The David Miner Communiqué—Spring 2009

Spring at Last!
Dorinda and I did get away with friends in early March for a few days of "post-RSP season" skiing at Mont Tremblant, Quebec. With the warmer weather, we are back on the water practicing for dragon boat races coming up in June. I did miss one recent Sunday morning dragon boat practice to run a half-marathon in Mississauga, with current plans to run my ninth full marathon later this year.

This Communiqué is our first since changing our dealer arrangements from Queensbury Strategies Inc. to Equity Associates Inc. ("EA"). We appreciate that clients have endorsed the new arrangement, which we undertook in order to achieve a better operating and reporting system. The first client statements produced by the new Winfund computer system at Equity Associates Inc. were sent early April. Those statements were better consolidated and faster to produce than before. While there is still work to be done, we are now driving forward on the new operating system and enjoying a superior experience. We are also implementing an additional compliance management system which will run concurrently with the Winfund system.

Equity Associates Inc. is registered through the Mutual Fund Dealers Association ("M.F.D.A.") and has total assets under administration of approximately $1.5 billion. EA is a boutique with independent senior advisors, most of whom participate in ownership of the firm. This collective arrangement through EA allows advisors to realize better time and efficiencies in the areas of regulation, compliance, systems, and operations.

Expectations

A recent headline in the Financial Post read: "Stocks in Overdrive". Yes, the stock market has been strong since it bottomed in early March. Is this the start of the next bull rally or just a "dead cat bounce"?

To be brutally fair - no one knows. It is the very nature of stock markets to go up in the long-term and to be fickle in the short-term. Our discipline is to ignore the short-term noise and to avoid emotional extremes. Our mantra is and always will be - Stay the Course!

To quote one of the world’s most famous investors, Warren Buffett:

"To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight, or inside information. What's needed is a sound intellectual framework for decisions and the ability to keep emotions from corroding that framework."

Nevertheless, the media continues to exploit the emotional roller coaster. It always has and always will. Imagine if you read the following headline in Business Week: "The Death of Equities". It sounds ominous. That headline did appear in Business Week on August 13, 1979, almost thirty years ago. So back then, if you listened to the media pundits and stashed your money into so called "safe" places, would you have been better off? Well, $10,000 invested in the S&P 500 would have grown to over $188,000 by February 2009. The long-term winner was the person who stayed invested and did not allow the "noise" of the moment to influence investment strategy.

Mistakes to Avoid

While the biggest mistake is to become emotionally caught up in the market and media noise (see "Expectations" above), I see a number of other mistakes that many advisors and there clients are making today. A good advisor will structure an asset mix strategy to match the client objectives, sift though the alternatives to find the best portfolio managers to achieve those objectives, and all at reasonable cost.

Nevertheless, there are many "sellable" products coming out of financial institutions that may not be good for investors in the long run, but do make a great deal of money for the institutions that promote them and the advisors who "sell" them. While there may be a time and place for almost anything, these are a few things that I usually do not recommend:

1. Structured Products. These manufactured financial concoctions are complicated and typically have some kind of guarantee tied to them. They come in a variety of forms, from principal protected notes to target funds (with target price guarantees at some future date). Ostensibly, investors participate in some upside and avoid the downside. The problems stem from the high costs of the guarantees which sorely limit the upside. To achieve the future guarantees, some of these products default to a low yield bond status if the target looks otherwise hard to achieve though active management. Growth may be severely limited. You might be sitting on dead money for a long time, even though the sellers and promoters of these products pay themselves well. While I would never say "never", we have generally served clients best by avoiding these products.
2. Manager Performance Bonuses. Some funds (and other "investments") pay themselves a bonus when they achieve a certain level of performance. They never pay it back when they underachieve later. Effectively, performance bonuses opportunistically increase management fees. I have never known any managers yet who deserved huge bonuses for simply doing what they were hired to do. Being management fee sensitive, we like to avoid anything with a performance bonus attached.
3. Life Insurance Segregated Funds and Universal Life Insurance. I have occasionally recommended segregated funds in the past, but only for older clients. While there may be some target guarantees and guarantees at death offered through segregated funds, longer term wealth can be severely reduced because of the higher management expense ratios. And there are some situations where Universal Life ("UL") may be appropriate. In my experience, most clients who come to me with existing UL policies should never have bought.
   
   UL is a combination of life insurance with an imbedded investment program. The costs are high. In most cases, there are less expensive and more efficient ways of designing a life insurance and wealth building program.

This list is not complete and explanations have not gone into full detail. Please contact us if you have any comments or questions.

Franklin Templeton - A Core Approach

We have profiled Franklin Templeton in the past and there is no time better than now to look at long term results from a firm that has depth and breadth of management and a disciplined investment process. The Templeton Growth Fund, a global equity fund dating back to 1954, is a flagship of the Franklin Templeton group. Few funds exemplify the importance of discipline and taking a long-term view.

Like all funds that have been around for a long time, the Templeton Growth Fund has had periods of strong growth and sometimes periods of decline. Since inception in November of 1954, the fund has provided an average annual compound return of 11.83%. In dollar terms, $10,000 invested in 1954 would have grown to $4,445,578.74 by April 2009. Investors who have made significant gains in the fund over the long term have exhibited patience during the quiet and down periods.
(Recent average annual compound returns to April 30, 2009:
1 yr. (-29.5%), 3 yr. (-11.40%), 5 yr. (-4.79%), 10 yr. (-1.96%).

I have often employed the Franklin Templeton Quotential Program for clients in the last few years. Quotential is a "fund-of-funds" or a "managed wrap program". They have a dedicated inhouse team to manage a number of portfolios of funds. The Quotential experience is attractive because:

1. The team managing the portfolios of funds is impartial and comprised of portfolio and risk management experts. They can objectively adjust weightings among funds in a fashion which would be beyond the scope of any advisor.
2. The underlying funds are well managed by a select team of professionals located around the globe.
3. The management expense ratios on the Quotential portfolios are competitively low.
4. There are several choices of Quotential portfolios. Most individual needs can be achieved through one or more of the choices available.
5. Reporting is top grade.
6. Aside from the usual mutual fund trusts, Quotential offers additional efficiency through corporate class and T-SWP programs.

Quotential has set the standard for wrap programs in Canada.

The opinions offered herein are those of David Miner and unless otherwise indicated, are not the opinions of Equity Associates Inc. or any other party. Mutual fund performances changes in share value and reinvestment of all dividends but do not take into account sales, redemption, distribution of optional charges or income taxes which may have reduced returns. Fees and expenses are associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual funds are not insured by the Canada Deposit Insurance Corporation or any other deposit insurer and are not guaranteed.