The Renaissance
Advisor
QUARTERLY FUND PROFILES / PRACTICE MANAGEMENT / OUTLOOK / OPINION
Re-thinking Risk With rates in the basement, the path to success has changed ALSO INSIDE:
More on Fork in The Road: Today’s Income Decision A 30-point check-up for your business
Q4 – DEC. 31, 2012
TO DEFEND OUR EMPIRE, LET’S BUILD A SMALL FENCE.
GREAT LEADERS MAKE STRONGER PLANS: TODAY’S INCOME DECISION. It’s a tough decision, but it’s time to make it. We have reached a fork in the road. The flight DECISION to “safer” assets in the face of volatile markets TOOLKIT may have worked until now, but record low yields are proving to be a threatening force. Now is the time to plan for the future.
INCOME
Renaissance is committed to going further for you. We have actionable tools, solutions and key support to make today’s income decision easier. Get your Income Decision Toolkit today. Visit incomedecision.ca or call 1-888-888-FUND (3863).
TO DAY ’ S I N C O M E S O LU T I O N S Optimal Income Portfolio
Short-Term Income Fund
Corporate Bond Capital Yield Fund
Millennium High Income Fund
Optimal Inflation Opportunities Portfolio (inflation mitigation)
7th Century BC China decides to build a Great Wall.
TM Renaissance Investments is offered by and is a registered trademark of CIBC Asset Management Inc. 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.
PAGE
In this issue
8 6 14
RENAISSANCE INVESTMENTS
Tax and Estate The Mortgage, the TFSA and the RRSP
3
Economic Outlook Canada: Not There Yet‌
4
Back of the Napkin Diagnostics Required!
6
Re-Thinking Risk With Rates in the Basement, the Path to Success Has Changed
8
Solution Highlight Additional Income with Proven Outperformance
12
Thanks to Our Supporters A Focus on Long-term Goals
13
Cracking the QR Code
14
Brain Calisthenics
16
Letter from the National Sales Manager
Plan Ahead for Success in 2013 I trust that you are experiencing an inspiring business beginning to 2013. There are many who say that there is no real RRSP season anymore (and perhaps compared to the days of faxing in orders at the end of the day to meet the deadline – and hoping that the fax goes through – that is true). However, it remains that the highest level of sales in our industry occurs during the first calendar quarter. That period also translates into the most client interactions by advisors, as many assist clients with their annual investments into retirement funds. Even if it is a small portion of the client’s wealth, it still needs to be discussed. But have you thought about what the next interaction is going to be with the client, and what will be on the meeting agenda? The time to make that decision is before the first discussion actually takes place with the client. To succeed in gaining that level of discipline and organization, make a commitment now to create a business plan for 2013. This will assist in the development of your business and contribute to increased revenues. To achieve all that you want, it is important to have a plan that can be used as a roadmap to success and as a scorecard to determine your progress. Think of it as a personal accountability partner for you and a playbook for your team. Your plan needs to detail meetings for clients (both number of meetings and types of meetings), recommendations, social activities, personal development and marketing activities. Remember, the best business plans are not the longest or the ones that use the most paper or memory on your computer, but the ones that can easily be followed and executed against as the year progresses. A good start on addressing your business plan can be found in Grant Shorten’s article on page 6 of this magazine titled, Diagnostics Required! A 30-point Mechanical Check-Up for Your Business. Your Renaissance partners can help you develop a plan that fits your goals and team structure, should you be looking for some ideas or a second opinion. We strive to be a trusted business partner and want to be able to earn your business. I welcome any comments or feedback and thank you for your support when recommending Renaissance Investments to your clients.
Sincerely,
Dave Wahl National Sales Manager Renaissance Investments 416-943-6959
The Mortgage, the TFSA and the RRSP Helping clients prioritize this RRSP season
TAX AND ESTATE
With the annual RRSP contribution deadline of March 1 fast approaching, many Canadians are pondering the age-old question: should I save for retirement or pay down my debt? In the past, this was often phrased as: which comes first, the mortgage or the RRSP? But with the introduction of the TFSA five years ago, things got a bit more complicated. To help answer this question, think of paying down debt as a form of after-tax investing. In fact, paying down debt is similar to contributing to a TFSA. For example, let’s say you direct $1,000 of after-tax cash flow to pay down debt that carries a 5% interest rate. After one year, your debt load will have been reduced by $1,000 and you will have saved $50 ($1,000 x 5%) of interest expense. If, on the other hand, $1,000 of your after-tax earnings is used to make a contribution to a TFSA earning 5%, in one year’s time, the after-tax value of your TFSA will be worth $1,050 ($1,000 x 1.05%). In both cases, your net worth will have increased by $1,050. So, when it comes to deciding between paying down debt and investing in a TFSA, since both options use after-tax funds, you could simply choose the “investment” (debt or TFSA) with the highest rate of return. For example, if your mortgage bears a rate of 4% over the next five years, and your TFSA is invested in a 5-year GIC to earn 2%, then clearly paying down debt is the way to go (assuming no pre-payment penalties on the mortgage). If, on the other hand, you have a very low mortgage rate of say 3% and you expect, through investing in an equity-based portfolio inside your TFSA you could ultimately earn 5% or 6%, then the TFSA would be the better option.
In today’s market, however, while it may be difficult to get a guaranteed rate of return that exceeds the interest rate on debt, it’s important to consider the time horizon.
In today’s market, however, while it may be difficult to get a guaranteed rate of return that exceeds the interest rate on debt, it’s important to consider the time horizon. If TFSA funds are being invested for the long term, the anticipated rate of return over that time horizon should be considered in any analysis. When it comes to choosing between an RRSP contribution and debt payment, the question becomes more complex because you need to take into account your tax rates. Our previous report, Blinded by the Refund, showed the effect of different tax rates in the period of contribution versus the period of withdrawal. If the rate of return on an RRSP equals the interest rate on debt, an RRSP yields a higher after-tax amount than paying down debt when tax rates decrease on withdrawal and vice versa. When tax rates change between contribution and withdrawal and the rate of return on an RRSP does not equal the interest rate on debt, the analysis is often more complex and might have to take into account the time horizon as well.
Jamie Golombek is Managing Director, Tax and 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. Follow @JamieGolombek
www.renaissanceinvestments.ca/en/jamie_golombek/
RENAISSANCE INVESTMENTS 3
Canada: Not There Yet… ECONOMIC OUTLOOK
Stable Commodity Prices Will Make Real GDP More Relevant It’s almost official. For the first time in six years, Canada will underperform the U.S. in 2012. And the headwinds that led to this reversal of fortune will only intensify in 2013. Despite resource sector production, which will add 0.5% to GDP growth, overall activity is set to rise at a mere 1.7% pace, due to sluggishness elsewhere. In many ways, the coming year should be seen as a transition year from a bad to a better economic trajectory, as improved resource prices and earnings visibility will rekindle corporate Canada’s stored energy in 2014.
A Big Lift From Resource Extraction Hope has sprung eternal for those bullish on the Canadian economy, as “temporary” resource disruptions were blamed for quarter-after-quarter of sub-2% growth. There’s some truth there – weakness in the oil patch, due to upgrader problems and East Coast maintenance, alongside temporary mining sector closures, shaved a quarter point from GDP growth in 2012. Restarts to resource operations should provide a minor lift to growth in 2013, and higher oil output following years of earlier investment should see the resource sector add roughly 0.5% to growth in 2013. But weakness elsewhere will offset the resource sector’s upturn, leaving overall activity tracking a weaker tempo. Even in the resource sector, some of the recent weakness does not appear to be ripe for a rebound in 2013. Mining production has been on a weaker trend for years, with the recent soft spell dating back to mid-2011, following the cyclical rebound. Weak metals/minerals pricing and uncertainty about global demand have already weighed on fertilizer output and iron ore mining expansion plans, risks we see persisting in 2013. On the energy side, falling natural gas output in 2012 merely follows weaker production for over half a decade, with falling prices discouraging activity. Although price stabilization could slow the production decline, those hoping for higher output in 2013 could be disappointed. So resource production weakness of a “transitory” nature only explains a small share of the 2012 GDP slowdown, hinting at sluggishness elsewhere.
4 RENAISSANCE INVESTMENTS
Sharp swings in commodity prices worked to challenge the economic relevance of real GDP. Changes in commodity prices, while not captured directly in real GDP, visibly impact the bottom lines of corporate Canada and influence other important economic measures such as employment. During booms, commodities boosted corporate profits, fuelling jobs and wage growth. But then the bust got commodities slicing the other way, amplifying the damage on corporate results and exposing Canada’s vulnerability to its undiversified economy. The notable decline in resource price volatility in recent quarters and our projection that volatility will remain low in the coming year suggest that corporate profits will dance to the tune of a slowing economy in 2013. That will be very visible in capital spending, which is increasingly being driven by oil patch investment. Already in 2012, many key players have scaled back planned investments due to weaker Canadian oil and gas prices. And such sensitivity to commodity valuations is evident in the historic data, as the pace of capital spending tends to soften when commodity prices fail to track higher levels, even in the absence of an economic downturn. What’s more, historically, a stronger Canadian dollar boosted the spending power of firms importing foreign machinery, adding roughly 2.5% to real machinery and equipment investment. But with the Canadian dollar set to be range-bound next year, there won’t be a new foreign exchange lift to capital spending growth. All told, sideways commodity prices in 2013 on soft U.S. growth and ongoing global challenges suggest that capital investment could slow to a 3% pace, with a pickup only set for 2014, supported by a rising trend in oil prices. Stable commodity prices are also working to close the gap between nominal and real measures such as exports. With commodity exports likely to remain relatively stable as a share of GDP, non-commodity exports, which recently turned from a secular drag to a modest support, due to the relative stability of the Canadian dollar, will have to carry the torch – and here it’s difficult to be too optimistic. The U.S. auto sales resurgence following the recessionary drought is coming to a plateau, with unit sales approaching pre-recession levels, while the projected softening in the inventory position stateside is a clear negative.
3-Year Moving Window Standard Deviation of Commodity Prices 140
y/y
120 100 80
6%
Real GDP Growth, y/y
4% 2% 0% -2%
CIBC Forecast
U.S. Canada
-4%
Apr. 2013
Feb. 2013
Apr. 2012
Feb. 2012
Apr. 2011
Feb. 2011
Apr. 2010
Feb. 2010
Apr. 2009
Feb. 2009
Apr. 2008
-6%
Feb. 2008
Add it all up and even with ultra-low rates through 2013, the economy is set to decelerate to the slowest pace since the recession. The resource sector likely won’t be enough to catapult growth to new heights, particularly if flat resource prices fail to provide an incentive for new investment. But the 2013 slowing is just the economy’s last fatigued lap, after running a race on little other than a steady shot of low rates. Thankfully, in 2014, rising external demand should see the economy catch a second wind, boosting growth, interest rates and the Canadian dollar in tandem.
Canada No Longer Outpacing U.S.; Slowing to <2% in 2013 Delays Rate Hikes
Apr. 2007
This time around, don’t count on the consumer and real estate. The recent softening in housing activity is persistent and will negatively impact economic activity through multiple channels. Directly, homebuilding will swing to a 0.1% drag on growth in 2013 from a 0.4% contribution in 2012, not counting multiplier impacts on related durables consumption. Furthermore, with real disposable income lagging its long-term average over the past year, it’s hardly a surprise that consumers are not tempted by near-zero retail price inflation. Real retail sales are now rising by almost a full point slower than the pace seen earlier in the year, and 1.2% below the long-term average. Even this mediocre performance is unsustainable. Over the past year, auto sales were responsible for around half of the increase in retail sales – a record high and almost twice the long-term average. Recessionary-induced pent-up auto demand has now been fully depleted and it’s likely that auto sales will slow notably in 2013.
Source: CIBC
Benjamin Tal is Deputy Chief Economist for CIBC. Described as one of Canada’s leading experts on the real estate market by the International Monetary Fund, he is responsible for analyzing economic developments and their implications for North American fixed income, equity, foreign exchange and commodities markets.
60 40 20 0 2002
www.renaissanceinvestments.ca/en/economy/ 2004
2006
2008
2010
2012
Source: Statistics Canada, Bank of Canada.
RENAISSANCE INVESTMENTS 5
Diagnostics Required! A 30-Point Mechanical Checkup for Your Business
BACK OF THE NAPKIN
Your advisory practice is a complex machine with many moving parts. And like all machines, it will be endlessly challenged and tested by a wide range of external forces. One Saturday morning, I awoke to discover that my car’s windshield washer fluid tank was completely empty, even though I had filled it up the previous day. Since a giant snow storm was looming in the forecast, I reluctantly took my car to the dealership for some urgent attention. Well, after a rather expensive diagnostic procedure, I was gently informed that the leaky reservoir was the least of my problems. Needless to say, several more repairs were added to the list, as I watched my net worth drain as quickly as my washer fluid. While sitting in the dealership, I couldn’t help but contemplate how my once healthy car had quietly and systematically become a victim to things like: wear and tear, bangs and bashes, hills and valleys, and many other damaging influences. Just one week earlier, I had been driving around the city completely and utterly oblivious to the mounting problems lurking below the surface. Of course, I already knew about some of the most obvious issues, but was more than happy to live with them until I could “find some time” to have them addressed. Nevertheless, it was only when I finally submitted my car to a proper diagnostic procedure, that the real (more serious) issues were identified and exposed. Now, it’s important to note that, prior to completing these badly needed repairs, my car still worked. It still got me from point A to point B, and it still looked great after a quick visit to the carwash. But there were a growing number of underlying problems – big problems. The reality is, machines wear out and they require ongoing maintenance, service and repair. Sometimes a machine simply needs a bit of grease to free-up the gears. Sometimes it requires a new replacement part. But sometimes an entire section of the machine needs a complete redesign from the ground up! And the same is true of the advisory practice “machinery.” The problem is, we often get so busy running the machine, that it becomes virtually impossible to see (or diagnose) any number of worsening deficiencies, fractures, blockages and other symptoms. How often do you put your advisory practice through a diagnostic procedure – a multi-point checkup to identify areas that need fixing? If you answered
6 RENAISSANCE INVESTMENTS
“never”…you’re in good company. Most advisors and planners simply never get around to doing it, or have not yet considered the exercise to be a critical requirement of running a business. Now, imagine what would happen if you left your automobile to crank along without routine maintenance checks, oil changes, diagnostics and repairs. What would happen to that machine? Initially, it would just start becoming less efficient, but then it would begin to make strange sounds, gears would start grinding, brakes would start squealing, tires would start skidding and the list goes on. For the first little while, onlookers would only notice the external parts of the machine – the stylish lines, the trendy paint-job and the shiny hubcaps – but eventually those internal ailments would make their way up to the surface. Diagnostics Required Your advisory practice consists of many layers of complexity and incorporates a broad range of functions and disciplines. Each of these elements can be viewed as the critical working components of a much larger machine. Understandably, the idea of analyzing such a complicated machine may seem like a daunting task at first, so let’s simplify the process as much as possible. Just as any machine can be reduced to its most basic functions, so can the advisory practice. As an investment advisor or financial planner, your machine’s operating mandate is essentially driven by three simple (client-centred) prime directives, and they are to: 1. FIND them 2. SIGN them 3. KEEP them
FIND THEM
ADVISORY MACHINE SIGN THEM
KEEP THEM
Think about it for a moment. Your advisory practice machine operates for the sole purpose of: Finding qualified prospects, Signing them up as clients, and Keeping them for the long term. Naturally, deep inside those primary-function categories are many other wheels, gears, nuts and bolts but, collectively, those smaller components are all driven toward successfully completing their specified task.
SIGN them...
An effective diagnostic procedure will systematically open up each of those three directives and provide a multi-point checklist, or a structured evaluation template. The ultimate goal of a diagnostic process is to ensure that all of the necessary components are positioned properly, and that they remain in tip-top working condition.
5. Do I consistently employ the tools of rapport building in my communication?
1. How effective are my communication skills? 2. What could I do to improve those skills? 3. Do I understand and capitalize on the importance of “first impressions”? 4. Do I have an effective (standardized) first-meeting procedure? 6. Do I understand and openly address the emotional needs of investors? 7. Have I developed and internalized my value proposition? 8. Have I rehearsed and internalized responses to most common objections? 9. Have I created an effective pitch book or similar tool for my meetings?
The Procedure
10. Do I have a standard approach around “asking for the business”?
Start your advisory diagnostic procedure by first considering how effectively your business model addresses the three big-picture prime directives.
KEEP them...
To make it easier, let’s break it down a little further to expose some of the sub-components of Find them, Sign them, and Keep them.
1. Am I meeting my clients’ fundamental expectations? 2. Do I operate with full transparency with my clients? 3. Do I regularly solicit feedback from my clients?
Basic Operating Specifications – Advisory Practice
4. Do my clients know “what makes me different” from other advisors? 5. Am I (or a member of my team) always accessible to my clients?
FIND them
SIGN them
KEEP them
Defining your Market
First Impressions
Managing Expectations
6. Am I providing top-notch service to my clients?
Identifying Opportunities
Value Propositions
Being Accessible
7. Do I proactively contact my clients during weak market periods?
Prospecting Methods
Building Rapport
Active Listening
8. Do I employ active listening techniques in my client meetings?
Generating Leads
Addressing Needs
Excellence in Service
9. Do I offer a customized service agreement to my clients?
Filling the Pipeline
Handling Objections
Full Transparency
10. Do I show interest in my clients’ lives – outside of just their investments?
Marketing Campaigns
Presentation Tools/Skills
Adding Real Value
By making the decision to fully identify with our clients, we gain an entrance into their personal experience, and can then begin to communicate from a place of real empathy. TIP: Complete this diagnostic procedure in writing and spend quality time expanding upon each question and response. Include your team members in the process as you elicit candid input from your trusted partners.
Once you’ve completed the 30-point diagnostic procedure, you will come away with an action-list of the components that need a little bit of grease, a new replacement part or a complete redesign. Consider creating a personal “advisory board” that comprises your most trusted clients and solicit their constructive feedback on all areas of your business. Finally, take a few moments to pre-book semi-annual diagnostic appointments into your calendar, to ensure that your advisory practice continues to operate as a finely tuned, high-performance machine!
Answer the following diagnostic questions: FIND them... 1. Who (or what) is my ideal target market? 2. Do I need to redefine or update my target market? 3. What prospecting methods am I currently using in my practice? 4. How effective have these methods been in gathering new assets? 5. Do I need to make changes to my prospecting methodology? 6. How am I maintaining a full pipeline while I’m managing existing clients?
Grant Shorten is Director of Strategic Insights at Renaissance Investments. He offers insights and approaches that will work with your clients and have an immediate impact on your practice.
7. What else can I do to generate fresh leads? 8. Where can I look to identify other opportunities? 9. What marketing campaigns can I develop for the coming quarter? 10. How am I applying the five modalities of asset gathering?
www.renaissanceinvestments.ca/en/practicemanagement/
RENAISSANCE INVESTMENTS 7
RE-THINKING
RISK With rates in the basement, the path to success has changed One short four-letter word says it all. Risk. Not only does it routinely describe markets and economies across the globe, risk also encapsulates investorsâ&#x20AC;&#x2122; fears and rationale for investment choices.
8 RENAISSANCE INVESTMENTS
Government Bonds: Still a Safe Haven?
Traditionally, investors have defined risk as the permanent loss of capital. But today’s new reality of rock-bottom interest rates and low yields has amplified another type of risk – the income shortfall. It’s time to address the impact that this extended, low-rate environment will have on future purchasing power – your clients’ retirement goals depend on it.
Over the past 30 years, most developed-world government bonds have delivered:
History Doesn’t Always Repeat Itself Since about 1981, investors who bought and held government bonds were rewarded. Whether looking at total, real or risk-adjusted returns, performance was impressive over this period. Government bonds reduced overall volatility and were the reliable anchor of many portfolios.
1
Positive real yields
2
Consistent, positive absolute returns and stability to an equity portfolio
3
Guaranteed return of principal, if held to maturity
Together, these three traits painted a powerful picture of government bonds as a safe haven. But today, only the third point remains consistently accurate – most government bonds offer guaranteed return of principal if held to maturity. Notably, the first two traits are now dubious. By and large, government bond yields have dropped below the rate of inflation, causing investors to lose purchasing power over time.
This has created a bias for many investors in the dominant baby-boomer generation, who started to accumulate their wealth in the early 1980s. Many of these investors think government bonds remain a safe haven, given their past experience. It’s natural that this belief affects their investment decisions and how they perceive risk.
Also, with today’s record-low yields, the downside price risk (if yields rise) for low-yielding government bonds far outweighs the remaining potential for capital appreciation (if yields fall). If interest rates were to rise, government bonds could disappoint, and their future volatility may be higher than expected for those who are basing forecasts on recent history. Due to our new economic realities, government bonds are simply no longer the same safe haven.
However, the trends that shaped the past three decades are unique. The 1980s began with double-digit interest rates and inflation – the opposite of today’s environment, with rock-bottom interest rates and inflation. Investors who enjoyed strong government bond performance since the early 80s are unlikely to experience the same performance going forward.
See The Solution on page 10.
Although government bond investors have been rewarded over the last 30 years, it’s worth noting the historical impact of inflation. In fact, between 1945-1958, inflation transformed nominal gains into real losses! By and large, government bond yields have again dropped below the rate of inflation in recent times.
88 Years of Inflation Eroding Wealth
U.S. Long-Term Government Bond Returns: Growth of $10,000 $800,000
10-Year U.S. Government Bond Returns: Growth of $10,000 Nominal Returns Real Returns
$15,000
$700,000
$13,000
$600,000 $11,000
$500,000
1958
1956
1957
1954
1955
1958
1953
1950
1951
1956
1952
1948
1949 1954
$5,000 1947
$300,000
1952
$7,000
1945
$400,000
1946
$9,000
$200,000
Bouts of Deflation 1926-1939
World War II 1940-1945
Post War Financial Repression 1946-1958
Rising Inflation 1959-1980
Disinflation and the Great Moderation 1981-2008
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1950
1948
1946
1944
1942
1940
1938
1936
1934
1932
1930
$0
1928
$100,000
Post Crisis 2009-2011
RENAISSANCE INVESTMENTS 9
Three Key Forces Threaten to Erode Your Clients’ Wealth Historically Low Yields
Living Longer
Low Inflation but Big Impact
Going back to 2001, a client investing in long-term Canadian government bonds, needed about $900,000 in assets to generate $50,000 of annual income.1 Today, they would need about 2.3 times2 more than that, or $2.2 million to generate that same income.
Canadians now live an average of 20 years after they retire, and many are living much longer than that. For a married couple at age 65, there is a 50 percent chance that one will live past 90 years old.3
Over the long term, even meager inflation can erode your clients’ wealth. At an inflation rate of only 2%, $100,000 in today’s dollars will buy only $67,297 of goods and services in 20 years. Looking back, prices for many key everyday items have risen substantially. For example, gasoline has had an annual inflation rate of 4.7 percent over the past 32 years.4
These three forces show that you and your clients need to re-think risk in light of today’s investing environment. For investors relying on government bonds, there is a real tradeoff. If held to maturity, their principal is guaranteed, but they run the risk of eroding their long-term purchasing power. Assumes a 5.8% annual yield as at September 30, 2001 (Source: Bank of Canada – Long-Term Government of Canada Benchmark Bond Yields). 2 Assumes a 2.37% annual yield as at December 31, 2012 (Source: Bank of Canada – Long-Term Government of Canada Benchmark Bond Yields). 3 Source: Canadian Institute of Actuaries, UP-94 Projected to 2015. 4 Source: Statistics Canada, for the period between December 1980 and July 2012.
1
The Solution Of course, many of your clients prioritize safety of their capital, and they will continue to do so. But now more than ever, they need to understand the importance of maintaining their purchasing power, or else risk outliving their wealth. This means altering their perceptions and expectations based on today’s investing environment. Depending on your clients’ risk tolerance, time horizon and investment objectives, one way to generate additional yield is to move up the risk spectrum from government bonds into investment-grade corporate bonds, high-yield corporate bonds, real estate investment trusts (REITs), dividend stocks or a managed approach that diversifies across a number of income-producing assets.
To kick-start discussions with your clients about risk, and how to help them generate sufficient income to reach their investment goals, Renaissance has built a turn-key campaign called Fork in the Road: Today’s Income Decision that includes a comprehensive toolkit and many client-friendly resources. For more, go to www.incomedecision.ca.
10 RENAISSANCE INVESTMENTS
INSIGHT FROM THE EXPERTS AT CIBC GLOBAL ASSET MANAGEMENT INC.
NEW
Many Unhappy Returns for Canadian Income Investors
42%
of income investors are not satisfied with returns.
54%
of those investors are not looking to move to investments that provide greater return potential (over half of them say it’s “too risky”).
28%
of Canadian retirees are afraid of running out of money over the long term.
37%
of investors say they have retirement saving primarily invested in GICs or other guaranteed investments.
Economy “As baby boomers retire over the next 15 years, national income levels and discretionary spending in the economy will decline, keeping economic growth levels lower than what we have been accustomed to for the past several decades.” Jeffrey Waldman, First Vice-President Global Fixed Income
Interest Rates Source: CIBC Survey, January 2013.
“Central banks are going to keep their interest rates at very low levels – that’s the key to the whole interest-rate outlook that we have.” John Braive, Vice-Chairman Global Fixed Income
ADVISOR ToGo Access to the experts when you need them
A
Corporate Bonds Listen to short podcasts from the experts
“Instead of just having a laddered bond fund (a bunch of government bonds), bolstering your returns by using corporate bonds is beneficial in this environment – the yield spreads are still very attractive for investors.” Patrick O’Toole, Vice-President Global Fixed Income
www.advisor.ca/togo
Patrick Bradley Brandywine Global Investment Management, LLC
Podcast > Follow Growth Beyond Borders
John Braive CIBC Global Asset Management Inc.
Podcast > Bonds Are Still Attractive
Jeff Waldman CIBC Global Asset Management Inc.
Podcast > Choose Corporate Over Government Bonds
Pablo Martinez CIBC Global Asset Management Inc.
Podcast > Rise Above Low Interest Rates
High-Yield Bonds “One of our key areas of focus is the crossover area. That’s where a company is just on the verge of being upgraded to investment grade – these companies have the credit metrics and the business risk very similar to an investmentgrade company, but the yield on the bonds is typically around 200 basis points wider than a similar investment-grade company.” Nicholas Leach, Vice-President Global Fixed Income
Video > Leverage the high-yield opportunity
Powered by
RENAISSANCE INVESTMENTS 11
Additional Income with Proven Outperformance SOLUTION HIGHLIGHT
Our lead article highlights why it’s important to generate additional yield in this environment by moving gradually up the risk spectrum, leveraging assets such as corporate bonds, high-yield bonds, REITs and dividend stocks. The ability to supplement that extra income with consistent returns is also key to protecting purchasing power in the future. Renaissance has the diversified income solution line-up to meet your clients’ needs for additional income, stability and performance. The solutions highlighted below have consistently outperformed their peers over various market cycles.
Renaissance Optimal Income Portfolio Fund outperformance vs. Category2 Renaissance Corporate Bond Capital Yield Fund Fund outperformance vs. Category3 Renaissance Millennium High Income Fund Fund outperformance vs. Category4
10 yr
15 yr
Since Inception1
3.9%
–
–
3.9%
+2.0%
+0.4%
–
–
–
5.8%
5.9%
–
–
–
5.4%
+2.6%
+0.4%
+0.3%
–
–
–
–
9.3%
8.5%
11.1%
2.7%
7.8%
8.2%
8.4%
+1.4%
+4.8%
+4.6%
-0.4%
-0.3%
+1.1%
–
1 yr
2 yr
3 yr
5 yr
7.4%
5.8%
6.8%
+2.3%
+1.9%
6.3%
Core Income
Enhanced Income
Need
Offer tax-efficient income, capital appreciation with low volatility and inflation protection
Offer enhanced income opportunities from diversified, tax-efficient sources of income
Solution
Renaissance Optimal Income Portfolio
Renaissance Corporate Bond Capital Yield Fund and/or Renaissance Millennium High Income Fund
See page 66 for more fund information
See pages 56 and 74 for more fund information
Z
For more information on how to put these solutions to work for your clients, please speak to your Renaissance Investments representative.
1 Performance as at December 31, 2012, Source Morningstar Direct. 2 Canadian Fixed Income Balanced Category, Fund inception date November 13, 2007. 3 Canadian Fixed Income Category, Fund inception date November 18, 2009. 4 Canadian Dividend & Income Category, Fund inception date February 2, 1997.
12 RENAISSANCE INVESTMENTS
A Focus on Long-term Goals THANKS TO OUR SUPPORTERS
Without the support of advisors like you, Renaissance Investments would not enjoy the privilege of helping so many Canadians realize their investment goals. Here is one of the outstanding professionals we are so very proud to work with.
FORK IN THE ROAD: TODAY’S INCOME DECISION.
Please join me, Gordon Forsey, to find out:
A seminar you can’t afford to miss.
What impact record-low yields are having on your financial goals Why traditional, “safer” income investments could be putting you at risk How to find additional income, stability and returns in this new financial reality
Hear from:
Client Invitation
Barry Morrison, CFA
When: February 7, 2013 at 1 pm
Portfolio Manager, Renaissance Millennium High Income Fund
Where: CIBC Wood Gundy 1969 Upper Water Street Suite 1801, Halifax
Chief Executive Officer, Morrison Williams
What I love about the business:
RSVP:
Haiping Fu at 902-420-6209
Gordon Forsey, P.Eng., MBA, CIM, FCSI Investment Advisor, Portfolio Manager
I enjoy the opportunity to help my clients achieve their retirement goals by developing and executing strategies that create investor wealth and financial security over the long term.
Tel: 902-420-6203 Sponsored in part by:
www.incomedecision.ca CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of CIBC and a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. ™ Renaissance Investments is offered by and is a registered trademark of CIBC Asset Management Inc.
How I’m helping clients navigate the extended low-yield environment: My focus has been on fixed-reset preferred shares, convertible debentures, investment-grade corporate bonds and high-quality, dividend-growing common stocks. How I define “risk” for clients: While clients will often define risk as the short-term volatility of individual securities in their portfolio, I define risk as not achieving their long-term income needs throughout their retirement. Investors must stay focused on their longterm goals and not become distracted by the day-to-day volatility of the market.
Best tip for gaining new clients: Identify a group of high-net-worth individuals whom you would like to work with and make regular contact with them through periodic emails and seminars. Favourite hobbies: Travel, skiing and biking One item I can’t be without: My iPhone
One thing I will be focused on in 2013: As I perform client reviews, I will be looking for opportunities to add quality income-generating investments, which also have a growth element. On the fixed income side, I will be positioning clients in tax-efficient, quality products that will preserve principal in a rising interest rate environment. On the need for income, have you leveraged the Renaissance client resources around Today’s Income Decision? I am currently planning a prospect event using the Renaissance invitation material called “Fork in the Road: Today’s Income Decision.” Speaking at the event is Barry Morrison, Portfolio Manager of the Renaissance Millennium High Income Fund. The Renaissance team has been very helpful to me as I put this event together, as have our internal marketing people. I will also be using Renaissance marketing material for followup after the event and in direct one-on-one meetings.
Gordon Forsey Firm: CIBC Wood Gundy, Halifax Years in Business: 15 Team Members: 2
RENAISSANCE INVESTMENTS 13
QR
14 RENAISSANCE INVESTMENTS
CODE
CRACKING THE
Maximize your sales and marketing with this interactive technology Make it easy for clients to get your contact info, send you a message, visit your website, or learn more about your product offering by incorporating a Quick Response® Code (QR Code) into your marketing materials.
It’s easier than you think.
Good things do come for free What started out as a simple device for assembly line efficiency has transformed into a high-tech tool for the savvy marketer.
What’s the deal with those little black squiggly boxes? Already ubiquitous in Europe and Asia (code scanners are standard for Japanese mobile phones), QR Code technology is rapidly becoming an important element of marketing communications everywhere. How can incorporating an unremarkable black square into your business cards, newsletters, statements or product sheets help you boost your business? The key differentiator of the QR Code is instant access to information. While your current marketing materials display your contact information, readers have to manually enter that information into their communication devices if they want to contact you. By making your contact information available in a QR Code, readers have your information loaded with a quick scan.
Quick Response technology, invented in 1994 by a Toyota subsidiary, was intended for use in the car industry. The problem: keeping track of vehicles during the manufacturing process. The solution: a two-dimensional matrix code affixed to all the car components, allowing them to be scanned at high speed and sent along the assembly line. The QR Code’s fast readability and large storage capacity (up to 7,000 numeric characters compared to 20 in a UPC barcode) has led to usage far beyond what the original designers intended. From its manufacturing roots, the code has spread to retail, logistics, sales and even the singles’ scene: a bar in Singapore is making it easy for shy singles to start up a conversation with the “Bottle Message” QR Code tags for beer bottles that let you enter a message for another person to scan and read.
Don’t stop now; the possibilities are endless! Store your website location with a “hardlink” and the smartphone scanner will automatically browse to your site. Better yet, direct prospects or clients to a microsite showcasing an upcoming seminar or new service offering. Load contest information, investment tips or interest rate reminders that generate an email message to you for instant client involvement. Or change it up to add a seasonal message when appropriate.
QR Code is available in open format and the owner has promised to never exert patent rights on it. There’s nothing stopping you from building your own info-rich quick response code today.
Those little black squares store a surprising amount of information that can be easily accessed by anyone with a smartphone. QR Codes can turn your basic two-dimensional printed documents into active marketing tools, linking readers to a limitless world of helpful information.
Fun with QR Codes
®QR Code is a registered trademark of DENSO WAVE INCORPORATED.
Who doesn’t love a new toy? Here’s a sampling of interesting things marketers are doing with QR Codes.
Remember to always use QR Codes to provide an extra level of information. Use them to enhance your clients’ experience and show them something really new and interesting.
1. Send a personalized video on a bottle of whiskey For Father’s Day, Brazilian distiller Diageo introduced bottles of whiskey with QR Codes that allow buyers to record personalized video messages.
Everyone’s doing it
2. Order food (and pay for it) Split Bread – a San Francisco gourmet sandwich shop – gives patrons the option to scan the QR Code on their table for the digital menu and place their order without waiting for a waiter.
There are plenty of QR Code-generating websites you can use to build QR Code images. Try Kaywa, Qurify or Delivr to convert a URL, text or contact information to a QR Code. Once converted, you can download the QR image and insert it into any file. Introduce the QR Code with a simple instruction such as “Scan here for more information.” Newer phones running on the Android platform usually have a built-in scanner, or users can download a barcode scanner from Google Play or Android. iPhone users can grab a barcode scanner from the App Store. BlackBerry users with BBM 5.0 or later have a scanner option in the Messenger menu (or they can find one in App World). Whatever the device, the steps are essentially the same:
Open the scanner app (this will activate the camera)
Aim at the QR Code and focus
Snap and scan
TRY IT. Use your device to connect to the web page for Today’s Income Decision using this QR Code.
3. Buy a book, sign up for a newsletter Simon & Schuster hardcover and trade paperback books will feature a QR Code enabling readers to sign up for a newsletter. 4. Enhance your art gallery experience A Portuguese photographer uses QR Codes to connect to music, giving the viewer access to soundscapes designed for each photo in his exhibit. 5. Share modern-day mixtapes The mixtape lives on: create a special playlist for that certain someone on website Spotify and send them a greeting card with a QR Code that leads directly to the mix. Sources: 1. http://mashable.com 2. http://www.qrcode.com 3. http://www.qrme.co.uk 4. http://www.geeksugar.com
RENAISSANCE INVESTMENTS 15
brain calisthenics Word scramble – Unscramble the following letters to spell words from the article on pages 8-11:
Sudoku – Complete the Sudoku puzzle so that each and every row, column and 3x3 box contains the numbers one through nine only once.
1. paeetnscasul
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7 Source: 4puz.com
Spot the difference – Can you spot the five differences between the pictures below?
Check your answers at www.renaissanceinvestments.ca/magazine/answers/
16 RENAISSANCE INVESTMENTS
TO CREATE A MASTERPIECE, THEY MOVED A FEW STONES.
GREAT LEADERS KNOW BUILDING FOR THE FUTURE REQUIRES A STRONGER FOUNDATION. At Renaissance, we understand that building business takes time and dedication. We also believe that the boldest accomplishments begin one block at a time.
BUILDING YOUR
BUSINESS
The Renaissance team offers dedicated business-building support, including regular modules that provide specific tactics to support your client relationships. Our experts will work with you on ideas that can set you apart from the competition and have a lasting impact on your practice.
renaissanceinvestments.ca
1600 BC
Stonehenge is completed – over 1500 years after construction began.
Renaissance Investments is offered by and is a registered trademark of CIBC Asset Management Inc.
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To learn more about how Renaissance Investments can help you and your clients, 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. â&#x201E;˘ Axiom, Axiom Portfolios and Renaissance Investments are registered trademarks of CIBC Asset Management Inc.
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TO MAKE HISTORY, THEY NEEDED A HALF-STAR LINE-UP.
STRONG PERFORMANCE WON’T HAPPEN WITH HALF-HEARTED EFFORT. IT REQUIRES AN ALL-STAR TEAM. Great investment firms are driven by outperformance. Renaissance is part of a family that has set an ambitious PERFORMANCE course for risk-adjusted returns versus its peers. With 29 funds rated as either 4 or 5 Stars by Morningstar, CIBC Asset Management is a leader in our industry*. Competitive fund performance ranks high on the list of things you expect from an investment partner. Take confidence in knowing that Renaissance is driven by the same expectation.
STRONG
CIBC Asset Management: A performance leader
renaissanceinvestments.ca
1972
The Goal. Canada defeats the Soviets.
Photo credit: Frank Lennon/ Toronto Star
02001E(201302)
*Source: Morningstar, for the periods specified ending November 30, 2012 for Class A units of the funds. ©2012 Morningstar Research Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Quartile rankings are determined by Morningstar Research Inc., an independent research firm. Quartile rankings are comparisons of the performance of a fund to other funds in a particular category and are subject to change monthly. The quartile ranking reflects performance of Class A. 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 and is a registered trademark of CIBC Asset Management Inc.