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Life-cycle funds continue to proliferate

Investors seeking greater security draw new players to the market, writes KEITH DAMSELL


Life-cycle funds are multiplying.

Last month saw three fund companies -- CIBC Asset Management Inc., Ethical Funds Co. and Scotia Securities Inc. -- file preliminary prospectuses for their own life-cycle funds.

It's a compelling product that plays off the success of popular fund wrap programs and an aging population's desire for investment security.

Each fund is structured with a specific investment horizon, from five to 35 years. As the fund draws closer to maturity, the asset mix is shuffled to preserve capital and limit risk.

"The biggest challenge that financial advisers and investors face is, when they are building a financial plan, taking that leap of faith and exposing their assets to risk," said Eric Frape, vice-president of product management, of Toronto's Clarington Funds Inc.

In February, Clarington introduced the Target Click series, making it the first Canadian fund company out of the blocks with a life-cycle product. Managed and guaranteed by Europe's ABN Amro Bank NV, Target Click locks in returns on a monthly basis. In other words, investors who stick with the fund through maturity are guaranteed to receive the fund's peak performance. About $30-million in investment has poured in to the Clarington series over the last four months.

Life-cycle funds sound too good to be true, said Dan Hallett, a Windsor, Ont.-based fund analyst. He warns investors to take a close look at fees and redemption costs.

"On the surface, it [a life-cycle fund] allows people to have their cake and eat it, too," Mr. Hallett said. "You just don't get something for nothing . . . I'm just a cynic, what can I say?"

Teachers reject Dundee plan

Ontario Teachers Pension Plan has given the thumbs down to Dundee Wealth Management Inc.'s proposed stock option plan.

On Wednesday, Dundee Wealth will ask shareholders at its general meeting to support the overhaul of the company's share incentive plan.

If approved, the number of common shares held in the plan will be hiked to 19 million. Dundee Wealth, a company whose holdings include Dynamic Mutual Funds, is controlled by Ned Goodman, chairman, president and chief executive officer.

Teachers, a powerful institutional investor that owns 205,000 Dundee Wealth shares, will vote against the plan, citing potential 10.3-per-cent stock dilution. The company has about 96.1-million common shares outstanding.

What's more, the proposed plan's one-year burn rate -- the number of options granted in a given year expressed as a percentage of shares outstanding -- will be 2.8 per cent, well above Teachers' restriction of a burn rate of less than 1 per cent.

It's worth noting that the stock plan received no ink in Dundee's recent $45.5-million offering. The March 15 deal was led by GMP Securities Ltd., and underwriters included Dundee's own Dundee Securities Corp.

Box-office bonanza at Fidelity

Movies and popcorn are paying off for Stephen Binder.

Mr. Binder, a fund manager at Fidelity Investments Canada Ltd., holds about 1.9-million shares of Cineplex Galaxy LP in the Fidelity True North Fund.

The interest doesn't add up to much -- it's a small $30-million position in the $4.7-billion fund. Nevertheless, it represents a sweet 4-per-cent stake in the movie distribution company and makes Fidelity the single largest third-party shareholder after parent Onex Corp. and company insiders.

On June 13, Cineplex announced it will gobble up rival movie theatre chain Famous Players Inc. to form a blockbuster business controlling almost two-thirds of the Canadian market. Cineplex will pay about $500-million to U.S. media giant Viacom Inc. for Famous Players.

Cineplex units were up 11 per cent in value on last week's news, closing Friday at $15.70 each. Over the past 12 months, shares have soared 72 per cent. The income trust has a trailing 12-month yield of 7.3 per cent.

Mr. Binder, a research-driven manager, is one of recovering Fidelity's stars. As of May 31, the flagship True North fund has delivered a 12-month return of 17 per cent, 8 per cent over three years and 6 per cent over the past five years.

Ex-BMO broker fined

A former BMO Nesbitt Burns Inc. broker, Philip Deans, has been banned for life and fined $125,000 by the Investment Dealers Association of Canada.

In a June 16 decision, an IDA panel found that between 1998 and 2001, Mr. Deans made 157 trades without his clients' knowledge or consent. In addition, the broker falsely declared that a number of trades had been initiated by the client and misled a client by issuing false portfolio statements. Mr. Deans was fired by BMO in 2002.

In addition to the lifetime ban and fines, the IDA ordered the former broker to repay about $42,000 in commissions and pay an additional $15,000 in costs.

Mackenzie overhauls SRI fund

Investors in the tiny Mackenzie Universal Sustainable Opportunities Capital Class Fund can expect some big changes in the next few weeks.

The $9.6-million fund with a mandate to invest in socially responsible companies has dumped manager Henderson Global Investors Ltd. of London in favour of Aberdeen Asset Managers Ltd. of Glasgow. The three-year-old fund has posted mediocre returns and has failed to capture the market's enthusiasm.

Andrew Preston, Aberdeen's head of socially responsible investing, plans to use "a slightly different approach" to juice results, he said.

Expect the fund's heavy U.S. tech sector weighting to be sold in favour of global blue chips that embrace SRI principles.

Current holdings in Aberdeen's SRI funds include Canadian National Railway Co., a transportation company that keeps cars off the road, and Suncor Energy Inc., one of the oil and gas sector's cleanest producers.

© 2007 The Globe and Mail. All rights reserved.

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