opportunity for their business, not a threat, and 86 per cent say they are not waiting to be disrupted by competitors; instead, their business is actively disrupting its sector.

Majority Vote Rule Questioned

While the Canadian Coalition for Good Governance has worked for the last 10 years to bring majority vote rules to Canada, the featured speaker at its annual public meeting questioned the purpose of these rules. Leo E. Strine, Jr., chief justice of the Delaware Supreme Court, said majority voting came about from institutional voters who wanted to express outrage over a company practice without having to put up a candidate. So if 47 per cent vote is in favour of something, it sends a message without requiring any change. This along with the minor funding commitment required to bring a matter to the board makes boards more and more sensitive to the whims of stockholders. So while board are being required to have independent directors, they are being harnessed with numerous plebiscites that are actually holding them back, he said. And they are accountable to only one constituency, the shareholders. This means that efforts to adopt environmental, social, and governance practices at companies always take a back seat to the shareholders if they are not sensitive to these issues.

Canadian Economy Humming Along

The Canadian economy is humming along as the country nears its 150th birthday, says RBC’s ‘Economic Outlook’ quarterly report. Consumer spending, housing starts, and a strong turnaround in business investment are largely responsible for the continued momentum that has built on the robust gains in the second half of last year. It expects real gross domestic product to grow by 2.6 per cent in 2017 and 2.1 per cent in 2018.Continuing an eight-year trend, consumers are expected to provide a large lift to the economy in 2017. With business investment on the rise and government spending on infrastructure ramping up, it projects the economy will grow at nearly double the average pace of the prior two years.“Canada’s economy is on track to post its strongest gain in three years,” says Craig Wright, senior vice-president and chief economist at RBC. “While we don’t discount the risk of a slowdown resulting from the pending renegotiation of NAFTA or the expected cooling of the housing market, we remain confident the economy will continue to grow at an above-potential pace for the remainder of this year.”

Global Equities Considered Overvalued

A record number of money managers think global equities are overvalued, says the Bank of America Merrill Lynch’s monthly fund manager survey. A net 44 per cent of managers this month said global equity markets are overvalued, up from a net 37 per cent in May. Broken out by region, a record net 84 per cent of survey respondents said that the U.S. is the most overvalued region for equities, compared to a net 82 per cent last month. On the flip side, a net 18 per cent and 48 per cent, respectively, said that European equities and emerging markets equities are undervalued, compared to a net 20 per cent and 44 per cent in May. The June survey also found that investors’ global growth and inflation expectations have fallen. Only a net 39 per cent of investors this month predicted a stronger economy over the next year, down from a net 62 per cent in January. Also, 60 per cent of investors expect a higher global consumer price index over the next year, down from a net 75 per cent in April.

Goals Need To Be Measured

Of those ultra-high-net-worth individuals who use a financial advisor exclusively, 65 per cent state it’s extremely or very important that their investments measure progress toward personal and/or financial goals, rather than just performance, says an SEI survey. As well, 88 per cent assert their goals-based investing (GBI) approach is extremely or very effective in meeting their objectives and 94 per cent believe their financial advisors use a GBI approach. However, this is contradicted by the 56 per cent of advisor-exclusive investors who define GBI as a measure of performance. More than half (51 per cent) of those survey participants who are unfamiliar with GBI or unsure whether their advisors take that approach indicate they are in favour of it. In fact, they claim that it’s extremely or very important that their investments measure progress toward personal and/or financial goals, rather than just performance.

Private Markets Acknowledge ESG

The private markets industry is increasingly acknowledging the importance of investing with environmental, social, and governance issues in mind, but the majority have difficulty translating these intentions into formal policy implementation, says a survey by Makena Capital Management. It found a key trend is that the managers with the most robust processes are in the highest risk areas, such as natural resources and private equity where the possibility to invest in ESG-averse opportunities such as oil and gas, mining, or gun manufacturers are the greatest risks. Another was that private markets managers are more likely to have established ESG practices than public managers, particularly in Europe. As well, it found a direct relationship between assets under management and the extent to which firms have dedicated resources for ESG practices. Often, larger firms are able to dedicate more resources to ESG due to their resources and long-term perspective. Meanwhile, a lot of smaller firms are run by younger leaders who see the inherent value of ESG, but don’t necessarily have the resources.

Fasken Martineau Launches Platform For Private Clients

Fasken Martineau has launched a dedicated platform for its private client services group to offer more comprehensive and integrated legal solutions to its private clients. The integrated suite of services is designed to address clients’ personal and business objectives, delivered in a collaborative manner that draws upon both internal and external expertise. The firm says among its strengths are wealth transfer, asset preservation, estate and succession plans, proactive business liquidity preparation, navigating the family and corporate governance landscapes, continuity planning, facilitating strategic philanthropic plans, private M&A, real estate, banking, and dispute resolution.

ETF/ETP Assets Reach New High

Assets invested in ETFs/ETPs listed globally reached a new record of US$4.103 trillion at the end of May 2017, says preliminary data from ETFGI’s May 2017 global ETF and ETP industry insights report. ETFs and ETPs listed globally gathered record net inflows of US$48.26 billion in May marking the 40th consecutive month of net inflows. Year-to-date, a record US$283.91 billion in net new assets have been gathered. At this point last year, there were net inflows of US$91.45 billion. Equity ETFs/ETPs gathered the largest net inflows with US$33.09 billion, followed by fixed income ETFs/ETPs with US$13.77 billion. Commodity ETFs/ETPs experienced net outflows of US$1.22 billion.

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June 11, 2017

Money Lost When Buying ‘Garbage’

Businesses and investors don’t want to lose money because that is what risk really is, says Henry Hudek, vice-president, business development, at Cardinal Capital Management. In the ‘EMT vs. Behaviour: How Theory Fails’ at the Canadian Pension & Benefits Institute’s ‘FORUM 2017,’ he said the top way to lose money is buying “garbage.” These are bets by investors on companies the investor hopes will perform. In fact, this is actually speculating, he said. Instead, they should be looking for companies which are profitable, have good balance sheets, are in industries that will survive, and have a sustained competitive advantage. However, in Canada, there are only a few companies that meet these requirements so those who are buying the index are speculating in a lot of companies. They should to look at the intrinsic value of a company and its free cash flow. If the market is charging above the intrinsic value, the stock should be avoided. If it is above the market, it is an asset to buy or hold. As well, market return is a zero sum game where there is a loser for every winner. This means the average manager will not beat the index, but there are active managers who do so consistently by looking for companies who are where they should be in a logical market.

Wrong Measuring Stick Used

When it comes to evaluating investment strategy and performance, the wealthy and their advisors may be using the wrong measuring stick, says an SEI survey. The results highlight consumer misunderstanding of investment strategies.The majority of survey participants show confidence in their personal finance expertise, with two-thirds claiming they have extensive or considerable knowledge of financial and investment management. While over half (56 per cent) report that their primary investment strategy revolves around index benchmarks, 40 per cent indicate their primary strategies are for their investments to fulfil personal and/or financial goals. A two-thirds majority also claim they are familiar with a goals-based investing (GBI) approach, which designs portfolios to meet a specific return, risk, and time horizon target for an investor’s defined financial goals. However, at 44 per cent, close to half inaccurately define the concept as a measure of benchmark performance. “There appears to be a substantial need for education around investment strategies, especially in understanding a true goals-based investment approach,” says Michael Farrell, managing director of SEI Private Wealth Management. “Short-term portfolio performance gives clients a false sense of confidence. If they beat the benchmark, but can’t buy that dream home, their approach has failed. It’s vital for them to be able to determine and anticipate long-term wants and needs, and to ensure their advisors are successfully employing the right strategy that delivers on tomorrow’s goals.”

Investors Interested In RI

The vast majority of Canadian investors are interested in responsible investments (RI) that incorporate environmental, social, and governance (ESG) issues, says a report from the Responsible Investment Association (RIA). As well, they would be more likely to choose responsible investments if their financial advisor suggested suitable RI options for them. Sponsored by OceanRock Investments Inc., it found while 77 per cent of investors are interested in RI, a staggering 73 per cent know very little or nothing about it. These results highlight the ‘RI awareness gap’ ‒ a significant gap between investor interest versus knowledge about RI. Investors also said they would be more likely to choose responsible investments if they were more confident in their performance. The report shows 82 per cent of investors would like to dedicate a portion of their portfolio to RI; 52 per cent would like more than half of their portfolio allocated to RI; and 77 per cent agree that companies with good ESG practices are better long-term investments. The report can be found here.

North American Market Performance Muted

Twenty-six of the 44 Morningstar Canada Fund Indices increased during May, including four indices that increased by more than two per cent. North American stock markets had muted performance during the month of May and currency movements were minimal. As a result, funds that focus on overseas equity typically outperformed those that target Canadian or U.S. stocks. The best performer was the one that tracks funds in the Greater China equity category, which increased 3.2 per cent. As was the case in April, the worst performers in May were fund indices that track sector-specific categories ‒ energy equity, natural resources equity, and financial services equity. Fixed income funds were mostly positive in May, with increases for seven of the eight categories ranging from 0.1 per cent for Canadian short term fixed income to 1.7 per cent for the Canadian long-term fixed income fund index.

HSBC Launches Connection Hub

HSBC Commercial Banking has launched the HSBC Connections Hub; a digital platform designed to enable business customers to leverage HSBC’s global network to connect with buyers and sellers around the world. Businesses in Canada, mainland China, Hong Kong, India, Mexico, Singapore, the UK, and the U.S. can now sign up to the multi-lingual hubfor free. The service will be available to customers in France in the coming weeks and additional countries and territories will be added in the second half of the year. Users create a business profile to represent their brand, including company information, products or services, location(s), and business interests. A matching engine then highlights potential buyers and sellers in other markets. Alternatively, customers can search and view the profiles of specific businesses using variables such as location, industry, and products or services.

Scotia Launches Absolute Return Fund

Scotia Institutional Asset Management has launched the Scotia Institutional Credit Absolute Return Fund. The fund is designed to maximize absolute returns over a complete market cycle through investment in diversified long and short positions, investing primarily in North American fixed income and credit markets while seeking to mitigate volatility and interest rate risk. It will be managed in a flexible manner using investment strategies and instruments beyond the reach of a traditional mutual fund, with the goal of generating absolute returns in excess of 90-day Treasury Bills in Canada.

Real Estate Fund Launched

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.

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June 4, 2017

Gender Issue For Investors

Canadian investors will no longer tolerate gender pay discrimination and want more gender diversity on corporate boards,” says Fred Pinto, CEO of OceanRock Investments and vice-president, head of wealth and asset management with Qtrade Financial Group. A survey sponsored by OceanRock for the Responsible Investment Association (RIA) shows 92 per cent of investors believe women and men should receive equal pay for equal work. As well, 76 per cent believe companies should be required to disclose how much they pay women compared to men and 55 per cent would be willing to sell their investments if they learned that a company they are invested in does not pay men and women equally for equal work and another 25 per cent would consider selling. Pinto says Canada has a dismal record when it comes to gender parity in corporate leadership. He pointed out that data collected by securities regulators shows that women hold only 12 per cent of seats on corporate boards in Canada and 45 per cent of publicly traded companies have all-male boards. “Having more women on boards and in senior management is not only about gender equity; it also makes good business sense,” he says. “A diversity of views from independent directors is a check against group-think and improves corporate governance. It’s good for the company and, as we see in the latest RIA research, it’s what investors want.” The report can be found here

Wealthy Investor Confidence Plummets

While U.S. markets continued their bullish run in May, confidence among wealthy investors plummeted, says Spectrem Group. The ‘Spectrem Millionaire Investor Confidence Index (SMICI)’ fell 17 points from April to three, the largest month-over-month decrease in the 13-year history of the index, while the ‘Spectrem Affluent Investor Confidence Index (SAICI)’ declined four points to six. It is the first time the SAICI has eclipsed the SMICI since May 2011. The record-breaking drop in the SMICI was caused by the almost four in 10 (39 per cent) millionaires who indicated they plan to avoid investing in the coming month, 15 per cent more than in April. It is the highest percentage of millionaires declaring their intention to stay on the investing sidelines since December 2013. Declining investor sentiment among millionaires may be a result of a turbulent month in Washington, DC, that has generated significant doubt about prospects for the Trump administration to deliver on promised substantive tax reform. More than half of investors surveyed (54 per cent) cited the political environment as the story in the news most affecting their economic outlook, dramatically greater than any other topic.

Genesis Motors Opens Retail Boutique

Genesis Motors Canada has opened its first Canadian retail boutique on Queen Street East in downtown Toronto, ON. Since the brand's inception, Genesis has modernized the luxury shopping experience through its ‘Genesis at Home’ service. Now, Genesis is elevating its customer experience with ‘Genesis Downtown,’ the brand's first boutique retail storefront in Canada. Maintaining a focus on authenticity, the brand will offer a luxury shopping experience in a sophisticated store setting. While customers will still be able schedule a ‘Genesis at Home’ demonstration and vehicle test drive with a Genesis representative at a location of their choosing, those in the Toronto area can also visit the Genesis retail location to learn more about vehicle models, pricing, and ownership benefits. The entry of Genesis into the retail market will expand with three additional boutiques and approximately 30 more stand-alone Genesis facilities between 2017 and 2021 across Canada.

ETF Edge Over Hedge Funds Widens

The global ETF/ETP industry with US$3.913 trillion in assets at the end of the first quarter of 2017 was US$847 billion larger than the global hedge fund industry which had assets of US$3.066 trillion, says ETFGI. The assets invested in the global ETF/ETP industry have continued to grow faster than assets in the global hedge fund industry since the end of the second quarter of 2015 when they first surpassed the assets in the global hedge fund. Although the assets in ETFs were larger than the assets invested in hedge funds, the hedge fund industry remains larger than the ETF industry based on number of funds: 8,216 hedge funds versus 6,771 ETFs/ETPs.

Net Inflows Turn Positive

The global hedge fund industry finally saw net inflows return to positive territory in the first quarter of 2017 after five quarters of net outflows, says data from Preqin. Hedge funds recorded net inflows of US$19.7 billion in the quarter and the combination of positive net flows and market performance combined to boost total industry assets by 3.2 per cent during the quarter to US$3.35 trillion. Macro strategy funds and event driven strategy funds recorded the largest net flows during the quarter of US$11.1 billion and US$8.9 billion, respectively. Equity strategies saw US$10 billion of redemptions. By geography, North America-based hedge fund managers based led the way with net inflows of US$19.9 billion. Europe was the only region to lose assets in the quarter with net outflows of US$8.5 billion.

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May 28, 2017

Attention Turning Back To Fundamentals

With President Trump’s first 100 days and the French presidential election in the rearview mirror, attention is turning back to fundamentals, says AB’s ‘Global Macro Outlook.’ In recent months, the global economy has moved onto firmer ground and, with policy still highly accommodative, it expects this to continue, forecasting 2.8 per cent global growth both this year and next. With inflation expected to decline (to 2.5 per cent in 2018 from 2.7 per cent this year), this should provide a benign backdrop for global financial markets because developed-market central banks are likely to withdraw extraordinary monetary-policy stimulus very gradually. However, this process is unlikely to be uniform. The U.S. Fed is likely to continue raising rates slowly and adopt a passive approach to normalizing its balance sheet. At the ECB, tapering will probably move onto the agenda in the second half of the year, However, it expect the Bank of Japan to remain broadly committed to its current program. These differences are reflected in its bond yield forecasts, which show Japanese yields anchored close to zero, a modest rise in the U.S., and a more material increase in the euro area, where the disconnect with fair value is wider.

Globalized Financial World Too Complex

The globalized financial world has become too complex for the human mind to analyze, says François d’Hautefeuille, head of quantitative investments at Cabestan Quantitative Research. However, he told the ‘Excel ETFs Launch Information Session’ that computer power makes the financial data behind behavioural finance easily accessible. Behavioural finance identifies a bull correction from a market reversal using the mathematization of chartist analysis, he said. This is used to distinguish noise from trends. A noise event can be defined as short-term price moves that do not reflect long-term fundamentals. Some of the main features of noise events are short and fast price moves, a focus of markets on a single event, and rapid and non-justified moves in the price with no relation to fundamentals and valuation. His firm uses big data techniques to construct portfolios by identifying the best investment vehicles.

U.S. Equities Have Solid Performance

U.S. equities have put in a solid performance year to date, but valuation has been top of mind, says the Harbour Group of RBC Dominion Securities ‘Harbour Monthly.’ As such, first quarter earnings reports have been watched with more scrutiny than usual and as the tail end of earnings season approaches, it appears that the optimism built into prices has been justified by corporate performance thus far. The strong first quarter earnings season is an important step in sustaining valuations in the absence of a helping hand from Washington, DC, it says, as investors are at point where any upside from tax reform has shifted from the base case to a ‘bonus.’ Not to be lost in the shuffle are the strong earnings reports coming out of Canada, where a rebound in energy has driven strong year-over-year earnings growth. However, while it is encouraged to see strong earnings growth to kick off 2017, it is less enthused with the TSX’s performance so far this year.

PRI Collaborates With CFA

The Principles for Responsible Investment (PRI) is collaborating with the CFA Institute on a global study of environmental, social, and governance (ESG)investing to determine how widely ESG issues are used by mainstream investors. It is the first time the two have worked together. Although ESG investing strategies have gained considerable ground over the past decade, for many investors it was not yet standard practice to consider ESG considerations across all asset classes, says the PRI. The organizations hope the collaboration will determine the depth of the remaining barriers to ESG integration, particularly on the part of investment managers.

Information Officer More Strategic Role

Technology executives are making the shift from the back office to the boardroom, says Robert Half Technology. Its research shows five per cent of Canadian chief information officers (CIOs) believe their roles are primarily functional versus 36 per cent five years ago. More than one in three view the CIO role as mostly strategic. When asked what would persuade them to take a new role, CIOs find greater flexibility most appealing with nearly two in five (39 per cent) citing the ability to consult on projects and control their own schedule as chief motivators. Twenty-six per cent say running their own company holds the most appeal, while another 24 per cent find the opportunity for a higher salary attractive.

Coloured Diamonds Set New Auction Record

This year will go down in the record books as “the year of the fancy-coloured diamond,” says Michael King, director of trading for Paragon International Wealth Management, a Toronto-based firm that specializes in advising clients on adding fancy-coloured diamonds to their investment portfolio. A pair of fancy-coloured diamond earrings set a new auction record in May, selling for $57.4 million at Sotheby's Geneva Magnificent Jewels and Noble Jewels sale. The mismatched pair of diamonds ‒ one pink and one blue ‒ were auctioned in separate lots, but were both sold to the same anonymous buyer. The pear-shaped diamonds were named for the Greek deities and twin brother and sister Apollo and Artemis. The 14.54-carat ‘Apollo Blue’ sold for $42.1 million and the 16-carat ‘Artemis Pink’ for $15.3 million. As a pair, they set a record for the most expensive earrings ever sold at auction. The prior record-holder was the Miroir de l'Amour earrings, which sold for $17.6 million through Christie's in 2016. The Apollo is the largest internally flawless fancy vivid blue diamond ever auctioned. Less than 0.1 per cent of diamonds have any blue coloring, and only a very small percentage of those are graded ‘Fancy Vivid Blue,’ says the Gemologica Institute of America (GIA); while the Artemis Pink is the most chemically pure type. King says that buyer interest and demand for fancy colored diamonds in the investment marketplace remains strong.

Smart Beta Impacts Outperformance

The number of asset managers that beat benchmarks last year is reduced when smart beta benchmarks are used as comparisons, says Lyxor Asset Management. It found that 28 per cent of active funds in Europe beat traditional benchmarks in 2016, but this becomes just 13 per cent when smart beta indices are used. The number of outperformers of traditional cap-weighted indices is lower than 2015 when 47 per cent of the active managers beat their benchmarks. Active managers that succeeded in outperforming their benchmark were overweight on the ‘value’ factor at the expense of low-beta, quality, and momentum factors. It also found markets were devoid of meaningful trends in 2016 and instead were dominated by “frequent stylistic rotation from one factor to another.” As well, in the current market environment, which is influenced more by politics than by the economy, it was been difficult for active managers to generate performance and take advantage of changes in trends in 2016.

Hedge Funds Gain For Sixth Month

The ‘Preqin All-Strategies Hedge Fund’ benchmark returned 0.76 per cent in April, its sixth consecutive month of gains, taking 2017 year-to-date and 12-month performance to 3.99 per cent and 10.67 per cent respectively. In contrast to the wider benchmark, macro strategies have posted two consecutive month of losses, having returned -0.27 per cent in April and -0.09 per cent in March. However, all other leading strategies have been above water in each month of the year so far. Equity and event driven strategies have outperformed the industry benchmark in 2017 posting robust returns in April of 1.03 per cent and 0.87 per cent respectively. Multi-strategy funds (+0.52 per cent) and credit strategies (+0.21 per cent) also enjoyed gains in April and, along with event driven strategies, have now posted 14 successive months of positive returns.

ETF Assets Break Through $4 Trillion Milestone

Assets invested in ETFs/ETPs listed globally broke through the US$4 trillion milestone at the end of April 2017, says preliminary data from ETFGI’s April 2017 global ETF and ETP industry insights report. ETFs and ETPs listed globally gathered record net inflows of US$37.94 billion in April marking the 39th consecutive month of net inflows. Year-to-date, a record US$235.21 billion in net new assets have been gathered. At this point last year, there were net inflows of US$81.01 billion. Equity ETFs/ETPs gathered the largest net inflows with US$27.75 billion, followed by fixed income ETFs/ETPs with US$10.78 billion, while commodity ETFs/ETPs experienced net outflows of US$1.28 billion. “Investors continued to favour equities over fixed income and commodities as equity markets performed positively in April. The S&P 500 was up one per cent, international equity markets outside the U.S. and emerging markets were both up two per cent in April,” says Deborah Fuhr, managing partner and a founder of ETFGI.

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