The Renaissance
Volume IV Issue I
Advisor
Q1 MARCH 31, 2010 QUARTERLY FUND PROFILES / PRACTICE MANAGEMENT / OUTLOOK / OPINION
Invest Well
California dreamin’ Aletheia’s Peter J. Eichler, Jr. makes dreams of growth come true
Back of the Napkin
Unmasking the toxic client How to spot them, how to stop them Live Better
Going for the cup A Canadian great talks FIFA World Cup soccer
Letter from the National Sales Manager
Another RSP season has come and gone and your practice may be returning to a sense of normalcy. This is a very good time to reflect on your business, revisit your business plan and see where you stand. Hopefully, you are closer to your goals. But if you are like many, some adjustments may be in order. A business plan is meant to be a dynamic document. This does not let us off the hook if we fall short of our objectives or fail to accomplish all that we had hoped, but it does allow some flexibility to adjust our plans to fit the changing environment. Those who use a business plan to maintain accountability to themselves and their team will definitely be more inclined to achieve their desired results. Here’s my advice: Take a block of time with no interruptions and dig deep into your results. Have you grown your business in the way you had planned? Is your time being spent developing business? Have you made strides in streamlining your procedures? Is your team gaining knowledge? Is their morale healthy? Now is the chance to analyze these answers, get back on track and even set some new goals. After evaluating where you stand, gather your team to discuss the next steps as you move forward. Remember to ask for input and ideas from your team, because as Benjamin Franklin once said, “a man convinced against his will, is of the same opinion still.” There are two things I hope you include in your planning. One is knowing what to do with a client that is causing undue stress on you and your team and straining your resources. See page 4 for advice on how to deal with these so-called “toxic clients.” The solution could be a “renaissance” for your practice. The other is being ahead of the curve when it comes to strategic changes to your investment portfolios. On page 11, we explore a key product solution that will assist you in implementing effective global investing for your clients, and meeting their needs over the long term. Good luck with your business reviews. Please feel free to contact me with any comments or suggestions around this topic, or anything else that you feel can help you and your clients invest well and live better. Sincerely,
Dave Wahl National Sales Manager 416 943 6959
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Table of Contents Tax and Estate The tax rate you and your clients may not know about
p 2
Economic Outlook Bracing for rate hikes
p 3
Back of the Napkin Unmasking the toxic client
p 4
Thanks to Our Supporters The family man
p 7
Invest Well California dreamin’
p 8
Solution Highlight Access the best of all worlds with the Renaissance Optimal Global Equity Portfolio
p 11
Axiom Portfolios Profiles Portfolio Essentials Performance Essentials
p 12 p 32 p 33
Renaissance Investments Fund Profiles Money Market Funds Fixed Income Funds Balanced Funds Equity Income Funds Canadian Equity Funds U.S. Equity Funds Global Equity Funds Specialty Funds Fund Essentials Performance Essentials
p 34 p 38 p 46 p 60 p 68 p 78 p 86 p 92 p 116 p 124 p 125
Live Better Going for the cup
p 126
Brain Calisthenics
p 128
Tax and Estate
Managing Director, Tax & Estate Planning Jamie Golombek
The tax rate you and your clients may not know about It’s 2010 — do you know what your marginal effective tax rate is? It’s not the same as your marginal tax rate or your average tax rate, and it sheds light on the true complexity of our tax system. You are probably familiar with the concept of your marginal tax rate — the amount of tax you pay on an additional dollar of income above a certain amount. For example, this year, the top federal bracket of 29% begins at $127,021. That means that for every dollar a client earns above this amount, they would pay an additional 29% in federal tax. You may also be familiar with the concept of your average tax rate, which is typically much lower than your marginal rate. Your average tax rate is simply the amount of tax you pay divided by your total income. So, for the same client who earns $127,021, her federal tax liability in 2010 would be just over $25,000, allowing for only the basic personal credit. This results in an average tax rate federally of about 20% — significantly below her 29% marginal rate.
But there is a third type of rate you and your clients need to begin paying more attention to and that’s your marginal effective tax rate (METR). Similar to the marginal tax rate, the METR goes a step further by comparing the amount of tax paid on an additional dollar of income, taking into account not only the statutory federal and provincial income tax bracket thresholds and rates, but also the impact of tax deductions, credits and income-tested government benefits. A recent C.D. Howe Institute report, titled “Saver’s Choice: Comparing the Marginal Effective Tax Burdens on RRSPs and TFSAs,” sheds an enormous amount of light on how complex our tax system actually is. The study shows that METRs do not follow the typical graduated statutory rates, wherein progressively higher amounts of income result in higher rates. Instead, the study observed that METRs can swing wildly. For example, at very low income levels, METRs can actually be negative, reflecting the subsidy to work generated by the Working Income Tax Benefit (WITB). As income grows, the WITB begins to be clawed back, as do other income-tested government benefits such as the federal GST credit supplement, and METRs increase dramatically.
In fact, even though there are only four federal tax brackets (and three provincial brackets in Ontario, alone) the study revealed more than 30 effective brackets for a working Ontarian. That Ontario resident’s METR jumps all over the map, with a starting METR of zero jumping quickly to more than 100% before plummeting to negative 18% and then increasing to just over 20% — all before this working taxpayer’s income reaches $12,000! Perhaps the most common example of the impact of high METRs is the dreaded clawback of Old Age Security (OAS) payments. This year, the clawback begins when income is more than $67,000, and results in the OAS being fully clawed back once income reaches approximately $108,000. The clawback of OAS alone can produce METRs of well over 50%, depending on your income and province of residence. Failing to consider your METR in your financial planning discussions may lead to unintended consequences later on.
Jamie Golombek is Managing Director, Tax & Estate Planning with CIBC Private Wealth Management. He works closely with advisors to help them provide integrated financial planning solutions for their high-net-worth clients. Jamie is frequently quoted in the media as an expert on taxation.
Adapted with permission from an article that first appeared in the National Post, February 6, 2010. This information is provided for informational purposes only and is not intended to provide specific financial, investment, tax, legal or accounting advice for you, and should not be relied upon in that regard. The views expressed in the article are the personal views of Jamie Golombek and should not be taken as the views of CIBC Asset Management Inc. 2 renaissance investments
Economic Outlook
Senior Economist, CIBC Benjamin Tal
Bracing for rate hikes In all likelihood, the Bank of Canada will start raising rates come June or July. In fact, the market is starting to toy with the idea that the first move by the Bank will be an increase of 50 basis points. As is
While factories are recovering in Canada alongside a global industrial revival, output remains nearly 20% below the pre-recession peak, and wages are now substantially above those stateside without the productivity
“The main reason is the fact that in diverging too far from the Fed, the Bank risks an even stronger Canadian dollar. Hiking 100 bps likely won’t mean more than a few cents on the loonie, but carrying on beyond that without matching moves from Bernanke could send the Canadian dollar into record territory.” almost always the case, the closer we get to the first move by the Bank, the more aggressive the market is in discounting future hikes. However, there are many reasons for a gradualist approach by the Bank that will leave the overnight rate at 1.25% at yearend, and at still-low 2.5% by the end of 2011. The main reason is the fact that in diverging too far from the Fed, the Bank risks an even stronger Canadian dollar. Hiking 100 bps likely won’t mean more than a few cents on the loonie, but carrying on beyond that without matching moves from Bernanke could send the Canadian dollar into record territory.
gains to match. There’s only so much of a competitive challenge that non-resource exporters can take in short order.
record-high 150%. This is 40% above the ratio seen the last time the Bank of Canada started to hike. This means that monetary policy will be very effective in slowing the consumer. While most of the recent focus of the potential impact of higher interest rates has been on the risk that this move will trigger a new wave of debt defaults, our analysis suggests that the focus should be on the overall impact of these rate hikes on consumer spending. Given the vulnerable starting point of the consumer, the Bank of Canada will soon find that even a moderate monetary squeeze will be sufficient to drive a material deceleration in consumer spending.
Another reason is the fact that fiscal policy will soon start to act as a negative for overall economic growth. Fiscal 2011/12 will entail serious belt tightening, with tax hikes and an abrupt swing from spending largesse to restraint. If so, overnight rates might have to remain relatively stimulative. Furthermore, the start of the tightening cycle will find a highly leveraged consumer with a debt-to-income ratio approaching a
This information is provided for informational purposes only and is not intended to provide specific financial, investment, tax, legal or accounting advice for you, and should not be relied upon in that regard. The views expressed in the article are the views of Benjamin Tal and should not be taken as the views of CIBC Asset Management Inc. renaissance investments 3
Back of the Napkin
Director, Strategic Insights Grant Shorten
Unmasking the toxic client How to spot them, how to stop them As an investment professional, you are in the business of discovering the needs, goals, fears and objectives of your clients, and designing strategies to address those factors head-on. As with any role demanding interaction with a wide range of personalities and temperaments, you will occasionally become involved in a partnership with a “toxic client.”
What is a toxic client?
> Ignores the strongest elements of the
Based on my experience in working with more than a thousand Investment Advisors, I have developed the following simple definition for a toxic client:
> Focuses on index returns with no regard
A toxic client is an individual, couple or household who consistently exhibits any of the following characteristics in the context of their relationship with you…
> Makes unfair demands of your time and attention
> Fails to take action on sound investment recommendations
> Takes credit for positive performance, but blames negative performance on you and your team
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portfolio, and consistently highlights weaker areas for prudent asset allocation
> Demands deep discounts on fees > Is rude, antagonistic, challenging, critical, threatening or dishonest
> Drains the energy and vitality from you and the members of your team
Naturally, some of your very “best” clients may manifest one or two of these behaviours under specific conditions, but that does not necessarily mean they should be classified as “toxic.” The key component in identifying a toxic client is the evidence of a consistent pattern of behaviour. It would serve us well to avoid judging our clients too harshly — for just being human from time to time.
“All too often, the advisor is left bewildered — wondering how they could have missed the early warning signs.” One of the most disheartening scenarios for any investment professional is to watch a new client relationship mysteriously morph, apparently without warning, into an advisor’s worst nightmare. All too often, the advisor is left bewildered — wondering how they could have missed the early warning signs. The reality is, there are several things we can be aware of during the critical early stages of the relationship, which may provide valuable insights into the potential toxicity of a prospective client.
Signs of toxicity The following attributes, behaviours or clues may serve as early warning signs of toxic potential down the road. Employ sensory awareness from your very first meeting, and combine your discoveries in order to create context and provide perspective. The investor:
> Has had relationships with a long list of advisors in the past
> Engages in “rate shopping” from the start > Has launched complaints or legal action against advisors in the past
> Talks about the need for outperformance > Talks about beating indices as the indicator of your success
> Is aggressive or rude during your sessions > Demands an unjustified service level agreement
> Challenges your early portfolio recommendations
> Refuses to embrace your model of portfolio construction
> Refuses to embrace your financial planning process
> Refuses to provide you with crucial information
Be sure to take notes during your meetings, and place an asterisk beside notations that leave you with a sense of caution or discomfort. Trust your instincts. You will be able to review your notes with more clarity after the session.
The presence of one or more of the early warning signs should be interpreted as an important signal to gather more information. It will be essential to discover whether these clues are genuine harbingers of things to come, or just a simple misunderstanding.
The onset of “toxemia” Toxic client relationships don’t typically appear overnight. They tend to develop over a period of time through a series of events or interactions. If the onset of “toxemia” was blatantly obvious, it would be easy to identify, and would provide the justified impetus to make rapid change. This is rarely the case. More often, something is said, a challenge is made, a complaint is leveled, a recommendation is ignored, the seed is planted and the pattern begins. Sometimes, months or even years will pass while the growing “dis-ease” continues to manifest. Why does this happen? There are a number of factors that lead us to tacitly ignore creeping toxemia within a given client relationship. First of all, as investment professionals, we have an industry-wide predisposition to “gathering assets” at almost all costs. We also have an aversion to letting those assets go. On top of that is a feeling that occasional unpleasant interactions are “just part of the job”— that dealing with tough clients is simply to be expected.
The side effects of “toxemia” Unfortunately, despite our best intentions, toxic client relationships always come with a list of costly side effects, which may include:
> Increased stress levels for you and your team members
> A perpetual drain on your energy resources
> Harm to your passion, conviction and joy > Damage to your self-esteem and self-worth
> Defensiveness — as a protection mechanism
> Irritability — which spills over to your team members and colleagues
> Reluctance to engage the toxic client > Reluctance to actively prospect or sign up more clients
> A stifled vision and sabotaged mission > L oss of your valuable time
“Ask yourself what happens to your neurology when you see this client’s name appear on your call display.” The most effective way to objectively determine if you are the unwitting victim of a toxic client relationship is to step back and evaluate where you are today. How many of these side effects do you or your team experience on a regular basis? What are the underlying causes? Revisit the bullet points throughout this article, and determine if you have any toxic relationships that have been unconsciously permitted or even facilitated.
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Strategy 2 Set up a face-to-face meeting with the toxic client. Respectfully explain your issues around their behaviour. Further explain that you’ve come to the realization that your personalities are not ideally suited for each other. Make the recommendation to move their account to another advisor or another firm. Offer any transfer support you deem suitable.
Strategy 3 Set up a face-to-face meeting with the toxic client. Respectfully explain your issues around their behaviour. Further explain that their approach to investing simply contradicts your own philosophy, and that you cannot, in good conscience, maintain a working partnership under those conditions. Make the recommendation to move their account to another advisor or another firm. Offer any transfer support you deem suitable.
Strategy 4 Send a personalized letter — covering any of the above strategies. If you’re uncertain whether a relationship is truly toxic, here’s a very simple test that an advisor in Toronto taught me: Ask yourself what happens to your neurology when you see this client’s name appear on your call display. If the very sight of their name fills you with dread, despair, anxiety or any kind of negative psycho-emotional response, all other things being equal, you may be dealing with a toxic client. If you are like many advisors, the exercise above will empower you to identify at least a couple of relationships that fall neatly into the “toxic” category.
Taking action: detoxifying your practice The first step to detoxifying your practice is to acknowledge and embrace the fact that immediate action must be taken. More often than not, the most effective action is the surgical removal of the toxic party from your client base. Make a list of all the benefits 6 renaissance investments
that you and your team will enjoy from the extraction of the toxic client. Internalize the benefits and bask in the empowerment this important action will bring. I recommend that you take action to detoxify your practice as soon as possible. I also recommend engaging your branch manager or reporting officer as you ponder the best detoxification strategy. There are many ways to go about it, and I provide the following as food for thought:
Strategy 1 Set up a face-to-face meeting with the toxic client. Respectfully explain your issues around their behaviour. Detail how you expect the relationship to unfold afresh, starting today. Having articulated the new “rules of engagement,” ask for acceptance of the “new way.” Gauge their reaction and response.
Putting it all together The quality of your work life has a major impact on your personal life. The elimination of even one toxic client can pay extraordinary dividends — saving you time, energizing your approach and ultimately increasing your revenue stream. By proactively detoxifying your practice, you are molding your environment and creating a more extraordinary experience of life for you and your team! To discuss strategies for dealing with toxic clients, please book an appointment with your Renaissance Investments representative.
Thanks to our supporters
The family man What I love about the business The people. I am fortunate to have such great families to serve as my clients. Best tip for gaining new clients Simple — provide your clients with excellent service and your good work will always be rewarded through client loyalty and referrals as your clients will want their friends and family to have the same great experience they enjoy. The book I’m currently reading I am re-reading Charles Mackay’s classic written in 1841: Extraordinary Popular Delusions and the Madness of Crowds. This classic book shows us how little investor behaviour has changed since this book was published almost 170 years ago Favourite vacation spot At home with my family. Favourite hobby when I’m not at work Coaching kids in the game that is played in heaven — Rugby. Charity that means the most to me The GAVI Alliance — they seek to address the preventable death of two million children each year through the act of immunization and simple vaccinations.
Name: Luke Kratz, FMA Firm: CIBC Wood Gundy Years in business: 18
Without the support of advisors like Luke Kratz, Renaissance Investments would not enjoy the privilege of helping so many Canadian families invest well and live better. We are proud to work with outstanding advisors across the country, and thank each and every one of you for your continued partnership.
What do I offer to the local marketplace and to my clients? Primarily, I can offer my ears. By taking the time to listen to my clients, and asking them the right questions, I gain a crystal-clear understanding of what is most important to them. My approach of taking the time up front to get it right allows me to tailor my advice and make customized solutions to help my clients achieve what matters most to them over the years we will be working together. In my 18 years doing this, I have found that when my clients have a high degree of confidence in the path we are taking to get to their goals, it permits them to spend more time watching sunsets and less time watching business news television.
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Invest Well
California dreamin’ Aletheia’s Peter J. Eichler, Jr. makes dreams of growth come true
Peter J. Eichler, Jr. was born into one of the most storied investment families on America’s sunny west coast. Today, at the helm of money management firm Aletheia, he’s discovering growth opportunities for unitholders of the Renaissance Global Focus Fund and the Renaissance U.S. Equity Growth Fund. “I was almost prenatal in this business,” says Peter J. Eichler, Jr. tongue-in-cheek when asked how he got his start in investing. But it’s not far from the truth: his paternal grandfather was Rudolph Eichler, who in 1932 co-founded what would become one of the largest regional brokerage firms in America, Bateman Eichler & Company. “He wrote many books and was truly a great investor in both securities and real estate,” says Eichler. “He had a real understanding of value. He actually bought an acre of property near Santa Barbara where our family’s beach house now stands back when there were enemy Japanese submarines just off the coast. He always had a keen contrarian sense.” His mother’s father was Henri de La Chapelle, the first global strategist for Paine Webber and a widely read fixture in the securities industry for more than 50 years. 8 renaissance investments
In addition, Henri’s brother Dick was a founding partner of the investment banking arm of Dean Witter. Growing up in California, young Peter J. Eichler, Jr. was surrounded by family and friends in the business. His father eventually took over at Bateman Eichler, and the family counted Capital Guardian Trust co-founder Bob Kirby, Trust Company of The West founder Bob Day, and Berkshire Hathaway vice chairman Charlie Munger among their closest friends. In fact, it was some kind words from Munger that would later give Eichler the confidence to start his own firm.
The search for truth As a student, Eichler spent summers doing odd jobs in the family business. After college, in a time-honoured rite of passage, he moved to New York and took a job on
Wall Street at E.F. Hutton. It was the heyday of the early 1980s, and Eichler started in the trenches, working on the floor of the New York Stock Exchange. From there, he gained experience in every facet of the business: commodities, futures, institutional equity research, broker training, insurance — even something called “tax-sheltered product origination.” “At the time, a lot of tax-sheltered partnerships were being thrust at investors, and my job was to vet them. It was great early training for me to go over many, many business plans from companies in real estate, technology, farming and other industries, and to work with pros in the business who helped me understand what was a good business model and what wasn’t.” Armed with hands-on “holistic business training,” Eichler later returned to California on the assumption that he would be next in
line to lead the thriving family business. But only a year later, something unexpected happened: Bateman Eichler was sold to Kemper Insurance. “It’s interesting how fortune smiles on us sometimes,” recalls Eichler. “I accepted a position in the institutional sales department at Bateman Eichler under its new owners, and that’s where I had an experience — almost 30 years ago now — that permanently changed my perspective.
“...everything changed when I realized that the traditional way of doing research had a fatal flaw.” “Our analysts had been recommending the shares of a well-known hamburger company that surprised the market with an earnings disappointment. I guess they didn’t sell enough French fries or milk shakes. I remember being in the research meeting with the lead analyst, and he kind of shrugged his shoulders and said, ‘Sorry guys, the company bagged me.’ I asked, ‘What do you mean the company bagged you?,’ and he said, ‘Well, they told me everything was wonderful.’ “I remember it hit me like a lightning bolt. I really wanted to make money for our clients and distinguish our firm, and everything changed when I realized that the traditional way of doing research had a fatal flaw. Namely, that otherwise well-educated men and women were calling companies and speaking to what were essentially PR people and expecting them to give them the truth. I found that to be almost laughable.” That’s when Eichler took matters into his own hands. Curious about the business conditions at Boeing, he called more than 20 people who worked there — but no one from the finance or PR departments. He called shoe buyers at Foot Locker across the U.S. to find out why Nike was outselling L.A. Gear. In fact, he spent the rest of the 1980s developing a network of real people working in industries across the country. “I put my faith in getting to the truth,” says Eichler. “I put my energy into talking to the people who were actually building the 747-400 aircraft and putting the shoes in the stores. I felt that if I could understand the truth of various investment situations, I could do a good job for my clients.”
For several years during the 1990s, Eichler applied his unique brand of truth-seeking as a money manager at Bear Stearns. While he enjoyed the experience, his contrarian leanings often put him at odds with his employer. Finally, in 1997, with $15 million in seed capital and the encouragement of Charlie Munger, Eichler launched his own investment management firm. He named it Aletheia — the Greek word for “truth.”
Growth through transcendent earnings Today, Aletheia manages more than US$7 billion for a variety of institutional investors — including Renaissance Investments — and boasts a performance track record that has handily outpaced the S&P 500 over numerous periods over the past 13 years.
“People talk about ‘growth at a reasonable price,’ but we prefer situations where we can buy growth at a ridiculous price.” Eichler likes to say that his style of growth investing is fuelled by “transcendent earnings,” which he describes as “Earnings that are so significant, so large, that stock performance will transcend political and emotional barriers. “Peter Lynch said it best: earnings, earnings, earnings. We don’t look at Wall Street research, we don’t weight our portfolios relative to the index and we don’t care about GDP numbers. We look at the ‘microeconomics’ of each situation, and buy great companies that are producing transcendent earnings. The interesting and beautiful thing is that we also lower our risk by buying these companies very cheaply. People talk about ‘growth at a reasonable price,’ but we prefer situations where we can buy growth at a ridiculous price.” Eichler offers the compelling example of McDonald’s: “We bought McDonald’s a few years ago after the price had declined from nearly $50 per share to just $15 per share. At that time, everybody knew about the things that were going badly at the company, but not enough people were paying attention to what was still good and the strength of its franchise. When we bought, McDonald’s was earning around $1.50 per share. This year, the
company will earn almost four-and-a-half dollars per share. Earnings have tripled and the stock has more than quadrupled since we bought it.”
“Investing isn’t mysterious. Many times, the best ideas are very, very simple.” How does Eichler know when he might have a 400% return on his hands? He breaks his buy discipline down into four criteria — all of which must be met before an investment is made: 1. M oney flows. “We want to see money flowing into the company from the right people. We look at SEC filings and other documentation to see if corporate insiders and knowledgeable outsiders are buying the stock.” 2. Balance sheet. “Looking at what’s in the bank tends to give a more honest view of earnings than just looking at the income statement. We want to find companies that generate a lot of cash. Earnings and cash flow are leading indicators, and stock momentum is a lagging indicator.” 3. Industry research. “We don’t read analyst opinions, we read industry literature. I can learn a lot more from an issue of Beer Marketer’s Insights or Aviation Week than from the Wall Street Journal. In fact, American Banker revealed strong clues about the mortgage crisis a year before it happened. That’s part of the reason we were significantly underweight Financials versus the index.” 4. Industry contact. “We want verification of our thesis about a company from individuals who work at the company or in the industry — whether it’s one of the experts on our research board of advisors or someone we’ve met while conducting research.” Despite this rather rigorous four-step process, Eichler insists that “Investing isn’t mysterious. Many times, the best ideas are very, very simple.” To illustrate the point, he shares another story from the Aletheia portfolio: “Our Senior Director of Research, Betsy Sanders, was the first woman to sit on the board of Wal-Mart. She brought a simple but very valuable idea to our attention: given the massive growth opportunities in the renaissance investments 9
Chinese market, Wal-Mart would become a growth stock again. We bought Wal-Mart after the stock went from 60x earnings to about 12x earnings, and we think we’ll triple investors’ money with that stock.” As for the firm’s sell discipline, it’s based on the same factors as the buy discipline, except a negative change in any one of the four criteria will trigger a sale — no questions asked. “We won’t call the company to verify bad news, because they’ll try to talk us out of selling,” says Eichler. “I bought Microsoft in 1989. At the time, I saw Steve Ballmer invest $50 million in the company at what would now be pennies a share. I invested, and Microsoft went on to became one of the premier growth companies of the 1990s. But in November 2000, I saw that Paul Allen, co-founder of Microsoft, had sold and/or hedged approximately 160 million shares, which represented the majority of his holdings. Although we had owned Microsoft for all those years, we sold it the very next day. And you know what? Over the past 10 years, Microsoft’s stock has declined approximately 15% from when Paul Allen sold his shares at roughly US$35, compared to today’s price of around US$30.” The main message Eichler wants to share with investors? “With our approach, If things go well, you can triple or quadruple your money. If not, there’s still not a lot of absolute risk.” And that’s the truth. For more information about how the Renaissance Global Focus Fund and the Renaissance U.S. Equity Growth Fund can help your clients take advantage of growth opportunities while carefully managing risk, please speak to a member of your Renaissance Investments team.
The views expressed in this article are the personal views of Peter J. Eichler, Jr., Aletheia, and should not be taken as the views of CIBC Asset Management Inc. The commentary provided is for general informational purposes only and does not constitute investment advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. The information contained in this document has been obtained from sources believed to be reliable and is believed to be accurate at the time of publishing, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions and estimates expressed in this document are as of the date of publication unless otherwise indicated, and are subject to change. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. 10 renaissance investments
Nine stocks that Peter J. Eichler, Jr. likes today 1. “Coca-Cola is a really under-owned stock. The average U.S. consumer drinks 550 carbonated drinks per year, but in China and India, it’s more like five or six servings. Most analysts are still fixated on U.S. consumption, but the growth story is international. Coca-Cola is Warren Buffett’s largest holding, and I believe it will continue growing for the next 10–20 years.” 2. “McDonald’s is rapidly becoming just as high-quality a company as Coke. KFC’s top-selling product in China is hamburgers. There’s tons of untapped demand over there — McDonald’s could probably open up 30,000 locations in China right now. They’ve also become very successful at breakfast, beating Starbucks in taste tests. Meanwhile, the company continues to buy back shares, using company cash flow to essentially take McDonald’s private over time.” 3. “Barrick Gold is the world’s leading gold producer, and they recently made headlines for eliminating their hedging program. Many saw that as negative, but we saw it as a distinct positive. It’s an indication that those insiders who have the best knowledge of the market see an opportunity to make more money with exposure to gold. We think the stock could go to $150 or $200.” 4. “Newmont Mining is growing its gold production. It’s funny how gold is often called ‘speculative’ in the media, but no one seems to consider the euro or other currencies speculative. I think the financial problems we’re seeing from Greece to California to Ireland will be reflected in the price of gold. Some of the world’s greatest investment visionaries are buying gold right now.” 5. “Suncor Energy has open-ended growth potential from their merger with Petro Canada and their vast oil-sands operations. I want to underline three words: no decline rate. Most oil companies need to explore for new production every few years, but not Suncor — their production levels will be straight as a ruler for the next 50 to 70 years. At an appropriate earnings multiple, this could be a $240 stock.” 6. “Petrobras has a huge amount of oil in Brazil. The company will take the country’s oil production to six or seven million barrels of oil per day, and the earnings are going to be immense. You could have Petrobras earning $15 or $16 dollars per share and see a stock price in excess of $200.” 7. “ VW has come back into our portfolio. The last time we owned it, it went from about $7 per share to $125 per share. Toyota’s recent quality issues have created a real image problem, and a huge global opportunity for VW. They’re already the world’s third-largest automaker, and I believe they have the scale to become number one.” 8. “Mitsubishi UFJ Financial Group is a great example of a growth stock that’s been out of favour for a very long time — about the last 20 years. But Mitsubishi is the largest bank in the world, and they’ve made some tremendous investments, such as investing $9 billion in Morgan Stanley at the bottom of the market. I think it’s a stock with great growth potential.” 9. “ Wal-Mart is currently earning between $4 and $5 per share, and I think it will be earning $8 per share within the next several years. Once people begin to appreciate the emerging markets opportunity for Wal-Mart, it should resume trading at a multiple worthy of a growth stock. I think it could be trading at $170.”
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renaissance investments 11
Axiom Portfolios
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Axiom Portfolios provide the benefits and peace-of-mind of sophisticated portfolio management, while simplifying the administration, management and reporting of a portfolio.
With eight portfolios to choose from, investing in Axiom Portfolios provides: •A ccess to the accumulated knowledge and expertise of independent investment managers from across Canada and around the world • Risk management, through rigorous due diligence and built-in rebalancing • Multiple levels of diversification •T -Class options available on all Axiom Portfolios, offering tax-efficient cash flow
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12 renaissance investments
Axiom Portfolio Managers
Axiom Portfolios have access to the accumulated knowledge and expertise of independent investment managers from across Canada and around the world.
anso Investment Counsel Ltd.
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Axiom Portfolios have been designed to manage risk and solidify the potential for returns by ensuring portfolios are broadly diversified across multiple levels. Each portfolio is diversified across asset classes, investment styles, geographic regions and market capitalizations. There are eight portfolios available designed to meet the needs of various types of investors.
Axiom Balanced Income Portfolio* Equities 10.0% U.S. Equity 8.8% Canadian Equity 6.0% International Equity 3.0% Emerging Markets Equity Income Generation 12.2% Canadian Monthly Income Fixed Income 60.0% Canadian Fixed Income
Axiom Balanced Growth Portfolio* Equities 32.0% Canadian Equity 12.0% U.S. Equity 8.0% International Equity 5.0% Emerging Markets Equity Income Generation 8.0% Canadian Monthly Income Fixed Income 30.0% Canadian Fixed Income 5.0% Global Bond
Axiom Long-Term Growth Portfolio* Equities 40.0% Canadian Equity 10.0% U.S. Equity 8.0% International Equity 7.0% Emerging Markets Equity Income Generation 15.0% Canadian Monthly Income Fixed Income 15.0% Canadian Fixed Income 5.0% Global Bond
Axiom Foreign Growth Portfolio* Equities 43.0% U.S. Equity 33.0% International Equity 10.0% Emerging Markets Equity Fixed Income 14.0% Global Bond
Axiom DiversiďŹ ed Monthly Income Portfolio* Equities 18.4% Canadian Equity 5.0% U.S. Equity Income Generation 36.6% Canadian Monthly Income Fixed Income 40.0% Canadian Fixed Income
Axiom Canadian Growth Portfolio* Equities 56.0% Canadian Equity Income Generation 24.0% Canadian Monthly Income Fixed Income 20.0% Canadian Fixed Income
Axiom Global Growth Portfolio* Equities 29.0% U.S. Equity 21.0% International Equity 16.0% Canadian Equity 10.0% Emerging Markets Equity Income Generation 4.0% Canadian Monthly Income Fixed Income 10.0% Canadian Fixed Income 10.0% Global Bond
Axiom All Equity Portfolio* Equities 38.0% U.S. Equity 24.0% International Equity 18.0% Emerging Markets Equity 16.0% Canadian Equity Income Generation 4.0% Canadian Monthly Income
*Target asset class allocations renaissance investments 13
Live Better
A Canadian great talks FIFA World Cup soccer
Going for the cup
FIFA World Cup mania will hit fever pitch starting June 11 as national teams compete for the ultimate prize in the world’s most popular sport. CIBC is proud to partner with CBC, Radio Canada and Telelatino as the exclusive financial services broadcast sponsor of the games, and we recently had an opportunity to get the inside scoop from someone who truly knows what it’s like to go for the cup.
Jason de Vos has a secret about professional athletes: “Nothing could ever replace the enjoyment you get from being a professional athlete. In fact, I think most of them would play for free. Just don’t mention that during the contract negotiation period,” he laughs. No one knows the thrill of victory better than de Vos. He was captain of Canada’s national team from 1999 to 2004, and scored the winning goal in Canada’s 2-0 victory over Colombia in the final of the 2000 CONCACAF Gold Cup, the only major international tournament ever won by the Canadian team. “I was lucky enough to have an 18-year professional career — 12 years in England and six in Canada,” says the London, Ontario-
World Cup by the numbers
126 renaissance investments
born de Vos. “I started out with the Montreal Impact, and was signed by Darlington in 1996. Then I had three years with Dundee United in the Scottish Premier League where I became team captain, and later moved over to the English Championship with Wigan Athletic and Ipswich Town FC before retiring at the end of the 2007–08 season.”
“There are 900,000 registered soccer players in Canada versus just 550,000 registered hockey players.” 9
the number of South African cities where games will be played
19
Today, many people recognize de Vos as the on-air soccer analyst at Canada’s national broadcaster. “I started with the CBC during the 2002 World Cup while I was still playing with Wigan,” says de Vos. “In 2007, the network wanted to put together a team to cover Toronto FC and future World Cups, and asked if I’d be interested in retiring as a player to join them. At the time, I was nearly 34 years old and I felt it was the right time in my career to move to another area where I could still have an impact on soccer.” One of the impacts de Vos hopes to have is to foster more development of the sport at home. “There are 900,000 registered
including South Africa, the number of World Cups that have been held since 1930
1872
the year of the world’s first international football match, played between Scotland and England
soccer players in Canada versus just 550,000 registered hockey players,” he says. “The problem is we don’t have a professional league that kids can aspire to, and our system is not great at spotting and developing talent.” On the bright side, de Vos believes that increasing media interest, the growing popularity of Toronto FC and the Vancouver Whitecaps, plus rumours of the Montreal Impact joining Major League Soccer in 2012 are all signs that soccer is gaining momentum in Canada.
Next stop: South Africa While Canada struggles to catch up, professional soccer is already a prevailing boyhood dream for millions across Europe, South America and Africa. From June 11 to July 11, they’ll be able to cheer on their heroes at the World Cup, where one national team will be declared the best in the world. “Thirty-two teams from around the world have qualified, and are divided into eight groups of four teams,” explains de Vos. “Through a process of elimination, the teams will be reduced to 16, then eight, then four, and then a final match to determine the winner of the cup.” Sponsored by global governing body FIFA, the World Cup is up for grabs every four years. In 2006, the tournament was held in Germany, where Italy defeated France in the final game. This year, the tournament will be held in South Africa — the first time the games will take place on the African continent. “This is a wonderful opportunity for South Africa to showcase its cultural and political progress,” says de Vos. “There has been a strong lobby for several years to bring the Cup to South Africa since the end of apartheid. Soccer is very popular in Africa and they have always fielded strong teams.”
South Korea and Japan, 2002 “This was a breakthrough year for the Asian continent because of South Korea’s outstanding performance. Host countries always tend to do well, but nobody expected South Korea to make it to the semi-finals. Their 2002 World Cup performance did a lot to raise awareness and increase fan interest across Asia.” USA, 1994 “Up until the 1994 cup, pro soccer in the U.S. was really hit-and-miss. There was a professional league in the late 1970s and early 1980s, but it went bankrupt. FIFA made a deal with the U.S. that they could host the games if they promised to start another professional league. That led to the creation of Major League Soccer, which is still going strong today thanks to that deal in 1994.” Mexico, 1986 “This was the only time the Canadian team qualified for the World Cup, and it will always stand out for me because I was watching as a 12-year-old, and it changed my life. After watching that cup, I never set out to become rich from playing soccer, I only wanted to wear that Canada jersey and play for my country. Fortunately, I achieved that goal and was even named captain of the team. Unfortunately, we weren’t able to qualify for the World Cup again.” Will Canada ever make it back to the world stage? “Absolutely,” says de Vos. “But we need a wholesale shift in our mentality towards developing players. Most make it by going to Europe and learning the game over there. But the Canadian Soccer Association is prepared to make changes, and hopefully we’ll see the results within the next decade or so. It’ll take patience, but we’ll make it.” Jason de Vos is a sports analyst with the Canadian Broadcasting Corporation.
The ones to watch Here are some of the most interesting contenders for the 2010 World Cup, according to Jason de Vos. Brazil “You can’t talk about favourites without mentioning Brazil. They often have the most talented team of players and are almost always top contenders.” Spain “They’re the reigning European champs, and they’re as good as or better than Brazil on paper. Whether they can repeat their European performance remains to be seen.” Germany “The Germans always field a solid team. For some reason, they seem to be downplaying their chances in 2010, but I wouldn’t count them out by any means.” Netherlands “This team plays beautiful football, as it’s known outside North America. In fact, the term ‘total football’ was coined in the 1970s to describe their style of play.” England “England gets their fans excited every year, but they’ve only won once, in 1966. So that’s 44 years of pain. This time, they have an Italian coach and a talented squad, so this might finally be their year.” African teams “The host continent often produces the winning team. Seeing as this is the first cup ever played in Africa, it will be interesting to see what South Africa, Ivory Coast, Ghana, Cameroon and Nigeria can do.”
Asked to name some of his favourite World Cup moments of years past, de Vos says three come to mind:
159,000
the number of new jobs created from hosting the World Cup
3 million
the estimated number of visitors to South Africa during the 2010 World Cup
Source: http://www.southafrica.info/2010/worldcup-overview.htm
$695 million
the amount South Africa will spend on building, rebuilding and renovating 10 stadiums
$3 billion
the amount Grant Thornton predicts the World Cup will pump into South Africa’s economy renaissance investments 127
Brain Calisthenics
Word scramble
Sudoku
Unscramble the following letters to spell words from this issue’s “Invest Well” article:
Complete the Sudoku puzzle so that each and every row, column and 3x3 box contains the numbers one through nine only once.
1. fialconiar 2. etaanmb
3
3. leaheait
4
6
1
9 9
4. grenum
7
9
3 8
2
1 4
3
5
9
7. ymssretiou
9. cheesin
9
10. sortfocim
7
4 7
3
9 7
2
8. eeasrrch
4 7
8
5. utthr 6. snecnedtnart
5
6
7 8
5
1
5 2
8
Source: 4puz.com
Spot the difference: soccer match Can you spot the five differences between the pictures below?
Check your answers at www.renaissanceinvestments.ca/braincalisthenics 128 renaissance investments
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Call your Renaissance Investments representative today 1 888 888 FUND (3863) www.renaissanceinvestments.ca Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the Renaissance Investments family of funds simplified prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Renaissance Investments is offered by CIBC Asset Management Inc. ™ Renaissance Investments and “invest well. live better.” are registered trademarks of CIBC Asset Management Inc.
To learn more about how Renaissance Investments can help you and your clients invest well and live better, visit www.renaissanceinvestments.ca or call 1 888 888 FUND (3863). FOR DEALER USE ONLY Renaissance Investments and the Axiom Portfolios are offered by CIBC Asset Management Inc. This material was prepared for investment professionals only and is not for public distribution. It is for informational purposes only and is not intended to convey investment, legal or tax advice. The material and/or its contents may not be reproduced or distributed without the express written consent of CIBC Asset Management Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. The indicated rates of return are the historical annual compounded total returns for the class A units unless otherwise noted, including changes in unit value and reinvestment of all distributions, but do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. For money market funds, the performance data provided assumes reinvestment of distributions only but does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer, nor are they guaranteed. There can be no assurance that a money market fund will be able to maintain its net asset value per unit at a constant amount or that the full amount of your investment will be returned to you. The values of many mutual funds change frequently. Past performance may not be repeated. †Current yield is an annualized historical yield based on the seven-day period ended on March 31, 2010 and does not represent an actual one-year return. ™ Renaissance Investments and the Axiom Portfolios are offered by CIBC Asset Management Inc. ™ Axiom, Axiom Portfolios, Renaissance Investments and “invest well. live better.” are registered trademarks of CIBC Asset Management Inc. 02001E(201004)
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