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Mutual Fund News

Will 2007 be year of the hedge?

The fund industry senses a breakthrough and bigger share of Canada's $646-billion market, KEITH DAMSELL writes


Canada's fledgling hedge fund industry has its fingers crossed that 2007 may finally mark a breakthrough with the elusive retail investor.

"There will be some attention given to alternatives," said Jeffrey Shaul, the founder, president and chief executive officer of Robson Capital Management Inc. The Toronto money manager is marketing products tied to the performance of marquee U.S. funds managed by Van Eck Absolute Return Advisors Corp. and Everest Capital Ltd.

"Brokers have to look more broadly and focus on more products," Mr. Shaul said. "We think we are offering something others are not."

It's the first time in a while there is cause for optimism in Canada's $20-billion retail hedge fund sector, which is a fraction of the $646-billion invested in mutual funds. The retail hedge fund business all but dried up in the wake of the well-publicized Portus Alternative Asset Management Inc. and Norshield Asset Management (Canada) Ltd. scandals in 2005.

The convergence of several positive factors has hedge fund managers thinking the tide may soon shift, said Miklos Nagy, chairman of Canadian Hedge Watch Inc. and president and chief executive officer of Quadrexx Asset Management Inc.

First, memories of the Portus and Norshield debacles are beginning to fade and regulators are expected to soon introduce new sales rules that will further ease concerns.

In addition, the bulk of Canada's hedge funds invest in the commodities sector and a volatile year has contributed to above-average returns. There's some agreement that North America's soaring equity markets have little room to grow, prompting investors to consider alternative asset classes.

And finally, looming tax rules for the income trust sector mean investors must look elsewhere for yield and income, he said.

"Advisers and investors are looking for other opportunities. That sector [income trusts] was sucking up a lot of money . . . that money is still there and needs to be invested somewhere," Mr. Nagy said.

Nevertheless, the financial-advice community remains wary of the asset class. Assante Wealth Management Ltd., one of Canada's largest financial advice firms, will not sell hedge funds to its clients.

"If I am 72 years old and I'm looking for a steady 6- to 8-per-cent yield, I'm probably going to dividend stocks, dividend funds, principal-protected notes or something that I can understand," said Joe Canavan, Assante's chairman and chief executive officer. "If I get into an exotic vehicle, that's not really helping me, it's causing me to lose sleep at night."

Scotiabank retooling fund unit

Karen Fisher, the president and chief executive officer of Scotia Securities Inc., has left Bank of Nova Scotia.

Scotiabank officials said Ms. Fisher has left for personal reasons and declined to comment further. In addition, she has also left her post as a director of the Investment Funds Institute of Canada.

Ms. Fisher has overseen the bank's mutual fund operations since 2000. Under her tenure, in-house funds generated little excitement and third-party offerings dominated sales.

In contrast, Scotiabank's banking rivals have grown by leaps and bounds through strong fund performance and a dedicated sales force. Industry leader RBC Asset Management Inc. has a stunning $70.7-billion in assets under management; Scotiabank is in last place among the Big Five, overseeing $16.1-billion in assets under management.

Scotiabank president and chief executive officer Richard Waugh has made wealth management a priority and news is expected in 2007. Chris Hodgson, executive vice-president of domestic personal banking, and Barb Mason, executive vice-president of wealth management, are overhauling the bank's proprietary mutual fund offering and fine-tuning the sales and marketing team.

In marketing we trust

The great income trust mutual fund name change has begun.

On Dec. 8, CIBC Asset Management was first out of the gate, changing the name of two of its Renaissance funds.

The $546.2-million Renaissance Canadian Income Trust Fund is renamed Renaissance Canadian Monthly Income Fund, and will be reopened to new investors. In addition, the $334.8-million Renaissance Canadian Income Trust Fund II has been renamed Renaissance Diversified Income Fund. Investment objectives of the two funds -- generating a high level of cash flow by investing primarily in income-producing securities -- remain unchanged.

It is widely expected many income trust funds will follow suit and drop "trust" from their name. On Oct. 31, the federal government announced plans to begin taxing the asset class in 2010. A recent poll of trust-sector managers by Deloitte & Touche predicts the number of publicly-traded trusts will fall to 100 or fewer from the current 256 by 2011.

© 2007 The Globe and Mail. All rights reserved.

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