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May 14, 2017

Women Behind In Wealth-transfer Strategies

A large proportion of high net-worth (HNW) women wield control — solely or jointly — over their family's finances, including investments, finds an international survey by RBC Wealth Management (U.S.). But when it comes to sketching out a wealth-transfer strategy, only a thin slice of this demographic (22 per cent) have a plan in place. That's in contrast to about 30 per cent of men who say they've developed a plan. With American seniors poised to leave US$3.2 trillion in wealth to the next generation in the coming years, there's a growing need for a solid wealth transfer plan, particularly among women who, on average, are expected to live longer than men, says Angie O'Leary, head of wealth planning at RBC Wealth Management. She says women are becoming an economic powerhouse in the U.S., but more discussions about the transfer of wealth need to be held with benefactors.

Canada Luxury Real Estate Market Remains Hot

Toronto, ON, and Victoria, BC, top the list of ‘hottest’ luxury residential real estate markets in the world, says a report by Christie's International Real Estate and Canadian affiliate Chestnut Park Real Estate of Toronto, a Peerage Realty partner company. The annual report examines how macroeconomic factors impact luxury home prices, inventory, and sales globally across more than 100 real estate markets in the Christie's affiliates universe. The definition of ‘luxury real estate’ varies by market, but for Toronto (in 2016), it's defined as properties worth $3 million (U.S.) and above. The average worldwide starting point for luxury real estate is $2.1 million (U.S.). Overall, the international luxury real estate market softened in 2016, says Christie's, but markets such as Toronto and Victoria defied the trend, in part fueled by foreign, and in particular Chinese, buyers, the report says. Global uncertainty was named as a primary cause for some traditionally strong luxury markets to decline or stall. Regionally, the growth in luxury real estate sales declined in the UK (down 67 per cent), Asia Pacific (down 29 per cent) and the U.S. (down four per cent) while Europe rose 20 per cent and Canada increased a whopping 44 per cent. Globally, luxury homes spent 221 days on market, up from 195 days in 2015, but the Toronto market stood at 17 days on market (down from 28 days in 2015) and the lowest in the world, fueled by extremely low inventory and rapid price increases that pushed buyers to act fast. The Victoria market saw significant growth from affluent international buyers who were deterred by Vancouver's new 15 per cent foreign buyers’ tax.

Report Helps Companies Prepare For IFRS Changes

Within the next five years, most Canadian companies across all sectors will be required to comply with the biggest accounting changes in almost a decade. Management teams, boards, and audit committees will be held responsible for ensuring compliance with these unprecedented changes, says KPMG. Its report, ‘Ready? Or Not. The next phase of the International Financial Reporting Standards,’ outlines the major impacts of the changes made by the International Accounting Standards Board, an independent not-for-profit organization that regulates global accounting standards. While the long project timelines of the new International Financial Reporting Standards (IFRS) have caused many companies to postpone implementation deadlines, the current phase of IFRS implementation may be more challenging than the initial Canadian IFRS implementation in 2011. For this reason, it is critical for companies to start preparing now as they may be required to implement all four standards over a relatively short period of time. Additionally, while the impact on financial reporting as a result of the new standards is the most obvious of the relevant impacts, the report also showcases five areas beyond financial reporting that should not be overlooked, including information technology, tax, HR and compensation, covenant renegotiation, and investor relations.

Canadian Business Leaders Remain Optimistic

Economic confidence among business leaders in Canada rose significantly in the first quarter of this year as the ‘YPO Global Pulse Confidence Index’ for Canada climbed 3.7 points to 62.1, its highest level since October 2014. This latest increase continues an overall upward trend in economic sentiment among Canadian business leaders over the last year, following a rebound in commodity prices and relatively stable economic conditions in the country. Canadian business leaders were particularly confident about the immediate prospects for their own organizations, which is reflected in the three key indicators of the index: sales, hiring, and fixed investment. The ‘YPO Sales Confidence Index’ for Canada surged 3.6 points from 63.7 to 67.3, its highest level since October 2014. More than two-thirds (69 per cent) of chief executives expected to increase revenues in the next 12 months, while only five per cent predicted a decline in turnover. Furthermore, more than one-third (40 per cent) of business leaders expected to boost staff numbers in the coming year, versus only two per cent who predicted cuts in headcount, and almost half of all respondents (47 per cent) expected to increase investment levels over the next year, compared to only five per cent who predicted reduced investment spend.

Italy Tax Haven For New Residents

Through a new flat tax introduced by the 2017 budget law, Italy has facilitated the influx of new capital from abroad, thanks to the elimination of two main obstacles: the high level of taxation and the previous regulatory uncertainties, says research by Lionard S.p.A., a luxury real estate firm. Now, anyone who transfers their residency to Italy will be subject to an annual fee of €100,000 for all income produced abroad; and this option may be extended to family members who also relocate to Italy, which will instead be subject to an annual taxation of €25,000 per person. Applicants who choose this tax regime may benefit from such conditions for 15 years. Lionard says the consequences of this newly introduced law, now two months into its implementation, have been significant. At present, there has been a 17 per cent increase in demand for luxury properties in Italy.

RBC Launches Global Real Estate ETF

RBC Global Asset Management Inc. has expanded its exchange-traded fund (ETF) lineup with the introduction of the RBC Quant Global Real Estate Leaders ETF. This product is a global real estate investment solution developed by the RBC Global Asset Management quantitative investment team. It employs a rules-based, multi-factor approach to build a portfolio of global real estate investment trusts and real estate operating companies with attractive yields, strong balance sheets, and stable cash flow.

Natixis Canada Caps NexGen Funds

Natixis Global Asset Management Canada’s ultra high net worth series of the NexGen funds are now capped and no longer offered for sale. In addition, all series of the capital gains classes of each NexGen fund offering such class have been capped and are no longer for sale. Current investors can continue to hold their investment in the ultra high net worth series and in each series of the capital gains classes. Natixis Canada offers several investment options for its NexGen funds, including series of the Compound Growth class, which could provide investors with similar results to investing in the capital gains class. The decision to cap these series was made because of the relatively small number of security holders holding these series.

Strong Issuance Continues

Canadian ETF industry assets reached $126.3 billion as at April 30, an increase of $3.3 billion from March 31, says the Canadian ETF Association. Ongoing strong net issuance continued, with a post first round French election results ‘risk on’ rally otherwise favourably impacting markets contribution and a flagging Canadian dollar also boosting aggregate assets expressed in Canadian dollars. April aggregate inflows are estimated at C$3.2 billion, resulting in total net inflows of $2 billion, once outflows of $1.2 billion are taken into account. April also saw the arrival of two additional players in the industry ‒ Desjardins and Manulife.

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May 7, 2017

Free Trade Produced ‘Blowout’ Of Jobs

While U.S. President Donald Trump wants to take a run at the North American Free Trade Agreement (NAFTA), once he reviews it and sees the results, he’ll want to renew it, says Brian Mulroney, the former prime minister of Canada. Speaking at Addenda Capital’s ‘Investor Day’ on ‘Global Trade Under Threat,’ he said the countries in NAFTA ‒ the U.S., Canada, and Mexico ‒ accounted for 28 per cent of world GDP last year because of the deal. In fact, free trade agreements have produced “a blowout of jobs and prosperity,” he said. However, the politics of free trade have always been daunting. During talks about free trade between the U.S. and Canada in the 1980s, he said critics said “the sky would fall under free trade” and his government faced a toxic cocktail because many believed Canada could not compete with a country 10 times its size. During those discussions, there was protectionist sentiment in the U.S. which was making every effort to keep goods from Canada from entering the U.S. Now the two countries have the largest exchange of goods and services of any two countries in history of the world and many of the harshest critics are now champions of free trade.

Tech Is New Macro

Tech is the new macro, says Kevin Hebner, managing director, global portfolio management, Epoch Investment Partners. Speaking at the CPBI Signature Series ‘Investment Trends’ seminar on an ‘Equity Market Outlook,’ he said its effects include downward pressure on wages and core services. It also has a dislocative impact on labour and while the jobs lost as a result of technology will eventually be replaced, it won’t happen as the technology is introduced into the workplace. He also said equity return drivers are getting back to normal although the last five years have been exceptional despite a tepid growth environment. The multiple expansion of P/Es have been turbo-charged and, as a result, investors are moving into a world where they have to concentrate on earnings growth. However, mild multiple contractions will take place as QE (quantitative easing) is withdrawn and interest rates go up gradually.

U.S. Wealthy Investors Bullish

A strong finish to the first quarter and growing optimism about proposals by the Trump administration to reform the U.S. tax system lifted sentiment among affluent investors in April to its most bullish level in years, says Spectrem Group in its ‘High Net Worth Insights’ newsletter. The ‘Spectrem Millionaire Investor Confidence Index (SMICI)’ rose 10 points from the previous month to 20, while the ‘Spectrem Affluent Investor Confidence Index (SAICI)’ gained four points to 10. The 10-point rise in the SMICI is the largest month-to-month increase since January 2014, propelling the index to its highest total in more than 3½ years. It is just the third time in the last decade that the SMICI has reached 20. Likewise, the SAICI reached its highest reading since July 2015 and is up six points from the same period last year. The dramatic increases in April were driven in large part by millionaires expressing growing interest in re-engaging with the market. When surveyed as to how they would invest in the coming month, the percentage of millionaires indicating plans to hold on the investment sidelines stood at a 20-month low.

Sales Up At Scottsdale Auction Week

Snow and cold temperatures didn’t stop people from buying cars at the Scottsdale, AZ, auctions in January. There were more than US$260 million in sales for 2,900 cars in seven auctions held over one week. Cars brands included Jaguar, Ferrari, Bugatti, Mercedes-Benz, and Bentley, just to name a few. Visitors, including some celebrities, were in attendance, with many using the new app, HammerPrice, that tracks major auctions allowing users to see everything simultaneously. Peter Volny and Linda Goddard report on the auctions, the cars, and even the celebrities in ‘Scottsdale Auction Week January 2017 – Volume Up, Prices Down’ on the Private Wealth Canada website.

Sideways Market Trend Continues

Lows in interest rates have probably yet to be seen as the sideways market runs its course, says Kim Shannon, president and co-chief investment officer of Sionna Investment Managers. Speaking at its ‘2017 Financial Market Review,’ she said secular bull runs are a rarity, not the norm and after major bull markets, markets trend sideways for 15 to 30 years. Sideways markets typically run sideways until the excess is taken out and P/Es return to single digits. Current earnings growth trends suggest single digit P/Es by 2022, although standard deviation event symmetry suggests that after an 18-year bull market, this sideways market could end in 2018. In any event, she said, investors can expect modest returns in both equities and bonds over the next decade, but equities returns will exceed bonds returns. This means it is time to bring equity allocations back to normal levels.

Dollar Depreciation Helps Indices

Thirty-eight of the 44 Morningstar Research Inc. fund indices increased during the month, including 18 indices that increased by more than two per cent. The depreciation of the Canadian dollar depreciated against all major world currencies due in part to falling oil prices and speculation over the future of trade agreements provided a boost to funds that focus on foreign equities and do not hedge their currency exposure. The steepest decline for the loonie was against the euro and the British pound, depreciating 4.5 per cent and 5.8 per cent, respectively. Combined with modest gains on European stock markets, this led to strong performance for funds in the European equity category which was the top-performing fund index in April with an increase of six per cent. Favourable currency effects and market gains also combined to produce good results for Asian equity funds. In the United States, the S&P 500 Index had a total return of one per cent while the U.S. dollar appreciated by 2.6 per cent against the loonie. As a result, funds in the U.S. equity category produced an aggregate gain of three per cent.

ETF/ETP Assets Hit Record

Assets invested in ETFs/ETPs listed in Canada reached a new record of US$92 billion at the end of the first quarter surpassing the prior record of US$90.61 billion set at the end of February 2017, says ETFGI’s ‘Q1 2017 global ETF and ETP industry insights report.’ At the end of March 2017, the Canadian ETF industry had 478 ETFs with 650 listings and assets of US$92 billion from 20 providers on two exchanges. ETFs and ETPs listed in Canada gathered net inflows of US$1.58 billion in March. Year-to-date, net inflows stand at US$4.93 billion a record level for the quarter. At this point last year, there were net inflows of US$4.16 billion. Equity ETFs/ETPs saw net inflows of US$440 million in March, bringing year-to-date net inflows to US$2.32 billion, which is greater than the net inflows of US$2.29 billion over the same period last year. Fixed income ETFs and ETPs experienced net inflows of US$631 million in March, growing year-to-date net inflows to US$1.35 billion, which is less than the same period last year which saw net inflows of US$1.51 billion. Commodity ETFs/ETPs saw net outflows of US$40 million. Year-to-date, net outflows are at US$30 million, compared to net inflows of US$109 million over the same period last year.

CI Investments Launches Fee Discount Programs

CI Investments Inc. has launched its CI Preferred Pricing and CI Private Wealth programs, providing eligible investors with automatically applied fee discounts. These programs make use of the same pricing model that will apply a flat fee rate to all eligible assets, also known as dollar-one pricing. Once an investor's qualifying assets in an account reach various thresholds, assets in CI's Class A (ISC) and F, as well as Evolution Private Managed Accounts' Class E (ISC) and F (United Funds), will be automatically switched to the appropriate fee tier to receive the discount. Weekly market value assessments will ensure discounted pricing is applied in a timely manner, positive market value changes will influence fee tier levels, and investors will not be penalized for negative fund performance. There will be no tax consequences for these switches, as the funds remain the same. Price discounts for most funds start at the $150,000 per account level and increase as client asset levels rise. Also, extended family groups with aggregate asset levels of $250,000 or more can be linked for pricing purposes, generating additional discounts.

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April 30, 2017

Low Interest Rates May Not End Soon

The prolonged period of low interest rates and low growth that has characterized the global economy since the 2008 financial crisis may not end any time soon, says a report from the International Monetary Fund (IMF). That, in turn, could force major changes on pension funds, asset management firms, and insurance companies. The ‘IMF Global Financial Stability Report’ says the experience of Japan suggests that an imminent and permanent exit from a low interest rate environment need not be guaranteed. Many major economies are experiencing a combination of slow-moving structural shifts, including an aging population and slower productivity growth. These “could conceivably generate a steady state of lower growth, and lower nominal and real interest rates in these countries,” it says, which would pose “a considerable challenge to financial institutions.”

Hedge Fund Assets Set New Record

The recent demand for event-driven and trend-following hedge funds has led to assets under management (AUM) in the industry setting three quarterly records in a row, says HFR. Its hedge fund indices ended the first quarter at $3.07 trillion. This followed a $47 billion increase – or 1.6 per cent rise in value – over the three months. There were net asset inflows to event-driven and macro strategies, but there were also outflows from equity hedge and relative value arbitrage strategies.

Confidence Edges Upwards

Global investor confidence is edging upwards to the neutral point, suggesting risk appetite is increasing, says the ‘State Street Investor Confidence Index.’For April, it increased to 99.5 points, up from 96.9 (revised) in March. Confidence among European and North American investors improved, while confidence declined among Asian investors. Kenneth Froot, of State Street, says “Our measure of the global investor confidence has been on the uptick for two consecutive months and resonated with the improving global growth outlook and expectations of higher inflation. Still shy of the 100 level mark, investors’ risk appetite appears to be on hold as they await details of a new U.S. tax plan and a possible resurrection of the healthcare reform act.”

Affluent Prefer Mobile Brand Contact

Younger and more affluent consumers would prefer to connect with brands through their mobile device after purchasing a product, says a study by software-as-a-service company Registria. The study shows that 47 per cent of consumers aged 18 to 34 and 47 per cent of consumers who make $100,000 and above would like to receive product setup instructions, tips, and service and warranty information directly to their mobile device over receiving eMail or paper literature. In fact, 35 per cent of all consumers would prefer this method of receiving information post-purchase. Registria says product registration is one of the main vehicles for durable consumer brands to identify and understand their consumers. However, the traditional process of filling out paper or online registration information can be a barrier. In the study, 68 per cent of consumers say they never register their products and, of those, 38 per cent intend to, but forget or just never get around to it. At the same time, 56 per cent of consumers say that receiving warranty and service plan information is the most important reason to register a product, while 25 per cent cite safety and recall notifications as the most important reasons to register.

UBS Product Helps Generational Transitions

Nearly 70 per cent of family offices expect a generational transition within the next 15 years, yet just 37 per cent of them believe that the next generation want to play a more prominent role in managing their family’s affairs, says a report from UBS. ‘The Global Family Office Report 2016’ finds this reluctance is often not due to a lack of interest or aptitude, but rather an ability to identify ways to participate that suit their personal interests and life trajectories. For many families, placing trust in potential successors can be a challenge. Family offices can find it equally demanding to maintain relevance with the younger generation. In response to this research, UBS has released ‘Family Office Compass,’ a strategic toolkit to help ultra-high net worth families flourish across generations. It is designed to help overcome potential obstacles, so that generational transition is a success and family wealth continues to grow multi-generationally.

Medically-assisted Dying May Affect Estate Plan

The legalization of medically-assisted dying in Canada brings with it some extra considerations when creating estate plans. This is an evolving area of law, and that evolution is rapid, says estates and trusts lawyer Sarah Dykema. In her article, ‘Estate Planning In The Age Of Assisted Dying,’ on the Private Wealth Canada website, she says estate plans should be flexible and written out. People should also do an insurance check in advance to make sure everything is in order. There may be issues with coverage if someone chooses medically-assisted dying; they will need to make sure the wording in the policy is accurate. Read more here.

Investment Managers Optimistic

Investment managers remain generally optimistic regarding the U.S. economy, but are reassessing U.S. equity valuations, says a quarterly investment manager survey by Northern Trust Asset Management. After a 10 per cent-plus gain in U.S. equities following the November election of President Donald Trump and a Republican-controlled Congress, more than half of those surveyed (59 per cent) said an inability to move key legislation forward is the biggest threat to the rally. A geopolitical incident, trade policy concerns, and equity market valuations are considered the next most likely risks to the U.S. market. Low interest rates, slow but steady economic growth, and improving corporate earnings along with a Republican led pro-growth policy agenda bolstered markets, but survey respondents view U.S. equity valuations as getting less attractive and see a risk to the market’s trajectory if the administration cannot enact legislation that supports improved economic growth.

More Money Flows Into Venture Capital

Venture capital funded-deals received more money during the first quarter, says a PwC Canada and CB Insights report. However, there were fewer deals in the first quarter of 2017. Investment in venture capital-backed companies was up 10 per cent year-over-year. There were 654 venture-backed deals during the quarter. This compares to 79 deals during the first quarter of 2016 and 85 deals completed during the previous quarter. The drop is due, in part, to a decrease in investment in internet-focused companies. Just 23 of the 64 deals completed during the quarter were with internet companies. This sector, usually the top in terms of venture capital funding, had 41 investments in the same quarter last year.

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April 24, 2017

One-third Of CFOs Aspire To CEO Role

While chief financial officer (CFO) may be a major career goal for some, a number of financial executives are looking further up the ladder, says a survey by Robert Half Management Resources. The survey shows nearly one-third of Canadian CFOs (32 per cent) say they are at least somewhat motivated to become chief executive officer (CEO) of their organization. When asked what unique attributes financial executives would bring to the CEO position, CFOs most commonly cited fiscal management and efficiency improvement, finance and data-driven decision-making, investor and stakeholder management, and economic and business awareness. Respondents noted other top contenders for the CEO role are chief operating officers. Four per cent of CFOs are ‘very motivated’ to reach the CEO role in their organization, 28 per cent are ‘somewhat motivated,’ while 58 per cent say they are ‘not at all motivated’ (11 per cent say they didn’t know or gave no answer). “With CFOs’ insight into, and influence over, fiscal growth across the business, they are well-positioned to take the helm as CEO,” says David King, Canadian president of Robert Half Management Resources.

Shift To Passive Increases Correlations

The shift to passive investing has had some surprising results, says William J. Booth, managing director, portfolio manager, and senior research analyst at Epoch Investment Partners. In fact, it may be affecting market dynamics, he said at the ‘Focusing on what you can control when investing in public equities’ session at TD Asset Management’s ‘Sharing of Knowledge Learning Series 2017.’ Academic findings show high levels of passive investing have raised correlations across stocks, reducing the diversification benefits of all styles of equity investing. With the ability to diversify risk falling, markets have grown more fragile and stocks in indexes are more expensive than non-index stocks because of the amount of money moving to passive funds. While investors cannot control the market environment, they can control how they invest. It is essential that investors look at companies through a financial lens where a company’s value is based on free cash flow generated, not an accounting lens since earnings are “an opinion,” he said. “Cash is a fact.”

Shadow Banks Put System At Risk

Shadow banks ‒ non-bank lenders and other financial intermediaries that operate outside the realm of banking regulation ‒ are putting consumers, investors, and the overall financial system at risk, says a paper by the Global Risk Institute. ‘Shadow Banking: Non-bank Credit Intermediation Heightens Risks for Global Financial System’ notes that despite regulatory reforms in the wake of the 2007-2009 financial crisis, or perhaps because of them, non-bank entities continue to grow and innovate. Growth in the non-bank sector has been significant. The Financial Stability Board estimates that shadow banks around the globe had US$36 trillion in assets at the end of 2014, or more than a quarter of the traditional banking industry. And while they provide more sources of liquidity, thereby supporting economic growth and diversifying risk across the financial system, they are not subject to the same regulatory standards and safeguards for capital, liquidity, or leverage that protect the banking system. This means they can take on much higher levels of risk. The paper questions whether borrowers are sufficiently aware of the risks, including the risk of a forced asset sale if they default, or if their lender goes under and they cannot find financing from other sources.

Majority Of Managers Underperform

Less than the majority of managers outperformed their respective benchmarks, regardless of their mandate or performance period, says the ‘SPIVA Canada Scorecard.’In domestic equities, it shows Canadian equity market delivered double-digit returns during the 12-month period ending December 31, 2016. During the same period, the S&P/TSX Composite and the S&P/TSX 60 posted returns of 21.08 per cent and 21.3 per cent, respectively. This meant the strong market run caused the majority of active managers investing in domestic equity to underperform their respective benchmarks, with just under one-fifth of Canadian equity funds (17.31 per cent) outperforming the S&P/TSX Composite over the one-year period. It says no Canadian dividend and income equity funds were able to outpace the S&P/TSX Canadian Dividend Aristocrats and for actively managed funds in the Canadian small/mid-cap equity category, managers were not able to keep pace with the 20.5 per cent return of the S&P/TSX Completion Index with only 19.44 per cent of managers outperforming.

Hedge Funds Continue Positive Start

The hedge fund industry continued its positive start to the year with another month of gains in March, says the Preqin All Strategies Hedge Fund benchmark. It recorded returns of 0.68 per cent through the month, building on gains of 1.01 per cent and 1.46 per cent in February and January, respectively. First quarter 2017 performance now stands at 3.18 per cent, which marks the best opening quarter performance since 2013 as hedge funds sustained their recent strong performance. With just one month of losses recorded since February 2016, the industry has now returned 11.61 per cent over a 12-month period. Event driven and equity strategies posted returns of 4.18 per cent and 4.06 respectively, the highest of any leading strategy. All leading strategies delivered gains through the quarter, but relative value strategies posted the lowest returns at 1.06 per cent, after the strategy also recorded the smallest gains in 2016.

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