In This Issue

RETIREMENT SOLUTION?

By Gordon Pape

Headline #1 – More Canadians plan to work past age 65.

Headline #2 – Bank president calls for expansion of CPP.

Those two stories caught my attention last week because both speak directly to the evolving pension crisis in this country.

Headline #1 refers to a new survey from Sun Life Financial which found that only 27% of respondents between ages 30 and 65 expect to be fully retired at 66. Almost as many, 26%, said they will still be working full-time while 32% expect to be working part-time. The rest were uncertain.

The insurance company said the number of people who expect to retire at 65 has fallen by almost 50% from five years ago. Even more alarming is the fact that 39% of those who continue to work will do so because of economic necessity. Otherwise, they don’t believe they will have enough money to maintain their living standard.

“The dream of being able to afford a full retirement at age 66 is declining among Canadians, it’s being replaced by the reality that many people expect to be working beyond the traditional retirement age,” said Sun Life president Kevin Dougherty. “The aftermath of the financial crisis of 2008 has had a lasting impact with more Canadians expecting they will need to work longer as a result.”

The survey is just the latest of several which show the same broad trend. The expectation of stopping work at age 65 is a fast-fading dream as Canadians face up to the harsh new realities of retirement. The combination of low savings rates, prolonged low interest rates, longer life expectancy, and the rapid disappearance of defined benefit pension plans from the private sector is forcing people to rethink how they will spend their later years. Increasingly, that rethink ends with the conclusion that the only way to maintain their standard of living is to keep working.

This brings me to headline #2 and I have to say that it both surprised and encouraged me. Gerry McCaughey, CEO of the Canadian Imperial Bank of Commerce, went on the record as advocating an expansion of the CPP through voluntary contributions.

Coming from a bank executive, this borders on heresy. Financial institutions earn big profits from the billions of dollars that pour into RRSPs and TFSAs. Why else do you think they spend all that money during RRSP season to encourage you to make a contribution?

In fact, one of the reasons that companies like Sun Life publish these polls is to persuade (some might say frighten) people into taking retirement savings more seriously. Based on the evidence, it hasn’t been working; the percentage of tax filers claiming an RRSP deduction has been gradually declining in recent years.

Mr. McCaughey’s proposal, were it to be adopted, would siphon off a lot of those savings from the banks and insurance companies and into CPP coffers. His shareholders are not going to like that idea at all so it’s difficult to understand at first glance why the CIBC president would be prepared to go out on a limb to advocate a plan that is counter to his company’s self-interest. The answer, it seems, is that he is genuinely alarmed about what lies ahead for many people if something is not done.

He told an audience of senior government and business leaders in Fredericton that, according to new research conducted by CIBC’s economics group, nearly six million Canadians will face a drop in living standards of more than 20% if current savings rate trends continue.

“Our research found some 8.4 million people will experience a decline of more than 5% in their standard of living at retirement,” he said. “Far more troubling is the fact that 5.8 million Canadians are on pace to experience a significant decline – meaning a reduction in living standards of more than 20%.

“And, here is perhaps the most alarming takeaway: when we look at those 5.8 million people we see that most of them are young. In fact, our economists estimate that almost 60% of adults in their late 20s or early 30s can expect to experience a significant decline in their standard of living when they retire.”

The CIBC president is to be commended for going public on this issue. Moreover, his proposal makes so much good sense that Finance Minister Flaherty should seize on it immediately and incorporate it into his upcoming budget. Here’s why.

One of the reasons Canadian are facing a retirement crisis is a lack of certainty in the income they will receive. Defined benefit (DB) pension plans – those which guarantee a specific payout at retirement – have almost disappeared from the private sector.

According to Statistics Canada, only 38% of workers have any kind of pension plan at all. But here’s the real shocker: only 25% of private sector employees have a pension plan compared to 84% in the public sector. Over time, public sector coverage seems bound to erode as private sector taxpayers become increasingly resentful of seeing some of their money used to pay for pension plans they can’t have.

The Canada Pension Plan is a DB program. The amount you receive at retirement is determined by the number of years of contributions and your income level, up to an annual maximum. Defined contribution (DC) pension plans, the new norm in the private sector, offer no such guarantees. The amount of the pension will be determined by how much is contributed to the plan and how well the invested money performs. RRSPs, TFSAs, and the new and as yet unproven and generally unavailable Pooled Retirement Pension Plans (PRPPs) operate in the same way.

Mr. McCaughey’s plan would enable Canadians to voluntarily increase their CPP contributions and hence add to the amount of the guaranteed pension they would receive when they begin to draw benefits. The extra contributions would be administered by the Canada Pension Plan Investment Board which has an excellent track record in terms of returns, protection of assets, and low costs.

Furthermore, the plan would not cost cash-strapped Ottawa one nickel as the voluntary contributions would be made on an after-tax basis, in the same way as TFSAs and RESPs. Mr. Flaherty’s oft-expressed concern about an expanded CPP imposing an additional payroll tax that would be a job-killer could be defused by not requiring employers to match the voluntary contributions.

Mr. McCaughey says that for his idea to work, the voluntary contributions must be locked in until retirement, just as current CPP contributions are. There would be no provision to dip into the fund, for any reason, thus setting it apart from RRSPs and TFSAs. However, people could choose to stop making new payments if they wished. The offsetting reward is a higher guaranteed pension at retirement as well as “date certainty and real dollar amount certainty”.

He said that CIBC research shows that such a solution would help close the retirement savings gap for young Canadians by as much as 80%. And it would “reignite a culture of savings” in this country.

It will be argued that the voluntary aspect of the plan would make it virtually worthless. If Canadians won’t contribute to RRSPs now, why would they put more money into the CPP?

I believe that many people would take advantage of such an opportunity for two reasons. First, they don’t trust their own investment skills and still bear the psychological scars of the 2008-09 crash, Second, the guarantee of a higher pension at the end of the day will be a compelling incentive,

Of course, one of the side-effects would be the diversion of funds away from RRSPs and TFSAs and thus away from the banks. It appears that CIBC, for one, is prepared to live with that.

 

Gordon Pape’s new books are Money Savvy Kids and a revised and updated edition of his best-seller Tax-Free Savings Accounts. Both are available at 28% off the suggested retail price at http://astore.amazon.ca/buildicaquizm-20

Follow Gordon Pape’s latest updates on Twitter: http://twitter.com/GPUpdates

DON’T RUSH TO MAKE RRSP INVESTMENTS

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Contributing editor Ryan Irvine is with us this week with some thoughts about how RRSP season can lead to some bad investment decisions. He also has a new micro-cap stock pick for us. Ryan is the CEO of KeyStone Financial (www.keystocks.com) and is regarded as one of Canada’s leading experts on small-cap stocks. Here is his report.

Ryan Irvine writes:

Every year around this time our phones begin to ring off the hook. With RRSP deadlines and new TFSA room, investors become fixated on the investment industry for a few months. This is a mistake.

Don’t get me wrong. It’s great to be in demand and busy. And for the average investor, we are pleased with the level of engagement we see at this time of year. But the mistake is trying to cram a year or more worth of investment decisions into a week or even a day around RRSP/TFSA season.

Contributions are made and securities are purchased all within a rushed day or so. Then the investor exhales and goes back to the regular routine with the occasional gander at the portfolio through the remainder of the year. Use this strategy at your peril!

By all means, make the appropriate contributions to your RRSP if it suits your investment situation. We are big supporters of TFSAs and encourage investors to pair a self-directed TFSA with our annual research service to build their own Small-Cap Portfolio. What we do not advise are contributions followed by immediate buys to create an “instant portfolio”.

Why? We advocate creating an 8-12 stock portfolio with profitable, growing, and value priced small-cap stocks for the growth area of your account. In this context, there are two major problems with investors who myopically focus on RRSP season.

Number one is that creating a portfolio at one set time immediately locks you into to that point in a market cycle. If it is near a top and a meaningful correction follows, it can take years to recover. Number two is that, quite frankly, it is difficult in most markets to find 10 great stocks to buy at any given time.

It’s all about quality over quantity and often investing success is as much about the stocks you don’t buy as it is about the ones you do. We encourage Canadians to consult with their financial advisors and make the appropriate contribution decisions this month. But remember that those funds do not all have to be deployed the day, week, or month after you make those contributions.

Be patient and create the small-cap growth area of your portfolio over one to three years and review and rebalance over that time. Given the fact that at 18.86 and 17.09 times earnings respectively, the S&P/TSX Composite Index and the S&P 500 are trading above historical p/e multiples, it is likely time to leave some powder dry to employ in the event of a pullback during 2013.

 

RYAN IRVINE PICKS CALDWELL PARTNERS

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This month we have a true micro-cap stock for your consideration. Because this is a very small company (market cap of only $18 million) this stock will not be suitable for all investors. Here’s the background.

Founded in 1970, The Caldwell Partners International (TSX: CWL, OTC: CWLPF) is an executive search consulting firm. The company, through a predecessor corporation, became the first retained consulting organization in Canada to specialize in representing employers in the recruitment of executives. Today, Caldwell is one of North America’s premier providers of executive searches. The company has built a solid reputation for providing successful searches for boards, chief and senior executives, and selected functional experts. Caldwell has offices in Vancouver, San Francisco, Los Angeles, Dallas, Calgary, Atlanta, Toronto, Stamford, New York City, and a strategic presence in London and Hong Kong.

The start of the fiscal 2009 year was coincident with the onset of a severe market recession through which Caldwell fared well compared to many of its competitors, experiencing only a 6% decline in revenue to $12.7 million. Mid-fiscal 2009, the company began a new strategic direction, expanding aggressively into the United States, doubling its existing number of partners and offices across North America in the process. These operations contributed approximately 10% of total operating revenues in fiscal 2009 as most of the partners joined the company in the second half, some in the final few weeks of the year. In 2010, expansion into the United States continued, with U.S. operations contributing 55% of annual consolidated revenues, resulting in a 112% increase in revenues to $26.9 million.

In fiscal 2011, U.S. operations expanded further, at the time representing 63% of the Caldwell’s $34.24 million in total revenues. As a result of increases in both Canadian and U.S. revenues, consolidated revenues increased 27% over fiscal 2010 levels.

With the onset of weakened market conditions in 2012, revenues decreased by 4% over 2011 to $32.7 million. U.S. revenues, representing 69% of consolidated revenues, increased 5% while Canadian revenues declined 20%. Despite the slight revenue decline in 2012, consolidated revenues increased more than two and one half times over the past three years.

Of particular interest, Caldwell’s ongoing commitment to management of its cost structure has resulted in a substantial year-over-year increase in earnings. On Nov. 15, 2012, the company reported that fiscal 2012 net earnings rose to $981,000, or $0.058 per share, from $187,000, or $0.011 per share, in 2011.

From a balance sheet perspective, Caldwell operates with a strong foundation. As of Aug. 31, 2012, the company had $3.3 million of marketable securities plus cash and cash equivalents of $6.5 million for a total of $9.8 million, or $0.57 per share. The company has no debt and its cash and marketable securities account for approximately 66% of the company’s market capitalization.

Caldwell’s board of directors believes that the payment of regular dividends is in the best interests of the company and all shareholders. Subsequent to shareholder approval of the restatement of capital on May 1, 2012, Caldwell has now declared three quarterly dividends each of $0.015 per common share. While it is the board’s intention to continue quarterly payments, dividends for future periods will be declared at the discretion of the directors and will be dependent on the company’s ongoing performance and cash flow requirements. Caldwell’s current yield is an attractive 5.77%.

Management believes that the demand for executive search services in North America will grow as a result of shifting demographics. This will increase the demand for senior executives drawn from a smaller talent pool than that which preceded it, as the previous generation of executives now retires. As well, smaller entrepreneurial companies will likely become users of executive search services for the first time. In the experience of the Caldwell’s senior management, entrepreneurial companies often need to recruit most of their management team from outside and, as these companies grow, additional executive search needs arise. To respond to this opportunity, Caldwell is continuing to invest in training its professionals and is developing specialized information resources and technology to serve this expanding market.

In the spring of 2009, Caldwell opened its first office in the United States. It now has 23 of its total 34 partners located in six American offices. Today, U.S. revenues represent 69% of consolidated revenues. While the environment in the U.S. continues to be challenging, there are signs that business activity may be positioned to increase. With their balance sheets flush with cash, corporations are well positioned to expand in the event of a further recovery in the U.S. In the event that capital once again begins to be deployed for expansion, Caldwell is well positioned to participate in a potential recover.

From a valuations perspective, Caldwell’s trailing p/e of around 15 (based on its last 12 months earnings) does not appear cheap. However, when we factor in the company`s cash position of $0.57 per share, we find that at a price of $1.04 we are only paying just over six times Caldwell`s earnings. Given the potential for further cost containment to lead to higher earnings in 2013, the stock appears relatively attractive from a valuations perspective in its current range.

Caldwell Partners has evolved from a respected Canadian brand to a firm with a strong North American presence. In that time, revenues have increased more than two and a half times, the company has returned to profitability, and a regular quarterly dividend to shareholders has been reinstated.

That said, the environment is not ideal at present for executive search and we do not expect a sudden sharp uptick in business. But the potential for a reasonable increase from a relatively low base is real. As such, we are initiating coverage on the company with a Buy for patient investors who are happy with a solid dividend (5%+) and the potential for reasonable returns if the North American economy remains flat over the next two years and relatively strong returns if it grows beyond expectations.

One caution: Caldwell is a relatively illiquid stock and we do not recommend chasing it. Our current buy range is $1.00-$1.10. Use limit orders and be patient. The shares are also listed on the U.S. over-the-counter Grey Market but trade there so infrequently (the last was on Jan. 2) that we do not advise using that option.

Action now: Buy between $1 and $1.10. The stock closed on Friday at $1.04.

– end Ryan Irvine

 

THREE RRSP FUNDS

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Only a few more days until the RRSP deadline. You have until March 1 to make a contribution that will be eligible for a 2012 tax deduction.

If you haven’t decided how to invest the money, a good starting point is the RRSP Portfolio that I updated in last week’s issue. But the eight securities in it only scratch the surface of good-quality investments.

Keep in mind that the basic goal of an RRSP is to provide decent growth with reasonable risk. The two go hand-in-hand. Don’t make the mistake of tying up large amounts of RRSP money in GICs or other fixed-income securities unless you are very close to retirement and capital preservation is an overriding priority. With interest rates so low and bond prices under pressure, the returns on fixed-income investments will be negligible in relation to what you need. This doesn’t mean you should ignore them, just maintain a proper balance.

In the current environment, I suggest targeting an average annual return of 6% from your plan. That’s attainable in a relatively low-risk portfolio if you choose the right securities. Here are three mutual funds to consider, in addition to the securities in our RRSP Portfolio.

Canadian balanced fund

Steadyhand Founders Fund (SIF125). Normally, I would not suggest a fund that has only been around for one year but in this case I am making an exception, for three reasons.

First, the Steadyhand funds have been in existence since early 2007 so most (this is the exception) now have a five-year record. In almost all cases it is first-rate. Second, the company is one of the lowest-cost operators in the industry so you aren’t paying a fortune to have your money managed. Finally, CEO Tom Bradley, who oversees the Founders Fund, is one of smartest and most principled managers in the business. I can’t think of anyone I would trust more with my money.

The Founders Fund is a portfolio fund – it holds units of all the other Steadyhand funds. The portfolio has a long-term target mix of 60% equities and 40% fixed income, but there’s a lot of flexibility here and Mr. Bradley can adjust the allocation according to his expectations for the economy and the markets The equity portion may range from 40% to 75% and fixed income from 25% to 60%. The geographic target mix is roughly 50-50 between Canadian and foreign investments.

As of the first of the year, the asset mix was 58.5% equity, 26% bonds, and 15.5% cash. In geographic terms, 45.3% was in Canada, 18.8% in the U.S., and 35.9% overseas.

Over the 12 months to Feb. 21, the fund gained just under 9%. That was good enough to rank number four out of 120 funds in its category. It’s too soon to get a definitive handle on the relative risk of the portfolio itself but the individual funds are all at the lower end of the volatility scale for their categories.

The bad news is that the initial investment must be at least $10,000 and some advisors may not offer it at all because the company does not pay trailer fees (that’s how they hold the MER to 1.34%). If your advisor won’t acquire it for you, go directly to the company at www.steadyhand.com and open an account there. This is a no-load fund. The NAV was $10.73 at the close of trading on Feb. 21.

Canadian equity fund

Bissett Canadian Equity Fund A units (TML202). This fund, which is part of the Franklin Templeton organization, has been a pillar of consistency over many years. It invests almost exclusively in blue-chip Canadian stocks such as the big banks, CN Rail, TransCanada Corp., etc. so you might expect rather wimpy returns. Well, that has not been the case. This fund has been a first or second quartile performer every year since 2007 and shows above-average rates of return for all periods from one month to 10 years. The one-year gain to Feb. 21 was almost 13% while the three-year average annual compound rate of return was 8.88% according to Morningstar. The average annual compound rate of return over the past decade was 7.92%. The management team of Garey Aitkin and Fred Pynn has been in place since 2002 so we have more than a decade of history by which to judge their work.

One word of warning: Although this fund has a better-than-average risk rating, it will be vulnerable in any market correction. During the crash of 2008-09, it dropped almost 39% so even though it is a large-cap fund it is not risk-free by any means. The MER is a little higher than I like at 2.47% but the strong results compensate for that. The minimum investment is $500 and any advisor can buy it for you, or you can do it yourself through a discount broker. Get the front-end units (TML202) at zero commission if possible. The NAV as of Feb. 21 was $77.74.

U.S. equity fund

Mawer U.S. Equity Fund (MAW108). The Calgary-based Mawer organization doesn’t have any weaknesses in its small fund line-up. This is their U.S. entry and it is a fine choice for anyone with $5,000 to invest who wants a fund that blends value and growth large-cap stocks. What makes this fund especially attractive for an RRSP is its low-risk history. Even in the darkest days of the 2008-09 market plunge, the managers limited the loss to 25%, about half that of the overall market.

The fund boasts an above-average performance record for all time frames from one month to 20 years. That kind of consistency is a great plus for investors. The one-year gain to Feb. 21 was 16.09% according to Morningstar while the three-year average annual compound rate of return was 10.83%. This fund has one of the best low risk/high return profiles I’ve seen in its category. Also, it’s cheap – no sales commission and an MER of 1.28%.

Like the Steadyhand fund, this one may not be available through all brokers. If you can’t acquire it, you can set up an account directly with the company at www.mawer.com. The MER at the Feb. 21 close was $22.04.

We are adding all three funds to the IWB Recommended List. – G.P.

 

GORDON PAPE’S FUND UPDATES

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Here are updates on some of the mutual funds on our Recommended List, including those that I suggested for RRSPs a year ago. Prices are as of the close of trading on Feb. 20.

Beutel Goodman Corp/Provincial Active Bond Fund (BTG971).

Originally recommended on Jan. 23/12 (#21203) at $5.39. Closed Feb. 20 at $5.31.

It has not been a good year for bonds and the downward trend of prices is going to continue as interest rates gradually move up. This fund managed a 2% return in the year to Feb. 20, below average for its category. I don’t expect to see anything better in 2013 so it’s time to exit. We received distributions of $0.19 a unit while we held the fund so we come away with a small profit.

Action now: Sell.

Dynamic Power American Growth Fund (DYN004)

Originally recommended on Jan. 23/12 (#21203) at $8.11. Closed Feb. 20 at $8.41.

This fund has been a big disappointment. We have a small gain but I expected much more from manager Noah Blackstein, especially during a period of strong U.S. markets. Instead, this high risk/high return fund has generated a profit of only 3.7% over two years. Given Mr. Blackstein’s track record, he’ll eventually get this fund turned around but who knows how long that will take. There are better choices out there.

Action now: Sell.

Leith Wheeler Canadian Equity Fund (LWF002)

Originally recommended on Jan. 23/12 (#21203) at $32.58. Closed Feb. 20 at $37.23.

Here’s a fund that did perform to expectations. It’s a large-cap value entry from a little-known Vancouver company with a fine track record. I picked this as a low-cost, moderate risk fund last January and to this point we have a capital gain of $4.65 plus distributions of $0.35 a unit for a total return of 15.3%. Combine that with a low MER of 1.58% and we have a winner. The only snag is the high minimum initial investment requirement.

Action now: Buy.

Mawer Balanced Fund (MAW104)

Originally recommended on Feb. 13/12 (#21206) at $16.72. Closed Feb. 20 at $18.43.

This was previously known as the Mawer Canadian Balanced Retirement Savings Fund. The name has been simplified but the quality remains the same. The portfolio consists of positions in other Mawer funds and since the company’s line-up is very strong, the performance of this entry is as well. I picked this fund last year as a good choice for an RRSP and we have been rewarded with a total return to date of 11.6%, including a year-end distribution of $0.23 a unit. That’s significantly better than the category average. If you bought this one last year, hold on to it. If you didn’t, get it now.

Action now: Buy.

Mawer Tax Effective Balanced Fund (MAW105)

Originally recommended on Jan. 23/12 (#21203) at $20.91. Closed Feb. 20 at $23.29.

This is another balanced fund from Mawer. The difference is that this one invests in a portfolio of Canadian and international stocks and bonds and is designed more for non-registered accounts, although it is RRSP eligible. It has also done well for us, generating a total return of just over 13% so far, including $0.39 in distributions.

Action now: Buy.

Meritage Conservative Income Portfolio (MTG221)

Originally recommended on Feb. 13/12 (#21206) at $9.45. Closed Feb. 20 at $9.28.

I suggested this National Bank portfolio fund last year as being a good choice for investors who wanted a one-stop choice for their RRSP. It invests in third-party funds from such companies as Beutel Goodman, RBC, TD, Dynamic, and CI Financial.

But although the line-up looks good and the MER is reasonable (1.99%), the results have been weak. Only a distribution of $0.47 per unit kept us on the positive side of the ledger with a modest gain of 3.2%. That’s not good enough.

Action now: Sell.

Phillips, Hager & North Short Term Bond and Mortgage Fund D units (PHN250)

Originally recommended on Jan. 23/12 (#21203) at $10.51. Closed Feb. 20 at $10.49.

This is a low-risk short-term bond fund that was selected as a safe parking place for cash. It managed to do that over the past year, but not much more. Thanks to a $0.25 distribution we have a small profit of 2.2% to this point. That’s better than average for a fund of this type but you’re not going to get rich.

Action now: Hold. This is one of the best fixed-income choices available right now because of the nature of the portfolio.

Steadyhand Income Fund (SIF120)

Originally recommended on Jan. 23/12 (#21203) at $10.56. Closed Feb. 20 at $10.87.

This is a balanced fund with a heavy weighting (almost 70%) to cash and fixed-income securities. That makes it a good choice for defensive investors who don’t want a lot of stock market exposure. Given the nature of the portfolio, it has performed very well for us so far with a total return to Feb. 20 of 8.3%. Distributions are paid quarterly so it’s a good choice for anyone who requires cash flow.

Action now: Buy.

TD Advantage Balanced Income Portfolio (TDB2100)

Originally recommended on Feb. 13/12 (#21206) at $11.01. Closed Feb. 20 at $11.69.

This is a portfolio of five TD funds that is periodically rebalanced to reflect changes in the economy and market outlook. At the time it was recommended last year, the mix was 65% bonds, 30% stocks, and the rest in cash. Now that’s been flipped upside-down to the current weighting of 59% stocks, 33% bonds, 5% “other” and 3% cash. The net result for investors has been a gain of 7.5% (including a $0.15 year-end distribution). That’s good enough to earn the fund a comfortable top-quartile ranking in its category. Both the Mawer balanced funds have done better but this remains a respectable choice.

Action now: Hold. – G.P.

 

MUTUAL FUNDS CLEAN-UP


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The following funds have been deleted from our Recommended List. Sell advisories were issued previously so this notice is for record-keeping purposes only.

Front Street Growth Fund (FSC202). Recommended by Gordon Pape on Jan. 17/11 at $10.80. Sold Sept. 19/11 at $8.85.

CI Harbour Fund (CIG690). Recommended by Gordon Pape on Jan. 28/08 at $20.46. Sold Sept. 26/11 at $18.42.

Mackenzie Saxon Balanced Fund. Recommended by Gordon Pape on Jan. 30/06 at $22.53. Sold Sept. 26/11 at $22.47.

RBC Global Precious Metals Fund (RBF468). Recommended by Gordon Pape on Dec. 22/05 at $24.17. Sold Aug. 20/12 at $39.64.

 

MEMBERS’ CORNER

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More on portfolio software

Member comment: I have been using Quicken Home and Business in conjunction with my Royal Bank and RBC Action Direct Investing Accounts for several years. Although it would be nice if we could download investment transactions from RBC Direct Investing, it is very easy to enter any buy and sell transactions manually.

As for pesky things like monthly dividends, you can use the “Income reminder” feature of Quicken to automatically record these in your various investment accounts. Dividends can be scheduled on almost any regular timing that you can think of: yearly, semi-annually, quarterly, monthly, and on specific dates within those time periods. This makes reconciliation fairly easy and any dividend changes can be easily spotted and corrected. 
 
Another great function is reporting, including graphs which display the amounts, etc. when the cursor is moved over the graph.

Many standard reports are available, and they can be modified and saved as your own reports. Reporting yearly or quarterly returns or AAR (average annual rate of return) is a snap with these reports.
 
Another nice feature is that historical prices are automatically downloaded for any new security. All stock quotes can be downloaded at any time, during the day or after hours, and as often as you want. If you want more analysis of a stock, Quicken will take you to more charting at The Globe and Mail site.
 
So I am very happy with using Quicken Home and Business for my family’s banking and investing needs. – P.W.

Mead Johnson or…?

Member comment: When I entered the symbol for Mead Johnson (MJN) on TD Waterhouse, MJNA (Medical Marijuana Inc.) also came up. It made me wonder if this is a money maker, like Beam and Philip Morris. It is up 15% in the last week (from $0.35 to $0.40). – Al H., Buckhorn ON

Response: Could be. It’s a tiny (13 employees) company based in San Diego that, as the name suggests, operates in the medical marijuana and industrial hemp markets. According to its year-end financial statements, released on Feb. 8, the company had net income of $3.2 million on revenue of $5.2 million. For all of 2012, it reported revenue of $12.4 million and net income of $7.1 million. Those are pretty impressive margins. I’m not recommending you buy shares because the company is so small and the business is problematic. But it certainly looks interesting. – G.P.

 

UPCOMING EVENTS

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Members who live in the Toronto area are invited to attend one of my library presentations this week. There is no admission charge. Here are the details.

Feb. 25 at 6.30 p.m. at the North York Central Library, 5120 Yonge St. Topic: Retirement’s Harsh New Realities.

Feb. 28 at 6.30 p.m. at Deer Park Library, 40 St. Clair Ave. East. Topic: Tax-Free Savings Accounts.

A representative from Penguin will be on hand to sell books to anyone interested. Of course, I will autograph copies on request.

If you are able to attend, please take a moment to introduce yourself to me. I’m always happy to meet readers. – G.P.

 

That wraps it up for this issue and for the month of February. We’ll see you again on March 4.

Best regards,

Gordon Pape

In This Issue

RETIREMENT SOLUTION?

By Gordon Pape

Headline #1 – More Canadians plan to work past age 65.

Headline #2 – Bank president calls for expansion of CPP.

Those two stories caught my attention last week because both speak directly to the evolving pension crisis in this country.

Headline #1 refers to a new survey from Sun Life Financial which found that only 27% of respondents between ages 30 and 65 expect to be fully retired at 66. Almost as many, 26%, said they will still be working full-time while 32% expect to be working part-time. The rest were uncertain.

The insurance company said the number of people who expect to retire at 65 has fallen by almost 50% from five years ago. Even more alarming is the fact that 39% of those who continue to work will do so because of economic necessity. Otherwise, they don’t believe they will have enough money to maintain their living standard.

“The dream of being able to afford a full retirement at age 66 is declining among Canadians, it’s being replaced by the reality that many people expect to be working beyond the traditional retirement age,” said Sun Life president Kevin Dougherty. “The aftermath of the financial crisis of 2008 has had a lasting impact with more Canadians expecting they will need to work longer as a result.”

The survey is just the latest of several which show the same broad trend. The expectation of stopping work at age 65 is a fast-fading dream as Canadians face up to the harsh new realities of retirement. The combination of low savings rates, prolonged low interest rates, longer life expectancy, and the rapid disappearance of defined benefit pension plans from the private sector is forcing people to rethink how they will spend their later years. Increasingly, that rethink ends with the conclusion that the only way to maintain their standard of living is to keep working.

This brings me to headline #2 and I have to say that it both surprised and encouraged me. Gerry McCaughey, CEO of the Canadian Imperial Bank of Commerce, went on the record as advocating an expansion of the CPP through voluntary contributions.

Coming from a bank executive, this borders on heresy. Financial institutions earn big profits from the billions of dollars that pour into RRSPs and TFSAs. Why else do you think they spend all that money during RRSP season to encourage you to make a contribution?

In fact, one of the reasons that companies like Sun Life publish these polls is to persuade (some might say frighten) people into taking retirement savings more seriously. Based on the evidence, it hasn’t been working; the percentage of tax filers claiming an RRSP deduction has been gradually declining in recent years.

Mr. McCaughey’s proposal, were it to be adopted, would siphon off a lot of those savings from the banks and insurance companies and into CPP coffers. His shareholders are not going to like that idea at all so it’s difficult to understand at first glance why the CIBC president would be prepared to go out on a limb to advocate a plan that is counter to his company’s self-interest. The answer, it seems, is that he is genuinely alarmed about what lies ahead for many people if something is not done.

He told an audience of senior government and business leaders in Fredericton that, according to new research conducted by CIBC’s economics group, nearly six million Canadians will face a drop in living standards of more than 20% if current savings rate trends continue.

“Our research found some 8.4 million people will experience a decline of more than 5% in their standard of living at retirement,” he said. “Far more troubling is the fact that 5.8 million Canadians are on pace to experience a significant decline – meaning a reduction in living standards of more than 20%.

“And, here is perhaps the most alarming takeaway: when we look at those 5.8 million people we see that most of them are young. In fact, our economists estimate that almost 60% of adults in their late 20s or early 30s can expect to experience a significant decline in their standard of living when they retire.”

The CIBC president is to be commended for going public on this issue. Moreover, his proposal makes so much good sense that Finance Minister Flaherty should seize on it immediately and incorporate it into his upcoming budget. Here’s why.

One of the reasons Canadian are facing a retirement crisis is a lack of certainty in the income they will receive. Defined benefit (DB) pension plans – those which guarantee a specific payout at retirement – have almost disappeared from the private sector.

According to Statistics Canada, only 38% of workers have any kind of pension plan at all. But here’s the real shocker: only 25% of private sector employees have a pension plan compared to 84% in the public sector. Over time, public sector coverage seems bound to erode as private sector taxpayers become increasingly resentful of seeing some of their money used to pay for pension plans they can’t have.

The Canada Pension Plan is a DB program. The amount you receive at retirement is determined by the number of years of contributions and your income level, up to an annual maximum. Defined contribution (DC) pension plans, the new norm in the private sector, offer no such guarantees. The amount of the pension will be determined by how much is contributed to the plan and how well the invested money performs. RRSPs, TFSAs, and the new and as yet unproven and generally unavailable Pooled Retirement Pension Plans (PRPPs) operate in the same way.

Mr. McCaughey’s plan would enable Canadians to voluntarily increase their CPP contributions and hence add to the amount of the guaranteed pension they would receive when they begin to draw benefits. The extra contributions would be administered by the Canada Pension Plan Investment Board which has an excellent track record in terms of returns, protection of assets, and low costs.

Furthermore, the plan would not cost cash-strapped Ottawa one nickel as the voluntary contributions would be made on an after-tax basis, in the same way as TFSAs and RESPs. Mr. Flaherty’s oft-expressed concern about an expanded CPP imposing an additional payroll tax that would be a job-killer could be defused by not requiring employers to match the voluntary contributions.

Mr. McCaughey says that for his idea to work, the voluntary contributions must be locked in until retirement, just as current CPP contributions are. There would be no provision to dip into the fund, for any reason, thus setting it apart from RRSPs and TFSAs. However, people could choose to stop making new payments if they wished. The offsetting reward is a higher guaranteed pension at retirement as well as “date certainty and real dollar amount certainty”.

He said that CIBC research shows that such a solution would help close the retirement savings gap for young Canadians by as much as 80%. And it would “reignite a culture of savings” in this country.

It will be argued that the voluntary aspect of the plan would make it virtually worthless. If Canadians won’t contribute to RRSPs now, why would they put more money into the CPP?

I believe that many people would take advantage of such an opportunity for two reasons. First, they don’t trust their own investment skills and still bear the psychological scars of the 2008-09 crash, Second, the guarantee of a higher pension at the end of the day will be a compelling incentive,

Of course, one of the side-effects would be the diversion of funds away from RRSPs and TFSAs and thus away from the banks. It appears that CIBC, for one, is prepared to live with that.

 

Gordon Pape’s new books are Money Savvy Kids and a revised and updated edition of his best-seller Tax-Free Savings Accounts. Both are available at 28% off the suggested retail price at http://astore.amazon.ca/buildicaquizm-20

Follow Gordon Pape’s latest updates on Twitter: http://twitter.com/GPUpdates

DON’T RUSH TO MAKE RRSP INVESTMENTS

Contributing editor Ryan Irvine is with us this week with some thoughts about how RRSP season can lead to some bad investment decisions. He also has a new micro-cap stock pick for us. Ryan is the CEO of KeyStone Financial (www.keystocks.com) and is regarded as one of Canada’s leading experts on small-cap stocks. Here is his report.

Ryan Irvine writes:

Every year around this time our phones begin to ring off the hook. With RRSP deadlines and new TFSA room, investors become fixated on the investment industry for a few months. This is a mistake.

Don’t get me wrong. It’s great to be in demand and busy. And for the average investor, we are pleased with the level of engagement we see at this time of year. But the mistake is trying to cram a year or more worth of investment decisions into a week or even a day around RRSP/TFSA season.

Contributions are made and securities are purchased all within a rushed day or so. Then the investor exhales and goes back to the regular routine with the occasional gander at the portfolio through the remainder of the year. Use this strategy at your peril!

By all means, make the appropriate contributions to your RRSP if it suits your investment situation. We are big supporters of TFSAs and encourage investors to pair a self-directed TFSA with our annual research service to build their own Small-Cap Portfolio. What we do not advise are contributions followed by immediate buys to create an “instant portfolio”.

Why? We advocate creating an 8-12 stock portfolio with profitable, growing, and value priced small-cap stocks for the growth area of your account. In this context, there are two major problems with investors who myopically focus on RRSP season.

Number one is that creating a portfolio at one set time immediately locks you into to that point in a market cycle. If it is near a top and a meaningful correction follows, it can take years to recover. Number two is that, quite frankly, it is difficult in most markets to find 10 great stocks to buy at any given time.

It’s all about quality over quantity and often investing success is as much about the stocks you don’t buy as it is about the ones you do. We encourage Canadians to consult with their financial advisors and make the appropriate contribution decisions this month. But remember that those funds do not all have to be deployed the day, week, or month after you make those contributions.

Be patient and create the small-cap growth area of your portfolio over one to three years and review and rebalance over that time. Given the fact that at 18.86 and 17.09 times earnings respectively, the S&P/TSX Composite Index and the S&P 500 are trading above historical p/e multiples, it is likely time to leave some powder dry to employ in the event of a pullback during 2013.

 

RYAN IRVINE PICKS CALDWELL PARTNERS

This month we have a true micro-cap stock for your consideration. Because this is a very small company (market cap of only $18 million) this stock will not be suitable for all investors. Here’s the background.

Founded in 1970, The Caldwell Partners International (TSX: CWL, OTC: CWLPF) is an executive search consulting firm. The company, through a predecessor corporation, became the first retained consulting organization in Canada to specialize in representing employers in the recruitment of executives. Today, Caldwell is one of North America’s premier providers of executive searches. The company has built a solid reputation for providing successful searches for boards, chief and senior executives, and selected functional experts. Caldwell has offices in Vancouver, San Francisco, Los Angeles, Dallas, Calgary, Atlanta, Toronto, Stamford, New York City, and a strategic presence in London and Hong Kong.

The start of the fiscal 2009 year was coincident with the onset of a severe market recession through which Caldwell fared well compared to many of its competitors, experiencing only a 6% decline in revenue to $12.7 million. Mid-fiscal 2009, the company began a new strategic direction, expanding aggressively into the United States, doubling its existing number of partners and offices across North America in the process. These operations contributed approximately 10% of total operating revenues in fiscal 2009 as most of the partners joined the company in the second half, some in the final few weeks of the year. In 2010, expansion into the United States continued, with U.S. operations contributing 55% of annual consolidated revenues, resulting in a 112% increase in revenues to $26.9 million.

In fiscal 2011, U.S. operations expanded further, at the time representing 63% of the Caldwell’s $34.24 million in total revenues. As a result of increases in both Canadian and U.S. revenues, consolidated revenues increased 27% over fiscal 2010 levels.

With the onset of weakened market conditions in 2012, revenues decreased by 4% over 2011 to $32.7 million. U.S. revenues, representing 69% of consolidated revenues, increased 5% while Canadian revenues declined 20%. Despite the slight revenue decline in 2012, consolidated revenues increased more than two and one half times over the past three years.

Of particular interest, Caldwell’s ongoing commitment to management of its cost structure has resulted in a substantial year-over-year increase in earnings. On Nov. 15, 2012, the company reported that fiscal 2012 net earnings rose to $981,000, or $0.058 per share, from $187,000, or $0.011 per share, in 2011.

From a balance sheet perspective, Caldwell operates with a strong foundation. As of Aug. 31, 2012, the company had $3.3 million of marketable securities plus cash and cash equivalents of $6.5 million for a total of $9.8 million, or $0.57 per share. The company has no debt and its cash and marketable securities account for approximately 66% of the company’s market capitalization.

Caldwell’s board of directors believes that the payment of regular dividends is in the best interests of the company and all shareholders. Subsequent to shareholder approval of the restatement of capital on May 1, 2012, Caldwell has now declared three quarterly dividends each of $0.015 per common share. While it is the board’s intention to continue quarterly payments, dividends for future periods will be declared at the discretion of the directors and will be dependent on the company’s ongoing performance and cash flow requirements. Caldwell’s current yield is an attractive 5.77%.

Management believes that the demand for executive search services in North America will grow as a result of shifting demographics. This will increase the demand for senior executives drawn from a smaller talent pool than that which preceded it, as the previous generation of executives now retires. As well, smaller entrepreneurial companies will likely become users of executive search services for the first time. In the experience of the Caldwell’s senior management, entrepreneurial companies often need to recruit most of their management team from outside and, as these companies grow, additional executive search needs arise. To respond to this opportunity, Caldwell is continuing to invest in training its professionals and is developing specialized information resources and technology to serve this expanding market.

In the spring of 2009, Caldwell opened its first office in the United States. It now has 23 of its total 34 partners located in six American offices. Today, U.S. revenues represent 69% of consolidated revenues. While the environment in the U.S. continues to be challenging, there are signs that business activity may be positioned to increase. With their balance sheets flush with cash, corporations are well positioned to expand in the event of a further recovery in the U.S. In the event that capital once again begins to be deployed for expansion, Caldwell is well positioned to participate in a potential recover.

From a valuations perspective, Caldwell’s trailing p/e of around 15 (based on its last 12 months earnings) does not appear cheap. However, when we factor in the company`s cash position of $0.57 per share, we find that at a price of $1.04 we are only paying just over six times Caldwell`s earnings. Given the potential for further cost containment to lead to higher earnings in 2013, the stock appears relatively attractive from a valuations perspective in its current range.

Caldwell Partners has evolved from a respected Canadian brand to a firm with a strong North American presence. In that time, revenues have increased more than two and a half times, the company has returned to profitability, and a regular quarterly dividend to shareholders has been reinstated.

That said, the environment is not ideal at present for executive search and we do not expect a sudden sharp uptick in business. But the potential for a reasonable increase from a relatively low base is real. As such, we are initiating coverage on the company with a Buy for patient investors who are happy with a solid dividend (5%+) and the potential for reasonable returns if the North American economy remains flat over the next two years and relatively strong returns if it grows beyond expectations.

One caution: Caldwell is a relatively illiquid stock and we do not recommend chasing it. Our current buy range is $1.00-$1.10. Use limit orders and be patient. The shares are also listed on the U.S. over-the-counter Grey Market but trade there so infrequently (the last was on Jan. 2) that we do not advise using that option.

Action now: Buy between $1 and $1.10. The stock closed on Friday at $1.04.

– end Ryan Irvine

 

THREE RRSP FUNDS

Only a few more days until the RRSP deadline. You have until March 1 to make a contribution that will be eligible for a 2012 tax deduction.

If you haven’t decided how to invest the money, a good starting point is the RRSP Portfolio that I updated in last week’s issue. But the eight securities in it only scratch the surface of good-quality investments.

Keep in mind that the basic goal of an RRSP is to provide decent growth with reasonable risk. The two go hand-in-hand. Don’t make the mistake of tying up large amounts of RRSP money in GICs or other fixed-income securities unless you are very close to retirement and capital preservation is an overriding priority. With interest rates so low and bond prices under pressure, the returns on fixed-income investments will be negligible in relation to what you need. This doesn’t mean you should ignore them, just maintain a proper balance.

In the current environment, I suggest targeting an average annual return of 6% from your plan. That’s attainable in a relatively low-risk portfolio if you choose the right securities. Here are three mutual funds to consider, in addition to the securities in our RRSP Portfolio.

Canadian balanced fund

Steadyhand Founders Fund (SIF125). Normally, I would not suggest a fund that has only been around for one year but in this case I am making an exception, for three reasons.

First, the Steadyhand funds have been in existence since early 2007 so most (this is the exception) now have a five-year record. In almost all cases it is first-rate. Second, the company is one of the lowest-cost operators in the industry so you aren’t paying a fortune to have your money managed. Finally, CEO Tom Bradley, who oversees the Founders Fund, is one of smartest and most principled managers in the business. I can’t think of anyone I would trust more with my money.

The Founders Fund is a portfolio fund – it holds units of all the other Steadyhand funds. The portfolio has a long-term target mix of 60% equities and 40% fixed income, but there’s a lot of flexibility here and Mr. Bradley can adjust the allocation according to his expectations for the economy and the markets The equity portion may range from 40% to 75% and fixed income from 25% to 60%. The geographic target mix is roughly 50-50 between Canadian and foreign investments.

As of the first of the year, the asset mix was 58.5% equity, 26% bonds, and 15.5% cash. In geographic terms, 45.3% was in Canada, 18.8% in the U.S., and 35.9% overseas.

Over the 12 months to Feb. 21, the fund gained just under 9%. That was good enough to rank number four out of 120 funds in its category. It’s too soon to get a definitive handle on the relative risk of the portfolio itself but the individual funds are all at the lower end of the volatility scale for their categories.

The bad news is that the initial investment must be at least $10,000 and some advisors may not offer it at all because the company does not pay trailer fees (that’s how they hold the MER to 1.34%). If your advisor won’t acquire it for you, go directly to the company at www.steadyhand.com and open an account there. This is a no-load fund. The NAV was $10.73 at the close of trading on Feb. 21.

Canadian equity fund

Bissett Canadian Equity Fund A units (TML202). This fund, which is part of the Franklin Templeton organization, has been a pillar of consistency over many years. It invests almost exclusively in blue-chip Canadian stocks such as the big banks, CN Rail, TransCanada Corp., etc. so you might expect rather wimpy returns. Well, that has not been the case. This fund has been a first or second quartile performer every year since 2007 and shows above-average rates of return for all periods from one month to 10 years. The one-year gain to Feb. 21 was almost 13% while the three-year average annual compound rate of return was 8.88% according to Morningstar. The average annual compound rate of return over the past decade was 7.92%. The management team of Garey Aitkin and Fred Pynn has been in place since 2002 so we have more than a decade of history by which to judge their work.

One word of warning: Although this fund has a better-than-average risk rating, it will be vulnerable in any market correction. During the crash of 2008-09, it dropped almost 39% so even though it is a large-cap fund it is not risk-free by any means. The MER is a little higher than I like at 2.47% but the strong results compensate for that. The minimum investment is $500 and any advisor can buy it for you, or you can do it yourself through a discount broker. Get the front-end units (TML202) at zero commission if possible. The NAV as of Feb. 21 was $77.74.

U.S. equity fund

Mawer U.S. Equity Fund (MAW108). The Calgary-based Mawer organization doesn’t have any weaknesses in its small fund line-up. This is their U.S. entry and it is a fine choice for anyone with $5,000 to invest who wants a fund that blends value and growth large-cap stocks. What makes this fund especially attractive for an RRSP is its low-risk history. Even in the darkest days of the 2008-09 market plunge, the managers limited the loss to 25%, about half that of the overall market.

The fund boasts an above-average performance record for all time frames from one month to 20 years. That kind of consistency is a great plus for investors. The one-year gain to Feb. 21 was 16.09% according to Morningstar while the three-year average annual compound rate of return was 10.83%. This fund has one of the best low risk/high return profiles I’ve seen in its category. Also, it’s cheap – no sales commission and an MER of 1.28%.

Like the Steadyhand fund, this one may not be available through all brokers. If you can’t acquire it, you can set up an account directly with the company at www.mawer.com. The MER at the Feb. 21 close was $22.04.

We are adding all three funds to the IWB Recommended List. – G.P.

 

GORDON PAPE’S FUND UPDATES

Here are updates on some of the mutual funds on our Recommended List, including those that I suggested for RRSPs a year ago. Prices are as of the close of trading on Feb. 20.

Beutel Goodman Corp/Provincial Active Bond Fund (BTG971).

Originally recommended on Jan. 23/12 (#21203) at $5.39. Closed Feb. 20 at $5.31.

It has not been a good year for bonds and the downward trend of prices is going to continue as interest rates gradually move up. This fund managed a 2% return in the year to Feb. 20, below average for its category. I don’t expect to see anything better in 2013 so it’s time to exit. We received distributions of $0.19 a unit while we held the fund so we come away with a small profit.

Action now: Sell.

Dynamic Power American Growth Fund (DYN004)

Originally recommended on Jan. 23/12 (#21203) at $8.11. Closed Feb. 20 at $8.41.

This fund has been a big disappointment. We have a small gain but I expected much more from manager Noah Blackstein, especially during a period of strong U.S. markets. Instead, this high risk/high return fund has generated a profit of only 3.7% over two years. Given Mr. Blackstein’s track record, he’ll eventually get this fund turned around but who knows how long that will take. There are better choices out there.

Action now: Sell.

Leith Wheeler Canadian Equity Fund (LWF002)

Originally recommended on Jan. 23/12 (#21203) at $32.58. Closed Feb. 20 at $37.23.

Here’s a fund that did perform to expectations. It’s a large-cap value entry from a little-known Vancouver company with a fine track record. I picked this as a low-cost, moderate risk fund last January and to this point we have a capital gain of $4.65 plus distributions of $0.35 a unit for a total return of 15.3%. Combine that with a low MER of 1.58% and we have a winner. The only snag is the high minimum initial investment requirement.

Action now: Buy.

Mawer Balanced Fund (MAW104)

Originally recommended on Feb. 13/12 (#21206) at $16.72. Closed Feb. 20 at $18.43.

This was previously known as the Mawer Canadian Balanced Retirement Savings Fund. The name has been simplified but the quality remains the same. The portfolio consists of positions in other Mawer funds and since the company’s line-up is very strong, the performance of this entry is as well. I picked this fund last year as a good choice for an RRSP and we have been rewarded with a total return to date of 11.6%, including a year-end distribution of $0.23 a unit. That’s significantly better than the category average. If you bought this one last year, hold on to it. If you didn’t, get it now.

Action now: Buy.

Mawer Tax Effective Balanced Fund (MAW105)

Originally recommended on Jan. 23/12 (#21203) at $20.91. Closed Feb. 20 at $23.29.

This is another balanced fund from Mawer. The difference is that this one invests in a portfolio of Canadian and international stocks and bonds and is designed more for non-registered accounts, although it is RRSP eligible. It has also done well for us, generating a total return of just over 13% so far, including $0.39 in distributions.

Action now: Buy.

Meritage Conservative Income Portfolio (MTG221)

Originally recommended on Feb. 13/12 (#21206) at $9.45. Closed Feb. 20 at $9.28.

I suggested this National Bank portfolio fund last year as being a good choice for investors who wanted a one-stop choice for their RRSP. It invests in third-party funds from such companies as Beutel Goodman, RBC, TD, Dynamic, and CI Financial.

But although the line-up looks good and the MER is reasonable (1.99%), the results have been weak. Only a distribution of $0.47 per unit kept us on the positive side of the ledger with a modest gain of 3.2%. That’s not good enough.

Action now: Sell.

Phillips, Hager & North Short Term Bond and Mortgage Fund D units (PHN250)

Originally recommended on Jan. 23/12 (#21203) at $10.51. Closed Feb. 20 at $10.49.

This is a low-risk short-term bond fund that was selected as a safe parking place for cash. It managed to do that over the past year, but not much more. Thanks to a $0.25 distribution we have a small profit of 2.2% to this point. That’s better than average for a fund of this type but you’re not going to get rich.

Action now: Hold. This is one of the best fixed-income choices available right now because of the nature of the portfolio.

Steadyhand Income Fund (SIF120)

Originally recommended on Jan. 23/12 (#21203) at $10.56. Closed Feb. 20 at $10.87.

This is a balanced fund with a heavy weighting (almost 70%) to cash and fixed-income securities. That makes it a good choice for defensive investors who don’t want a lot of stock market exposure. Given the nature of the portfolio, it has performed very well for us so far with a total return to Feb. 20 of 8.3%. Distributions are paid quarterly so it’s a good choice for anyone who requires cash flow.

Action now: Buy.

TD Advantage Balanced Income Portfolio (TDB2100)

Originally recommended on Feb. 13/12 (#21206) at $11.01. Closed Feb. 20 at $11.69.

This is a portfolio of five TD funds that is periodically rebalanced to reflect changes in the economy and market outlook. At the time it was recommended last year, the mix was 65% bonds, 30% stocks, and the rest in cash. Now that’s been flipped upside-down to the current weighting of 59% stocks, 33% bonds, 5% “other” and 3% cash. The net result for investors has been a gain of 7.5% (including a $0.15 year-end distribution). That’s good enough to earn the fund a comfortable top-quartile ranking in its category. Both the Mawer balanced funds have done better but this remains a respectable choice.

Action now: Hold. – G.P.

 

MUTUAL FUNDS CLEAN-UP


The following funds have been deleted from our Recommended List. Sell advisories were issued previously so this notice is for record-keeping purposes only.

Front Street Growth Fund (FSC202). Recommended by Gordon Pape on Jan. 17/11 at $10.80. Sold Sept. 19/11 at $8.85.

CI Harbour Fund (CIG690). Recommended by Gordon Pape on Jan. 28/08 at $20.46. Sold Sept. 26/11 at $18.42.

Mackenzie Saxon Balanced Fund. Recommended by Gordon Pape on Jan. 30/06 at $22.53. Sold Sept. 26/11 at $22.47.

RBC Global Precious Metals Fund (RBF468). Recommended by Gordon Pape on Dec. 22/05 at $24.17. Sold Aug. 20/12 at $39.64.

 

MEMBERS’ CORNER

More on portfolio software

Member comment: I have been using Quicken Home and Business in conjunction with my Royal Bank and RBC Action Direct Investing Accounts for several years. Although it would be nice if we could download investment transactions from RBC Direct Investing, it is very easy to enter any buy and sell transactions manually.

As for pesky things like monthly dividends, you can use the “Income reminder” feature of Quicken to automatically record these in your various investment accounts. Dividends can be scheduled on almost any regular timing that you can think of: yearly, semi-annually, quarterly, monthly, and on specific dates within those time periods. This makes reconciliation fairly easy and any dividend changes can be easily spotted and corrected. 
 
Another great function is reporting, including graphs which display the amounts, etc. when the cursor is moved over the graph.

Many standard reports are available, and they can be modified and saved as your own reports. Reporting yearly or quarterly returns or AAR (average annual rate of return) is a snap with these reports.
 
Another nice feature is that historical prices are automatically downloaded for any new security. All stock quotes can be downloaded at any time, during the day or after hours, and as often as you want. If you want more analysis of a stock, Quicken will take you to more charting at The Globe and Mail site.
 
So I am very happy with using Quicken Home and Business for my family’s banking and investing needs. – P.W.

Mead Johnson or…?

Member comment: When I entered the symbol for Mead Johnson (MJN) on TD Waterhouse, MJNA (Medical Marijuana Inc.) also came up. It made me wonder if this is a money maker, like Beam and Philip Morris. It is up 15% in the last week (from $0.35 to $0.40). – Al H., Buckhorn ON

Response: Could be. It’s a tiny (13 employees) company based in San Diego that, as the name suggests, operates in the medical marijuana and industrial hemp markets. According to its year-end financial statements, released on Feb. 8, the company had net income of $3.2 million on revenue of $5.2 million. For all of 2012, it reported revenue of $12.4 million and net income of $7.1 million. Those are pretty impressive margins. I’m not recommending you buy shares because the company is so small and the business is problematic. But it certainly looks interesting. – G.P.

 

UPCOMING EVENTS

Members who live in the Toronto area are invited to attend one of my library presentations this week. There is no admission charge. Here are the details.

Feb. 25 at 6.30 p.m. at the North York Central Library, 5120 Yonge St. Topic: Retirement’s Harsh New Realities.

Feb. 28 at 6.30 p.m. at Deer Park Library, 40 St. Clair Ave. East. Topic: Tax-Free Savings Accounts.

A representative from Penguin will be on hand to sell books to anyone interested. Of course, I will autograph copies on request.

If you are able to attend, please take a moment to introduce yourself to me. I’m always happy to meet readers. – G.P.

 

That wraps it up for this issue and for the month of February. We’ll see you again on March 4.

Best regards,

Gordon Pape