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Canadian funds take Enron hit

Many portfolios held millions of dollrs before its collapse, KAREN HOWLETT and CAROLINE ALPHONSO find

Sources: Bell Globemedia Interactive;; U.S. Securities and Exchange Commission filings and A.M. Best.

Many Canadian mutual funds and financial institutions were sitting on millions of dollars in Enron Corp. stock just before the energy trading giant's spectacular collapse, and at least some are known to have suffered losses.

The MD U.S. Large Cap Growth Fund, for example, which invests on behalf of Canadian doctors, took a $40-million hit on Enron when it sold off its remaining stock at the end of November.

Enron's stock price plunged last October after the Houston-based company announced a big loss and that $1.2-billion (U.S.) had been erased from shareholders' equity, largely because of its investments in private partnerships. It sought bankruptcy protection from creditors on Dec. 2, sending shock waves around the globe. Just one year ago, Enron was near the top of the Fortune 500 at $80 a share. It has now fallen into penny stock territory.

Just how badly Enron stung Canadian investors and financial institutions is only now becoming apparent.

A study of portfolio holdings filed with the U.S. Securities and Exchange Commission, as well as information compiled for The Globe and Mail by Bell Globemedia Interactive, a sister company, show that many Canadian banks, insurance companies and mutual funds held millions of dollars' worth of Enron stock as of Sept. 30, 2001, just two weeks before its fateful announcement.

The vast majority of Enron stock studied was held in mutual funds and segregated funds, which invest on behalf of individual Canadians.

The MD fund, for example, owned $16.4-million (Canadian) in Enron shares at the end of October after the stock began to tank, the largest holding of any Canadian mutual fund. The fund is managed by MD Management Ltd., the money-management arm of the Canadian Medical Association.

The fund manages $677.5-million in assets on behalf of physician members and their families.

"It was certainly disappointing to lose up to 5 per cent of the value of the fund," said MD Management vice-president Ron Bannerman, who revealed the $40-million loss, "and who knows how long that will take to recover?"

Portfolio holdings reviewed by The Globe reveal that Enron was widely held in Canada, although the details are not fully clear.

Bank of Montreal, one of the Big Five domestic banks, manages $11.4-billion in mutual funds through subsidiary BMO Investments Inc., the country's 12th-largest fund company. BMO had $16.1-million (U.S.) worth of Enron stock sitting in its mutual funds at the end of September. By the end of October, it held only $2.1-million in Enron stock.

"We have been out of Enron as of the end of November," said BMO spokesman Ian Blair.

He declined to comment further.

At the other end of the spectrum, a small startup fund managed by Middlefield Financial of Toronto counted Enron among its top 10 holdings for three months last year. As of Aug. 31, Enron made up 7.7 per cent of the Middlefield Alternative Energy Cl Fund, which manages $219,000 (Canadian) in assets. By Oct. 31, the fund held $4,000 worth of Enron stock, accounting for 3 per cent of total assets under management, the biggest weighting of any domestic mutual fund.

Middlefield vice-president Nancy Tham said the fund took a hit when it sold its 200 Enron shares in November, after the stock dipped below $5 (U.S.).

"Given that it was a small exposure to the fund, it wasn't a big loss," she said.

Most fund companies and financial institutions contacted by The Globe declined to talk about their Enron exposure. None of the domestic fund companies held Enron in their portfolios as of the end of November, according to Bell Globemedia data.

But it is not clear when exactly many of the funds sold and what losses may have been sustained.

Toronto-Dominion Bank's portfolio filings with the SEC show that it held $24.2-million (Canadian) in Enron stock as of Sept. 30, its most recent filing. The shares were held by mutual fund arm TD Asset Management, the seventh-largest domestic fund company with $29.7-billion in assets under management. A TD spokeswoman declined to comment.

Mackenzie Financial Corp., the fifth-largest fund company with $32.3-billion in assets under management, held $4.7-million (U.S.) in Enron stock as of Sept. 30. The Keystone funds, which show up on the list of funds holding Enron as of Oct. 31, are managed by a Mackenzie subsidiary.

Mackenzie chief executive officer James Hunter said through his secretary that the company no longer holds Enron stock. He declined further comment.

The data reviewed by The Globe shows that at its peak, Enron was a popular holding among Canadian mutual fund managers. For instance, Enron accounted for 2.5 per cent of the Altamira U.S. Larger Company portfolio at the beginning of last year.

"It was a great growth story," fund manager Bill Onslow said of Enron. But he began selling some of his Enron stock last January because he felt the stock was trading at too high a multiple. He sold the balance of the fund's holdings at $38.43 a share in August, when Enron CEO Jeffrey Skilling suddenly resigned.

"The final straw for me was when the CEO resigned," Mr. Onslow said.

AIM Funds Management Inc. was also one of Enron's biggest followers early last year, but it also appears to have reduced its stake before the bad news sank the stock price. Enron was a top 10 holding in three AIM funds early last year. The AIM Global Energy Class Fund owned $1.2-million (Canadian) in Enron stock in January, 2001, accounting for 7.5 per cent of assets under management and the biggest weighting of any domestic fund.

It is not clear when the AIM funds sold their Enron stock. The firm discloses only its top 10 holdings to Bell Globemedia, and company officials declined to comment.

Enron was also among the top 10 holdings of the StrategicNova U.S. Large Cap Growth Fund early last year.

Fund manager Steven Wippersteg began reducing the fund's weighting in the stock early last year and sold the remaining shares at $20.84 (U.S.) in mid-October, after Enron announced heavy losses, followed by a conference call with investors.

"The conference call made me uncomfortable," he said.

"When you are uncomfortable with a situation it is better to eliminate [it] than to try to stick with it."

Canadian companies were not exposed just through equity. Fairfax Financial Holdings Ltd. said on Friday that it took a $23-million (Canadian) hit on its exposure to the company through its U.S. reinsurance arm, Odyssey Re Holdings Corp.

Manulife Financial Corp. also had $4.7-million (U.S.) in Enron stock at the end of September, held mainly in its U.S. annuity funds and accounting for a tiny portion of overall assets under management.

Exposed by Enron
Banks, life insurance and mutual fund companies' holdings of Enron common stock
(Holdings as of Sept. 30, 2001, unless otherwise noted. All figures are in $U.S. unless otherwise noted.)

BANKS                                Market value

Toronto-Dominion Bank                $24.2-million (Cdn.)

Bank of Montreal (as of Oct. 31)     $2.1-million

Canadian Imperial Bank of Commerce   $2.4-million

Royal Bank of Canada (as of Dec. 31).$4,000

Manufacturers Life                   $11.2-million

Sun Life                             $1.9-million

Canada Life                          $1.0-million


Mackenzie Financial                  $4.7-million

Investors Group                      $1.1-million (Cdn.)

That held Enron shares as of Oct. 31. (All $Canadian.)

                                         Market   % total

                                         value   portfolio

Middlefield Alternative Energy CI        $4,000     3.0

MD U.S. Large Cap Growth             16,396,000     2.52

Keystone Altamira e-business Cap CI      11,000     1.5

London Life Balanced (S) NL             629,000     0.56

Great-West Life Balanced (S) NL         618,000     0.56

IG Sceptre Canadian Balanced          1,496,000     0.55

Keystone Premier Glo Elite 100 Cap        6,600     0.12

Keystone Premier Global Elite 100        12,800     0.11

Great-West Life Equity (S) NL            48,500     0.07

IG Sceptre Canadian Equity              227,000     0.06

London Life Equity (S)                   33,000     0.05

© 2007 The Globe and Mail. All rights reserved.

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