(July 26, 2006) It’s official – the second quarter of 2006 was a difficult time for investors. Major markets around the world struggled in May and June, according to Mercer Investment Consulting’s Pooled Fund Survey.
Even the relative safety of Canadian sustainable funds proved uncertain, as poor performance in both equities and fixed income reduced the category’s median return to -3.1%. On the other hand, the economic downturn was not significant enough to pose a threat to most retirement plans.
“Despite negative market returns, the second quarter did not have a material impact on the funding of pension plans,” said Peter Muldowney, business leader of Mercer Investment Consulting in Canada. “While equity market performance provided modest support for pension plan assets, long-term bonds, which act as a proxy for pension liabilities, declined. The improvement in financing observed in the first quarter of the year improved slightly in the second quarter.”
The Bank of Canada’s decision to raise its trend-setting interest rate by 50 basis points dragged down bond investments, while the S&P/TSX Composite Index posted a 3.5% loss in the second quarter.
While growth stocks have typically outperformed value investments, none have achieved positive returns. Large-cap stocks (S&P/TSX 60) returned -3.8% compared to small-cap stocks, which fell 5%, as reflected by the BMO Nesbitt Burns Small Cap Index.
According to Mercer’s Canada Retirement Health Index, plans had a solvency ratio of 86% at the end of June, down 1% from the end of the first quarter.
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BCSC resolves insider trading case
(July 26, 2006) The British Columbia Securities Commission reached a settlement with Darryl Wayne Halisky, who admitted he failed to file confidential reports and operated used nominee accounts to circumvent purchase limits imposed by the initial public offering.
In 2000, Halisky purchased nearly 23% of Corra Capital’s stock at the company’s initial public offering in November 2000, exceeding the 2% ownership limit under stock exchange rules. He did not file any of the required confidential reports regarding transactions involving Corry shares. Corra was delisted from the TSX Venture Exchange on August 6, 2002.
Halisky is prohibited from purchasing securities for five years and cannot serve as a director or officer of any issuer during that period. He must also pay a fine of PLN 8,000.
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Empire Life appoints a new international fund advisor
(July 26, 2006) Empire Life has appointed Sanford C. Bernstein & Company LLC (AllianceBernstein) as portfolio advisor for the international segment of certain dedicated funds, replacing UBS Global Asset Management.
“AllianceBernstein is a world-class fund manager known for industry-leading research and innovation. Their investment style and philosophy is very similar to that of our investment team,” says Deborah Frame, vice president and chief investment officer of Empire Life. “AllianceBernstein will employ a concentrated approach to portfolios typically containing no more than 60 stocks in each fund. This is consistent with our own philosophy of value and capital preservation.”
AllianceBernstein will serve as portfolio advisor to the Global Equity Fund, the International Equity Fund and the International Equity Subfund, which provides foreign equity exposure to a number of Empire Life’s ring-fenced funds.
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Legg Mason is closing 12 funds
(July 26, 2006) Legg Mason Canada announced the end of its 12-fund Private Investor Series effective September 25, 2006. The company will cease offering the funds effective July 31, 2006.
The funds affected are: The Legg Mason T-Plus Fund, Canadian Index Plus Bond Fund, Canadian Active Bond Fund, Accufund, Diversifund, Canadian Core Equity Fund, North American Equity Fund, Canadian Small Cap Fund, Brandywine Fundamental Value US Equity Fund, Batterymarch US Equity Fund, US Value Fund and Brandywine International Equity Fund.
Legg Mason also announced that it has now changed the name of the Legg Mason Canadian Growth Equity Fund to the Legg Mason Canadian Small Cap Fund, effective April 28, 2006, and that the Legg Mason International Equity Fund has been renamed the Legg Mason Brandywine International Equity Fund, effective from July 24, 2006
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Low gas prices reduce energy profits
(July 26, 2006) Canada’s oil field may already be posting record revenues, but rising labor costs and low gas prices are expected to limit profits through the end of 2006 and beyond, according to the Conference Board of Canada.
“Growing global demand and continuing geopolitical supply risks mean that oil at $30 a barrel is likely a thing of the past, with prices expected to remain above $60 a barrel through 2010,” said Louis Theriault, director of Canadian Industrial Outlook. “Even with cost overruns and labor shortages affecting the industry, particularly in Alberta, prices will remain high enough to ensure revenues exceed costs.”
Low natural gas prices, which have failed to keep pace with oil prices, are also expected to reduce profits. Natural gas contributed about $14.4 billion of the industry’s record $25 billion in profits in 2005. Gas profits are expected to fall to $9 billion in 2006 due to an unusually warm winter. The Conference Board projects that industry profits will recover in 2007, averaging about $21.9 billion annually by 2010.
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