30,000 Feet - Second Quarter 2013

RISE OF CASH BALANCE

Cash balance plans are rising in popularity in the U.S. and could overtake 401(k) plans. The number of cash balance plans in existence has increased by more than 500% in the past decade.

WHY PLAN SPONSORS SHOULD CARE

Cash balance plans are a form of hybrid pension plan, not that different from Target Benefit Plans (TBPs). The U.S. experience may presage a high level of acceptance of TBPs in Canada once the provinces roll out legislation that allows TBPs in single-employer situations. That is expected within a year or two. The most recent Morneau Shepell 60 Second Survey underscored the high level of interest in TBPs and other shared-risk solutions.

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The Weekly Bottom Line - June 28, 2013

Canada

  • Real GDP increased by 0.1% in April, a fourth consecutive monthly gain. Canada’s economic health in April can be tied to domestic demand, with services like wholesale trade, retail trade and finance, insur- ance and real estate leading the advance.
  • While April’s gain was solely driven by the service sector, growth recorded so far this year has been broad based across most major industries. While the Canada economy has had a decent start to 2013, the waters could get somewhat choppier over the next few months.

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The Weekly Bottom Line - June 21, 2013

Canada

  • Canadian financial markets, like those around the world, reacted dramatically to U.S. Federal Reserve Chairman Ben Bernanke’s comments about the unwinding of quantitative easing. However, signals from Canada’s real economy this week were far more reassuring.
  • Households continue to slow their pace of debt accumulation, pushing the debt-to-income ratio lower for the second consecutive quarter. That is a welcome development as consumer leverage is a key risk to Canada’s economy. The housing market also shows evidence of pulling off a welcome “soft landing”.
  • In April, consumers showed that despite spending at a more modest pace on a trend basis, they were confident enough to load up on new cars for the fourth straight month. Inflation is also unfolding as ex- pected, starting to drift gradually higher, while remaining very benign overall. There is little urgency for the Bank of Canada to raise interest rates before the end of next year.

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Why Canada Has No Retirement Crisis

There is a widespread perception in Canada that the country is on the brink of a major retirement crisis. A more considered view is that while most recent retirees are faring reasonably well, Canada faces a slowly deteriorating situation in which a growing proportion of future retirees will experience a substantial drop in their standard of living. This article challenges the credibility of even this more considered view, demonstrating that several important sources of future retirement income are being underreported and understated. Further, most projections do not factor in the near-certain increases in the average retirement age that will unfold over the next 20 years. Generalizing from these findings, it is unlikely that the conclusions set out in this article apply only to Canada.

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Market Indices, Asset & Risk Management Numbers: May 2013

Great summary of investment performance - monthly, quarter, Year to date and 1-year stats. Updated performance data: stocks, bonds, mixed portfolios, etc.

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How CEOs Play “Beat The Wall Street Estimate”

Recently, I wrote an article discussing the “Truth About Wall Street Analysts” and the inherent conflict between Wall Street and individual investors. There is also another group of individuals who are also just as conflicted – corporate executives. Today, more than ever, corporate executives are compensated by stock options, and other stock based compensation, which are tied to rising stock prices. There are billions at stake in many cases and the game of “beat the Wall Street estimate” is critical in keeping corporate stock prices elevated. Unfortunately, this leads to a wide variety of gimmicks to boost bottom line profitability which is not necessarily in the best interest of long term profitability or shareholders. Today we will discuss four tools that have been at the heart of the surge in profitability since 2009 and why such profitability has failed to boost the economy.

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The Weekly Bottom Line

Canada:

  • New Bank of Canada Governor Stephen Poloz addressed the House of Commons this week and used the opportunity to build confidence that no major shake up in the way the Bank sets monetary policy is forthcoming.
  • The Canadian economy created 95,000 net new positions in May, the strongest monthly advance in more than a decade. While the headline reading is impressive, the six-month moving average for job creation registers in at a more reasonable 19,000. The unemployment rate edged down by 0.1 percentage points to 7.1% in May.
  • Canadian exports edged down 0.2% in April, after rising for four consecutive months. Imports were up (+1.2%) and have increased in each of the first four months of 2013. As a result, the international trade deficit widened to $567 million in April. After a strong showing in Q1, we expect export activity to pull-back somewhat in Q2 as the full force of sequestration in the U.S. will be felt.

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Global Fund Investor Experience - 2013 Report

The Global Fund Investor Experience report was designed to encourage a dialogue about global best practices for mutual funds from the perspective of fund shareholders. This biennial report measures the experiences of mutual fund investors in 24 countries in North America, Europe, Asia, and Africa. Morningstar researchers evaluated countries in four categories—Regulation & Taxation, Disclosure, Fees & Expenses, and Sales & Media—with greater weight given to factual, empirical answers as well as the high-priority issues of fees, taxes, and transparency.

For Fees & Expenses, the highest-scoring country (that is, the country with the lowest costs) is the United States, while the lowest-scoring country is Canada. This pattern has held true for all three editions of the GFIE report, as fund costs tend to be very stable over time.

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Inside the “Black Box” of Sell-Side Financial Analysts

Abstract: The goal of this study is to penetrate analysts’ “black box” by providing new insights into the inputs analysts use to make their decisions and the incentives that influence these decisions. We survey 365 sell-side analysts and conduct 18 detailed follow-up interviews. Analysts indicate that industry knowledge is the single most important determinant of their compensation and the most important input to both their earnings forecasts and stock recommendations. They rate broker votes, a measure of client satisfaction, as the second most important factor in determining their compensation behind industry knowledge. Analysts report that private phone calls are the most useful form of contact they have with senior management, and that maintaining strong relationships with management is fundamental to their success. Overall, we believe the results of our study are beneficial to academic researchers, investors, and analysts.

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