asset management

Following the 2008 financial crisis, the U.S. Federal Reserve ordered banks and other big lenders to boost the capital (cash, bonds and other securities) they hold. That put them in a better position to absorb future loan losses. The Fed recently announced that starting in 2019, it will bring in tougher new capital requirements for the eight largest U.S. banks, including Wells Fargo and J.P. Morgan (see below). However, both Wells and Morgan have bolstered their balance sheets and unloaded many of their riskier businesses since the crisis. That should help them meet the new standards without having to issue new shares. WELLS FARGO & CO. $58 (New York symbol WFC; Conservative Growth and Income Portfolios, Finance sector; Shares outstanding: 5.2 billion; Market cap: $301.6 billion; Price-to-sales ratio: 3.5; Dividend yield: 2.6%; TSINetwork Rating: Average; www.wellsfargo.com) operates through three divisions: Community Banking provides consumer mortgages, loans, credit cards and other financial services (57% of 2014 revenue, 59% of earnings); Wholesale Banking supplies business loans (27%, 32%); and Wealth, Brokerage and Retirement offers wealth management, brokerage and trust services to individuals and institutions, such as pension plans (16%, 9%). The U.S. supplies 95% of Wells Fargo’s revenue....

SUN LIFE FINANCIAL $41.43 (Toronto symbol SLF; Shares outstanding: 612.1 million; Market cap: $25.6 billion; TSINetwork Rating: Above Average; Dividend yield: 3.7%; www.sunlife.ca) sells life insurance, savings, retirement and pension products to individuals and corporations. It has $812.6 billion of assets under management and mainly operates in Canada, the U.S. and the U.K. It’s also expanding in Asia.

In the three months ended March 31, 2015, Sun Life’s revenue rose 2.2%, to $3.72 billion from $3.64 billion a year earlier. Earnings per share gained 16.7%, to $0.84 from $0.72.

The company continues to expand its asset management business, which generates high profit margins and requires little capital investment. It recently paid $560 million for Bentall Kennedy Group, which manages more than $27 billion in real estate for over 550 institutional clients across the U.S. and Canada.

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ISHARES S&P/TSX 60 INDEX ETF $21.18 (Toronto symbol XIU; buy or sell through brokers; ca.ishares.com) is a good low-fee way to buy the top stocks on the TSX. The units are made up of stocks that represent the S&P/TSX 60 Index, which consists of the 60 largest, most heavily traded stocks on the exchange. Expenses are just 0.18% of assets, and it yields 3.0%.

The index mostly consists of high-quality companies. However, it must ensure that all sectors are represented, so it holds a few we wouldn’t include. The index’s top holdings are Royal Bank, 7.9%; TD Bank, 7.1%; Valeant Pharmaceuticals, 6.6%; Bank of Nova Scotia, 5.6%; CN Railway, 4.2%; Suncor Energy, 3.6%; Enbridge, 3.6%; Bank of Montreal, 3.4%; BCE, 3.3%; Manulife Financial, 3.3%; Brookfield Asset Management, 2.8%; and Canadian Natural Resources, 2.6%.

iShares S&P/TSX 60 Index ETF is a buy.
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Cymbria Corp., $38.40, symbol CYB on Toronto (Shares outstanding: 22.6 million; Market cap: $857.1 million; www.cymbria.com), is a closed-end fund that invests in a portfolio of mostly publicly traded stocks. Separately, the fund directly owns 20.7% of EdgePoint Wealth Management, a private firm that sells mutual funds and asset-management services, in addition to managing Cymbria’s stock portfolio. Cymbria and EdgePoint are run by Trimark Financial co-founder Bob Krembil and former Trimark managers Tye Bousada, Patrick Farmer and Geoff MacDonald....

Two of Canada’s biggest insurance firms have the assets to forge ahead with expansion and still rank among our best low risk investments.

J.P. MORGAN CHASE & CO. $69 (New York symbol JPM; Income Portfolio, Finance sector; Shares outstanding: 3.7 billion; Market cap: $255.3 billion; Price-to-sales ratio: 2.8; Dividend yield: 2.6%; TSINetwork Rating: Average; www.jpmorganchase.com) has four main divisions: Consumer and Community Banking, which includes branches and credit cards (45% of 2014 revenue, 44% of earnings); Corporate and Investment Bank, including brokerage and underwriting services (36%, 33%); Asset Management (12%, 10%); and Commercial Banking (7%, 13%). About 75% of Morgan’s revenue comes from the U.S.

The bank’s revenue fell 8.3%, from $102.7 billion in 2010 to $94.2 billion in 2014. That’s mainly because it sold some operations to cut its exposure to riskier businesses, such as owning and trading commodities. Low interest rates have also hurt the revenue it receives from new loans.

Even so, earnings jumped 22.5%, from $17.4 billion in 2010 to $21.3 billion in 2012. Per-share profits gained 31.3%, from $3.96 to $5.20, on fewer shares outstanding. Morgan continues to settle lawsuits related to its role in the 2008 financial crisis. As a result, its 2013 earnings fell to $4.35 a share (or a total of $17.9 billion). Earnings recovered to $5.29 a share (or $21.8 billion) in 2014.

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Exchange traded funds (ETFs) are set up to mirror the performance of a stock market index or sub-index. They hold a more or less fixed selection of securities that represent the holdings that go into the calculation of the index or sub-index. ETFs trade on stock exchanges, just like stocks. That’s different from mutual funds, which you can only buy at the end of the day at a price that reflects the fund’s value at the close of trading. Prices of ETFs are quoted in newspaper stock tables and online. You pay brokerage commissions to buy and sell them, but their low management fees give them a cost advantage over most mutual funds....

SUN LIFE FINANCIAL $41.43 (Toronto symbol SLF; Shares outstanding: 612.1 million; Market cap: $25.6 billion; TSINetwork Rating: Above Average; Dividend yield: 3.7%; www.sunlife.ca) sells life insurance, savings, retirement and pension products to individuals and corporations. It has $812.6 billion of assets under management and mainly operates in Canada, the U.S. and the U.K. It’s also expanding in Asia. In the three months ended March 31, 2015, Sun Life’s revenue rose 2.2%, to $3.72 billion from $3.64 billion a year earlier. Earnings per share gained 16.7%, to $0.84 from $0.72. The company continues to expand its asset management business, which generates high profit margins and requires little capital investment. It recently paid $560 million for Bentall Kennedy Group, which manages more than $27 billion in real estate for over 550 institutional clients across the U.S. and Canada....

The Renaissance Optimal Income Portfolio Fund seeks to generate income, mainly by investing in units of the mutual fund company’s Canadian and global funds. The $2.9-billion fund has a 1.92% MER (which reflects the MERs the individual funds charge). It yields 4.0%. The fund has the following holdings: Renaissance Canadian Bond, 30.1%; Renaissance Canadian Dividend, 24.7%; Renaissance Global Infrastructure, 14.9%; Renaissance Global Bond, 10.1%; Renaissance High-Yield Bond, 9.9%; Renaissance Floating Rate Income, 5.1%; and Renaissance Real Return Bond, 4.9%. The managers of the individual funds include Ares Management, headquartered in Los Angeles; Brandywine Global, based in Philadelphia and a subsidiary of Legg Mason; CIBC Asset Management; and Sydney, Australia-based RARE Infrastructure Ltd....

CAE INC., $14.85, Toronto symbol CAE, earned $64.1 million, or $0.24 a share, in its fiscal 2015 fourth quarter, which ended March 31, 2015. That’s up 6.8% from $60.0 million, or $0.23, a year earlier. The latest earnings matched the consensus forecast. Revenue rose 9.7%, to a record $631.6 million from $575.7 million, beating the consensus estimate of $627.2 million. CAE gets 58% of its revenue by selling flight simulators and pilot-training services to airlines, and this business’s revenue rose 13.6% during the quarter. CAE sold 10 simulators during the period, bringing the full-year total to 41; it sold a record 48 simulators in fiscal 2014....