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October 16, 2017

Business Owners Need To Start Retirement Planning Sooner

The majority of Canadian small business owners don't have a detailed retirement plan in place despite little interest in expanding their business, says a study by the Canadian Imperial Bank of Commerce (CIBC). In fact, the report shows that 78 per cent of aging business owners haven't prepared any sort of formal plan to prepare for an upcoming retirement or an unexpected emergency. These findings are surprising given that many small business owners are no longer planning to grow their business. Among these owners, 42 per cent say they’re happy with the size the business is now; 36 per cent say they plan to close, sell, or transfer the business; and three per cent say there is not enough cash flow to expand. CIBC says letting go of a business can be made difficult by tax consequences. The biggest mistake owners make is not having these conversations early enough. It’s important to involve a team of experts including lawyers, accountants, and financial advisors to achieve a higher evaluation, maximize retirement income, and reduce the overall tax bill.

Technology Platforms Make Inroads

Cracks in the traditional wealth management value proposition are allowing companies offering technology investing platforms to make inroads with Canadian investors, says research from Accenture Consulting. ‘Powering Hybrid Advice In Canada’ at the Private Wealth Canada website shows four of 10 Canadian investors say they do not ‘get what they pay for’ when using a traditional wealth advisor, leading investors to explore other options such as self-investing via robo-advice. As well, seven of 10 already use at least one digital tool or service when investing.

Barometer Uses Technical Analysis In Investment Approach

Barometer Capital Management Inc. uses technical analysis as part of its investment approach to understand markets and their risks and build investment portfolios. It uses a ‘Disciplined Leadership Approach’ for both sides of its active investment process ‒ buying and selling. This is a tactical approach that focuses on market leadership to identify the best trends for clients’ exposure, says Adam Jacobson, a senior research analyst. It is designed to recognize change via daily monitoring and adjusting the portfolio accordingly using point and figure (P&F) charts to define market breadth – the percentage of stocks that are in uptrend. Expanding breadth is constructive, while deteriorating breath suggests higher risk. P&F charts have been around for more than a 100 years, but have moved from being a paper-based system to using sophisticated computer systems that use the P&F methodology. The information gathered is combined with macro view analysis of economic trends, credit spreads, positioning, earnings growth, and more. This top down, bottom up approach can be used to look at individual securities, funds, or sectors. “It allows us to grind down the list to an approachable list of securities,” says Brian MacNicol, portfolio analyst. “We identify trend changes – higher highs and lower lows – by identifying breakouts. Basically, we look for good companies getting better that are showing absolute and relative strength versus the index.” The company is an independent active portfolio management firm that manages portfolios for private investors, foundations, endowments, and pension plans through segregated accounts, pooled funds, and prospectus funds.

Future Of Low Vol Bright

The future of low volatility equity investing is bright even in the spectre of Trumponomics, says Dr. Jean Masson, of TD Asset Management. Speaking at the ‘The Trump Effect ‒ What Does It Mean to Equity Markets and Low-volatility Investing’ at the CPBI Atlantic 2017 Regional Conference, he said low volatility equity strategies could benefit from U.S. President Donald Trump’s proposal to cut corporate taxes for domestic firms. Currently, they pay among the highest taxes in the developed world which puts them at a disadvantage. Putting them more in line with rest of the word would give them a boost, he said. As well, Trump’s positions on trade would also likely have no effect on low volatility equity investors as most of these stocks are small cap which are usually domestic companies. Trade restrictions would boost domestic manufacturing in the U.S. although it would hurt any companies involved in importing or exporting.

Proposed Tax Changes Unlikely To Promote Fairness

The federal government's proposed changes to the tax treatment of passive investments in a private corporation will not achieve its goal of promoting tax fairness, says a report by the C.D. Howe Institute. ‘Off Target: Assessing the Fairness of Ottawa's Proposed Tax Reforms for ‘Passive’ Investments in CCPCs’ shows the proposals outlined in the government’s consultation paper risk delivering a blow to the retirement planning of many small business owners. And, that unfavourable impact would be in addition to the potential negative consequences of the proposed changes to entrepreneurship in the small business sector overall. Some of the possible changes involve ending passive investment income tax refundability for private corporations and other tax-assisted saving opportunities.

Optimism Increases For Wealthy Investors

Optimism and confidence in the American economy jumped significantly in September, says Spectrem Group. Its ‘Millionaire Investor Confidence Index’ (SMICI) jumped nine points to 19, its highest level since April, while the ‘Spectrem Affluent Investor Confidence Index’ (SAICI) moved up six points to 13, the highest level it has reached since September of 2014. Both indices now stand in mildly bullish territory. The monthly indices track changes in investment sentiment among the 17 million households in the U.S. with more than $500,000 of investable assets (SAICI) and those with $1 million or more (SMICI). Among non-millionaires, the percentage of those not investing in the coming month fell to its lowest level since March, an indication that affluent investors are becoming more active in the markets. While the number of millionaires intending to stay on the investment sidelines increased slightly to 32 per cent, it is still well below the 38 to 39 per cent reported in May and June. The ‘Spectrem Household Outlook,’ which measures long-term confidence in four financial factors impacting a household's daily economic life, rose among millionaires to 36.91, its highest level since 2011. More than four out of 10 (43.8 per cent) millionaires also invested in stock mutual funds in September, the highest percentage in five months, and a clear sign of increased optimism.

Aussie Wealth To Decrease Generation By Generation

Young Australians may never catch up with Baby Boomers when it comes to personal wealth, says data from the Australian Bureau of Statistics. The data shows households populated by 65- to 75-year-olds are way ahead. In fact, they’re $480,000 wealthier than the same age group was about 12 years ago. Each age group analyzed is wealthier than its counterpart a dozen years ago, but for 25- to 34-year-olds, it’s only a matter of $40,000. This is because of the property they own. Baby Boomers may have been able to pay off their mortgages and take advantage of the generous super tax breaks on offer for people nearing retirement, such as the ability to put large, taxed sums into their super funds just before retirement, but the younger generations are dealing with different issues. Home ownership for those in the 25- to 34-year-old age group has fallen dramatically since 1981, with less than half of that demographic now owning houses, as opposed to the previous 60 per cent. And, it’s not because Millennials prefer to travel or spend on luxury items; survey responses show an overwhelming majority do still want to own a house, but they consider it unaffordable in the current economic climate. So, while Australia may be considered a wealthy nation, with most of the wealth attributed to the older generations, it’s unlikely that this trend will continue.

iA Clarington Launches Yield-enhancing Funds

iA Clarington Investments Inc. has launched three funds and a sub-advisory relationship with PineBridge Investments LLC, a global asset manager with more than US$85 billion in assets under management. Designed for investors who may not be receiving the income they need from traditional, domestic fixed income, these iA Clarington funds offer the yield-enhancing potential of active, high-conviction exposure to a wide range of geographic regions and income-producing asset classes.

Private Credit Market Grows 14-fold

The size of the global private credit market is on course to break the $1 trillion mark by 2020, says research by the Alternative Credit Council (ACC), the private credit affiliate of the Alternative Investment Management Association (AIMA). ‘Financing the Economy 2017 shows the industry, which manages approximately $600 billion in assets, has grown 14-fold since 2000. Based on its current growth rate, the sector will reach $1 trillion in assets by the end of the decade, the ACC forecasts. It says small-to-medium-sized businesses remain a dominant feature of the lending market. Around a third (34 per cent) of total committed capital is now being lent to SMEs and the mid-market. Large businesses receive around a fifth (22 per cent) of all lending.

Record-breaking Year Possible

The signs are promising for a record-breaking year for private capital fundraising markets, says Preqin. The first half of the year saw 742 private capital funds secure a total of $391 billion from investors, surpassing the previous record of $384 billion raised by funds closed in the first half of 2008. And given that fundraising fell in the second half of that year as the global financial crisis came to the fore, if 2017 maintains this momentum it seems likely that the year will set new fundraising records. However, the third quarter may represent a slight stumble in that progression as fundraising levels have fallen compared to recent quarters. Preqin does expect fundraising totals for the third quarter to rise by up to 10 per cent as more information becomes available, but it seems likely that this quarter will come to represent a drawback from the recent frenetic pace of activity.

Majority Of Funds Improve In Quarter

Twenty-nine of the 44 Morningstar Canada Fund Indices increased during the third quarter, including 11 that increased by two per cent or more. However, five of the 15 fund indices with negative results were down by one per cent or more. The best performing fund index for the third quarter was the one that tracks the greater China equity category, which increased 8.1 per cent. This fund category has dominated the Canadian marketplace since the beginning of the year, including chart-topping performances in July and August. Three sector-specific fund categories were among the top performers. The energy equity fund index had the second-best result for the quarter with a 6.8 per cent increase, which included a 10.3 per cent increase in September that was the best among all categories for the month. The natural resources equity and financial services equity fund indices followed with increases of 4.1 per cent and 3.9 per cent, respectively, for the quarter and were ranked third and second for the month of September, up 3.1 per cent and 4.9 per cent, respectively. The biggest losers in the third quarter were fixed income fund categories, with four of eight fund indices ending the period in negative territory.

Mackenzie Financial Launches Responsible Funds

Mackenzie Financial Corporation has launched two products to answer Canadian investor demand for sustainable, responsible, and impact investments that also offer competitive returns. The Mackenzie Global Sustainability and Impact Balanced Fund provides an exposure to a positive environmental and social impact while the Mackenzie Global Leadership Impact Fund provides investors with an opportunity to impact social and governance change with a focus on promoting the benefits of women in leadership.

BMO AM Launches ETFs

BMO Asset Management Inc. (BMO AM) has introduced five exchange-traded funds (ETFs). They include the BMO Shiller Select US Index ETF, an ETF that offers exclusive access to the cyclically adjusted price earnings (CAPE) methodology – an equal-weight strategy that combines value and momentum, leveraging the research of Professor Robert Shiller. The Canada Value Index ETF offers investors factor-based access to Canadian companies with higher value characteristics relative to their peers. The MSCI EAFE Value Index ETF provides investors factor-based access to international companies with higher value characteristics relative to their peers. The MSCI USA Value Index ETF offers investors factor-based access to U.S. companies with higher value characteristics relative to their peers. The High Yield US Corporate Bond Index ETF offers investors access to unhedged U.S. high yield corporate bonds.

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October 2, 2017

Canada Slides In Economic Freedom Report

Canada is no longer one of the world's five most economically free countries, says the Fraser Institute in its annual ‘Economic Freedom of the World’ report. Last year, Canada ranked fifth overall and the U.S. ranked 16th. Both are tied at 11 in this year's ranking, which uses data from 2015, the last year of available comparable statistics. “Higher taxes, increased government intervention, and growing regulation at the federal level and in some of Canada's biggest provinces have made Canadians materially less economically free,” says Fred McMahon, Dr. Michael A. Walker research chair in economic freedom with the Fraser Institute. “The decline in economic freedom should be worrying for all Canadians because lower levels of economic freedom lead to less prosperity, slower economic growth, less investment, and fewer jobs and opportunities.” This is the first year since 2009 that Canada has not ranked higher than the U.S. The report shows Hong Kong is again number one followed by Singapore, New Zealand, Switzerland, Ireland, the UK, Mauritius, Georgia, Australia, and Estonia.

Wealthy Clients Prefer Hybrid Advice Models

High net-worth (HNW) clients worldwide are expressing preference for hybrid advice models during the later stages of the wealth management process, says the ‘2017 World Wealth Report’ by Capgemini. The study surveyed HNW clients to measure how likely they are to embrace hybrid advice models combining digital tools with some level of human interaction throughout life cycles of the wealth management process. The five life cycles are categorized as profiling client needs, developing wealth strategies, executing investments and advice, managing the relationship and portfolio, and reporting on performance and adjustments, including detailed capabilities in these areas. Preference for hybrid advice varied between regions and demographics, revealing that HNW clients in North America are the least likely to embrace hybrid services during all five life cycles of the relationship. That said, hybrid advice looks as though it's here to stay since the youngest HNW clients across the globe (under 40 years of age), prefer a hybrid approach for all five life cycle stages, particularly during the ‘developing wealth strategies’ stage (60.8 per cent).

Global Capital Markets Boring

Global capital markets have become boring, says Bob Boyda, head of capital markets and strategy, in Manulife Asset Management’s ‘Global Intelligence Interim Outlook: Autumn 2017.’ The message from the options market, he says, is that investors are highly content and not at all interested in buying protection. “Global equity markets appear so quiescent that even the threat of nuclear war with a rogue nation like North Korea caused no more than a day’s disruption in the steady march to higher equity prices. During the past quarter, many global equity bourses in the developed world merrily registered new all-time highs,” he says. As for bond yields and interest rates, “traditionally, higher bond prices and the accompanying lower yields represent a measure of anxiety and a search for safety; except not this time. Lower yields on bonds appear to signal another form of low anxiety specifically about the trajectory of central bank policy: lower for longer continues to dominate the hearts and minds of global capitalists.” And, after a decade of singing the praises of U.S. high yield debt, “we believe it is time to begin the process of reducing exposure,” says Boyda.

Action Must Match Belief In Diversity And Inclusion

A study by Russell Reynolds Associates reveals a need for organizations to elevate inclusion to the importance of diversity. The ‘Diversity and Inclusion Pulse: 2017 Leader's Guide’ says fewer than half (47 per cent) of executives say their organizations have a clear, holistic understanding of diversity, but the number drops even further when looking at inclusion. Just 24 per cent of executives say they are aware of a definition of inclusion. Russell Reynolds Associates defines ‘inclusion’ as the establishment of an environment that creates opportunities for all employees to realize their unique potential. Even though senior executives realize the importance of diversity and inclusion (D&I) ‒ 74 per cent believe D&I is crucial to the success of their organization ‒ only 50 per cent say their leaders make a visible effort to support D&I. Even fewer (38 per cent) say their leaders hold themselves accountable to create inclusive cultures.

Productivity To Influence Investment

Five key global trends may influence and characterize the investment environment over the next seven years, says a report from Fiera Capital. Its first ‘Global Financial Forecast 2017-2024’ identifies productivity as one trend. It is expected to improve from current levels as local economies leverage advances in technology including artificial intelligence and the increased use of robots. As well, an aging population will have a negative impact on growth while the higher dependency ratio will spur inflation. While a recession is not expected in the next couple of years, one could be expected after 2020 ‒ and an accompanying recovery ‒ within the next seven years, if it follows previous cycles. The path towards recession will likely come from a tightening of credit from central banks as the current cycle becomes more mature and inflation pressures warrant higher interest rates. It also says the role of central banks will decrease over time as the global economy normalizes. The final trend is politics. As the ghosts of the previous crisis are forgotten, governments are expected to relax their focus on regulation in order to improve efficiency and productivity. However, protectionist temptations and the ongoing focus on nationalism among politicians of various affiliations is likely to continue. “Over the last seven years, the global economy has taken significant strides to recover from the 2008 credit crisis. Financial markets have been driven by extraordinary actions from central banks, a thirst for yield, falling productivity, and a prolonged expansion characterized by very low inflation. Following this unusual period, we expect the next seven years to be characterized by a return to a more traditional business cycle, in both central bank activities and in productivity,” says Francois Bourdon, its global chief investment officer.

Economy Buoys Real Estate

Investment in the Canadian commercial real estate sector is buoyed by a relatively healthy economy that is the envy of the G7 countries and a commercial property market that continues to see varying, but largely healthy, fundamentals across the country’s regions and asset classes, says Avison Young’s ‘Fall 2017 North America and Europe Commercial Real Estate Investment Review.’ “With record amounts of capital still seeking a home, investors continue to find ways to buy into Canada’s finite investable commercial real estate sector,” says Bill Argeropoulos, principal and practice leader, research (Canada), for Avison Young. “Capital from domestic and foreign investors continues to be largely directed towards Vancouver, BC, and Toronto, ON, while the other major markets are also seeing their share of activity.” On the vendor side, capital recycling continues in order to reduce debt, upgrade asset quality, and diversify investments geographically. Surplus capital that can’t be placed domestically often finds its way south of the border, as Canada has retaken its place as the primary source of foreign investment in U.S. commercial real estate.

Investors Put More Focus On Board Tenure

Investors are increasingly focusing on lengthy director tenure as a potential obstacle to adding new skill sets and diversity to boards and as a potential risk to the independence of long-serving, says the Institutional Shareholder Services Inc. (ISS) annual global benchmark voting policy survey. Survey respondents were asked which tenure-related factors would give rise to concerns about a board’s nominating and refreshment processes. Among investors, 68 per cent responded that a high proportion of directors with long tenure is cause for concern. More than one-half of the investors identified an absence of newly-appointed independent directors in recent years (53 per cent) and lengthy average tenure (51 per cent) as problematic. Just 11 per cent of investors said that tenure is generally not a concern, although several of these investors also indicated that an absence of newly-appointed directors is a concern. Respondents spanned the globe, hailing from Japan, Korea, Australia, South Africa, Taiwan, Russia, Malaysia, Canada, and the U.S., among other jurisdictions.

Managing Futures Reduces Risk

Portfolios that include managed futures funds perform better and reduce more risk than those without them, says research by the Alternative Investment Management Association (AIMA) and Societe Generale. ‘Riding the Wave’ explains the roles that managed futures funds typically play in investor portfolios and the diverse strategies on offer. For example, the performance of a traditional asset mix of 60 per cent bonds and 40 per cent equities is enhanced with the addition of CTA strategies, which may increase the return and risk-adjusted returns (by lowering the volatility), as well as considerably lowering and shortening drawdowns. The largest drawdown – or peak-to-trough decline ‒ for managed futures funds since 2000 was less than a quarter of the scale of the largest drawdown for global equities (-11.63 per cent versus -53.65 per cent). Large drawdowns not only destroy asset values, but can take investors years to recover from.

Economy Set To Moderate

The Canadian economy is all but certain to cool after a period of red-hot growth in the first half of the year, says the ‘Canada Market Perspective’ in Russell Investments’ ‘Global Market Outlook – Q4 Update.’ “Economic growth in Canada is set to moderate over the second half of the year, but should remain healthy, trending towards two per cent,” says Shailesh Kshatriya, director, Canadian strategies, at Russell Investments Canada Limited. “However, the Achilles heel for the Canadian economy is also what has been its strength: housing. We expect the Bank of Canada to take a measured approach to addressing housing imbalances, which means another rate hike is likely this year.” Its strategists maintain a neutral outlook for Canadian equities with oil fundamentals and the strengthening Canadian dollar as key watch points.

Investor Confidence Declines

Global investor confidence declined overall in September, but some regions, including Europe, saw confidence rise, says State Street’s ‘Global Investor Confidence Index (ICI).’ Overall, it declined 2.4 points, to 104.4 (100 is the break-even point, meaning sentiment is still positive). This was driven by a drop in the North American index. However, the European ICI registered a 4.7 point rise to 93.7. The index measures investor confidence or risk appetite quantitatively by analyzing the buying and selling patterns of institutional investors. The greater the percentage allocation to equities, the higher risk appetite or confidence.

Hedge Funds Turn Around

Hedge fund assets under management reached $3.209 trillion at the end of August, apparently turning around their struggling business performance, says eVestment’s ‘August 2017 Hedge Fund Asset Flows Report.’ Investors placed $13.4 billion into global hedge funds during the month. However, investors seem to have shown caution in emerging market-focused hedge funds. These funds had “exceptional” performance and saw a two-month inflow rally in June and July. But in August, investors pulled $1.69 billion from this category.

Canadian ETF/ETPs Increase

Assets invested in ETFs and ETPs listed in Canada have increased 26.6 per cent in the first eight months of the year to reach a new record of US$107 billion at the end of August 2017, says ETFGI’s August 2017 preliminary Canadian ETF and ETP industry insights report. ETFs and ETPs listed in Canada gathered US$2.32 billion in net inflows in August marking 11 consecutive months of net inflows and a record level of US$13.88 billion in year-to-date net inflows. Equity ETFs and ETPs gathered a record level of US$1.79 billion in net inflows in August, bringing net inflows to a record level of US$6.85 billion, which is much greater than the net inflows of US$4.87 billion over the same period last year and more than the US$6.23 billion gathered in all 2016. Fixed income ETFs and ETPs have gathered a level of US$179 million in net inflows in August, growing net inflows to a level of US$3.49 billion, which is less than the same period last year which saw net inflows of US$4.08 billion.

Mackenzie Financial Reduces Minimum Investment

Mackenzie Financial Corp. now has a lower minimum investment for investors to qualify for its private wealth pools, as well as enhancements to the investment strategies and lead managers of the pools. In addition, it has made changes to the risk ratings of 16 funds and distribution policy changes on select series of six funds. The reduced minimums, risk-rating changes, and distribution policy changes were reflected in the renewal of the simplified prospectus of the Mackenzie mutual funds. The pools are eight mandates that blend a long-term strategic asset allocation with a multi-manager structure, each with its own style and strategy. The minimum initial investment for pools is reduced from $150,000 to $100,000 per pool. This minimum is waived for household assets above $250,000.

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September 25, 2017

Collins Barrow Calls For Delayed Tax Laws

Collins Barrow is urging the Canadian government to delay the enactment of measures that profoundly change the taxation of private corporations and their shareholders, as proposed in draft legislation introduced in July. Given the significance of these proposals and their potentially detrimental impact on the Canadian business community and economy, Collins Barrow National and its 26-member firms unanimously recommend all measures be delayed for, at minimum, one year to accommodate more detailed analysis and consultations prior to implementation. “As a uniquely Canadian firm serving entrepreneurs and companies of all sizes from coast to coast, we join the widespread opposition to these proposals that have the potential to negatively affect many business owners and, more broadly, the Canadian economy,” says Doug Kroetsch, chair of Collins Barrow National. “In response to a firm-wide concern about the short response time allotted, we recommend extending the consultation period to accommodate a more in-depth review of the technical gaps we have identified that could prove to be deeply problematic.” The organization is concerned not only about the proposals, but how they have been presented and what they imply. The insinuation that some taxpayers have taken advantage of clear, existing tax law, as well as the inaccurate suggestion that equates using legal tax planning methods with the use of ‘loopholes,’ are deeply concerning to the firm. The proposals intend to modify long-standing, existing legislation in the areas of income-splitting, holding passive investments in a private corporation, and converting a corporation's after-tax income into capital gains.

Strides Made In Gender Diversity

Osler’s third annual report on the state of diversity disclosure practices by TSX-listed companies (other than closed-end and ETFs) reveals an increasing proportion of companies have made some strides to improve gender diversity in leadership roles. But there is still considerable distance to be covered before Canadian companies are at par with international firms that have led the way in prioritizing diversity in their executive suites and on their boards of directors, says ‘2017 Diversity Disclosure Practices Report: Women in leadership roles at TSX-listed companies.’ A key catalyst for change is coming from institutional shareholders. “While improving gender diversity has been a focus of legislators and regulators, institutional shareholders are more visibly expressing their support for greater gender diversity on the boards of companies in which they invest,” says Andrew MacDougall, an Osler partner. It shows a significant jump in the number of companies that disclose they have a written board diversity policy and a significant decline in companies without any women representatives on their boards.

Sotheby’s Give Positive Real Estate Forecast

Montreal, QC, is emerging as a luxury real estate ‘hot spot,’ while Vancouver, BC; and Toronto, ON; sales should pick up this fall after somewhat sluggish times, says a report by Sotheby's International Realty Canada. The rosy outlook comes despite a slew of federal and provincial policy changes designed to cool the country's hot housing markets. However, Canada's strong economic performance will boost the market in the coming months, it says. The report shows that in July and August, sales of condominiums and houses over $1 million in Toronto fell 27 per cent compared to the same months the year before. Transactions of properties over $4 million in the city fell by nearly the same amount ‒ 28 per cent. Part of that drop came as buyers and sellers in Ontario grappled with a new 15 per cent tax on foreign buyers of properties in the Greater Golden Horseshoe Region, which includes Toronto and several nearby areas, introduced by the provincial government in late April. In Vancouver, sales of luxury real estate over $1 million dropped 23 per cent in the first half of the year compared to 2016. But, sales increased five per cent during July and August, compared to the same months last year. In Montreal, sales of condominiums and homes over $1 million jumped 60 per cent year over year this July and August. Sotheby's forecasts Montreal will emerge as a strong leader on Canada's luxury real estate landscape this fall. The company also anticipates ‘a brisk and active’ market for luxury real estate in Toronto this fall and for Vancouver to regain momentum as a strong Canadian economy is expected to boost confidence and performance in the autumn months. In Calgary, AB, the report says, “tentative optimism is set to gain ground” as the city emerges from a recession.

Fed Offers Details On Unwinding

The U.S. Fed has finally provided clearer details on how it will start unwinding its gigantic balance sheet, says Olivier Marciot. The Unigestion investment manager says as one of the world’s largest central banks, it will soon stop reinvesting proceeds of maturing debt accumulated through various quantitative easing (QE) programs. The balance sheet runoff will start in October, with reductions in the tens of billions of dollars per month. This paves the way for other central banks to reduce QE where it is still alive and tighten monetary support slowly, but surely, he says. The FED left interest rates unchanged.

India Among Fastest Growing Economies

India is among the fastest growing major economies, says Atul Penkar, head of offshore equities at BSLAMCL and lead sub-adviser of the Excel India Fund. He told the Excel Funds ‘Expert Insights Into India: The World’s Growth Giant’ that its gross domestic product (GDP) is likely to grow at four to five percentage point higher than those of the developed markets. Since 2001, it has been growing at around seven per cent, ranking only behind China and well ahead of the U.S. and Canada. It now ranks as the seventh largest economy in the world. The major contributor to this is its demographics. Its working age population will reach 1.1 billion by 2050 and an Indian born in 2005 will spend an estimated $187,000 in their lifetime and this will multiply throughout the economy. As it shifts towards urbanization, its growth projections will continue to exceed expectations and it could be the second largest economy in the world by 2040, he said. Investors in India will find reasonable valuations and growth drivers in the near term include positive real rates to drive financial savings; increased consumption, both rural and urban; increased government expenditure; the recovery of commodity prices; and lower interest rate expense due to declining interest rates.

Weakness, Volatility Create Valuation Risk

Valuation risk in Europe is at its highest level due to financial weakness and geopolitical uncertainty, says the European Securities and Markets Authority. Its ‘Trends, Risks and Vulnerabilities’ report cited high asset price valuations as the “major risk for European financial markets in the second half of 2017,” with the main risk drivers identified as uncertainties around geopolitics, the resilience of economic growth, and debt sustainability. A number of money management executives agree valuations in global equity and credit markets are high. However, while some have moved to take profits from what they see as expensive valuations and are cautiously risk-on, they generally agree markets are not yet in bubble territory. Some are even anticipating further upside moves in European equities in particular.

Mutual Fund Assets Climb While Sales Slow

Net sales for the mutual funds industry were $1.8 billion in August, less than half of July's $3.9 billion total, yet industry assets continued to climb, says the Investment Funds Institute of Canada (IFIC). August net sales were also down compared with the same month a year ago, when the industry produced $2.7 billion in net sales. Long-term funds generated $1.7 billion in net sales for August 2017, coupled with $127.4 million in money market net sales. By asset class, balanced and equity fund sales both dropped sharply in August compared with July, whereas bond fund sales held up. Balanced funds managed just under $1 billion in monthly net sales net sales in August, down from $2.1 billion in July while equity funds returned to net redemptions in August, recording $148 million in outflows, compared with $622 million in positive net sales for July. Bond funds were the lone bright sport, with August net sales of $769 million, up slightly from $740 million in July. Despite the weakening sales picture, IFIC says that total mutual fund assets under management (AUM) climbed by $8.3 billion in August, or 0.6 per cent, to $1.41 trillion.

RBC GAM Launches ETFs

RBC Global Asset Management Inc. (RBC GAM) has launched seven exchange-traded funds (ETFs). These index tracking ETFs are sub-advised by State Street Global Advisors (SSGA. SSGA focuses on providing highly disciplined, risk controlled investment strategies to the global marketplace. Additionally, the ETFs will follow indexes provided by FTSE Russell. These funds bring the total number of RBC ETFs to 35.

ETFs/ETPs Gather Record Inflows

Assets invested in ETFs/ETPs listed globally have increased 35.5 per cent in the first eight months of the year to reach a new record of US$4.800 trillion at the end of August, says ETFGI. ETFs and ETPs listed globally gathered a record US$42.43 billion in net inflows in August marking 43 consecutive months of net inflows and a record level of US$433.69 billion in year-to-date net inflows which is more than double the US$216.59 billion in net inflows at this point last year and the US$43 billion more than the US$390.61 billion net inflows gathered in all 2016.

Hedge Funds Generate Gains

Hedge funds generated gains of 0.97 per cent in August 2017, extending their streak to 10 consecutive months of positive returns, says the Preqin ‘All-Strategies Hedge Fund.’ The benchmark has posted returns of 7.03 per cent in 2017 so far and 9.79 per cent over the past 12 months. All leading strategies produced positive returns for August. Equity and macro strategies funds both generated monthly performance of 1.07 per cent, the highest returns of all leading hedge fund strategies. Emerging markets funds were once again the highest performing geographic region, returning 2.47 per cent, which has brought 2017 gains to 12.26 per cent.

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September 18, 2017

Shift To Passive Will Continue

Most portfolio managers, both active and passive, believe the shift toward passive strategies will continue for many years, says a report by Greenwich Associates. Of the asset management executives surveyed, 55 per cent believe this institutional shift of assets under management toward passive will continue for several more years before equilibrium. Meanwhile, 14 per cent believe this shift is structural and the long-term result will ultimately be heavily passive. Most active portfolio managers recognize that outperformance is ultimately the best way to compete with their passive counterparts. However, more than 88 per cent of U.S. active large-cap funds underperformed the Standard & Poor’s 500 over the past five years.

Global Economy Expected To Grow

Over the next five years, the global economy is expected to experience a 2.4 per cent real average annualized growth, says a report from Northern Trust. ‘Northern Trust’s Capital Market Assumptions five-year investment outlook’ acknowledges equity valuations are high in developed markets, but it predicts low inflation and steady economic growth will continue to keep stocks attractive. The report also says the highest regional average annualized return will come from emerging markets at 8.4 per cent; followed by 7.2 per cent for Europe, 6.6 per cent for the UK, six per cent for Japan, and 5.9 per cent for the U.S.

Infrastructure Managers Taking On More Risk

Infrastructure investment managers are taking on more risk – and different types of risk – to match past returns, says Bfinance. In a paper, it says the burgeoning asset class has “entered a dramatically different era” characterized by diminishing returns and a greater diversity of investment options. The emergence of ‘Infrastructure 3.0,’ it says, is raising new questions for investors. “As today’s managers take on more risk and different types of risk to try and ensure returns at least match past performance, investors are grappling with an evolving opportunity set,” it says. “Allocators are increasingly asking whether their manager is overpaying for assets, whether certain funds are too large for their intended strategies, whether an appropriate premium is still available for illiquidity, and how much greenfield or non-OECD exposure is appropriate. Expectations for return, risk, and diversification characteristics should be based on current market realities, not historical results,” it says.

Active ETFs/ETPs Reach Record

Active ETFs/ETPs listed globally reached a new record of US$59 billion at the end of July 2017, says ETFGI. This includes US$9.23 billion in Canada. During the month, active ETFs/ETPs saw net inflows of US$1.9 billion and increased globally by 4.7 per cent from US$56.75 billion in June 2017 to US$59.4 billion in July 2017.

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Private Wealth News Archive 2011
Private Wealth News Archive 2010


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