BCE Inc.

BCE INC. $35 (Toronto symbol BCE; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 805.3 million; Market cap; $28.2 billion; SI Rating: Above average) is trading for 20% below the $42.75-a-share takeover offer it accepted in July 2007. That’s mainly because several institutional holders of BCE bonds have launched a class-action lawsuit to oppose it. BCE’s plan to take on more debt has hurt the value of their holdings. If the suit succeeds and forces BCE to compensate the bondholders for their losses, the Ontario Teachers’ Pension and its partners may decide to abandon the takeover. Liquidity problems in the debt markets could also scuttle the takeover, since that could hurt the ability of the takeover consortium to issue new bonds. At the current reduced price, BCE is once again attractive for its income and growth prospects. The shares now trade at 15 times earnings, and have a dividend yield of 4.2%....

BCE INC. $34 (Toronto symbol BCE; SI Rating: Above-Average) is trading nearly 20% below the $42.75-a-share takeover offer it accepted in July 2007. However, several institutional holders of BCE bonds have launched a class-action lawsuit to oppose it. BCE’s plan to take on more debt has hurt the value of their holdings. If the suit succeeds and forces BCE to compensate the bondholders for their losses, the Ontario Teachers’ Pension and its partners may decide to abandon the takeover. Liquidity problems in the debt markets could also scuttle the takeover, since that could hurt the ability of the takeover consortium to issue new bonds....

ISHARES CDN LARGECAP 60 INDEX FUND $76.65 (Toronto symbol XIU; buy or sell through a broker) (formerly called iUnits S&P/TSX 60 Index Participation Fund) is a good low-fee way to buy the top stocks on the TSX. The units hold a basket of stocks that represent the S&P/TSX 60 Index. The index is made up of the 60 largest and most heavily traded stocks on the TSX. Expenses on the units are just 0.17% of assets. Most of the 60 stocks in the index are good quality companies. However, to meet the requirement that all sectors are represented, the index holds a few firms we wouldn’t include, such as Cott Corporation and Celestica. The index’s top holdings are: Royal Bank, 6.6%; Manulife Financial, 5.8%; TD Bank, 4.7%; Bank of Nova Scotia, 4.7%; EnCana Corporation, 4.4%; Suncor Energy, 3.9%; Research in Motion, 3.7%; Canadian Natural Resources, 3.5%; Bank of Montreal, 3.1%; CIBC, 3.3%; BCE Inc., 2.6%; Barrick Gold, 2.8%; Sun Life Financial, 2.9%; and Potash Corporation, 2.6%....

We think high-quality mutual funds with a long term focus will beat indexes over long periods. If funds invest as we advise — sticking with well established companies and spreading their assets out across the five main economic sectors — they will tend to lose a lot less than the market indexes in periods when the indexes fall sharply. That’s because big market slides are particularly hard on the hottest, most popular stocks of the preceding market rise, and investing as we do leads you to avoid excessive investment in the hot stocks. Index funds, in contrast, do tend to load up on the hottest, most popular stocks as they rise. That’s because, as they rise, these stocks make up a rising proportion of the index. Index funds are a better deal than the majority of funds now available, however. So if you merely want to equal the indexes, here are some of the best deals available in ETFs. We’ve also analysed one we don’t like....

RBC CANADIAN DIVIDEND FUND $44.84 (RBC Funds, P.O. Box 7500, Station A, Toronto, Ontario. M5W 1P9. 1-800-463-3863; Web site: www.royalbank.com. No load — deal directly with the bank) has 38.1% of its portfolio in Financial services stocks. It has a further 14.4% in Energy stocks and 8.5% in Consumer discretionary. The $9.6 billion RBC Canadian Dividend Fund’s top stock holdings are Royal Bank of Canada, Bank of Nova Scotia, Toronto-Dominion Bank, Manulife Financial, Canadian Imperial Bank of Commerce, TransCanada Corporation, Bank of Montreal, BCE Inc. and Power Corporation. Over the last five years, RBC Canadian Dividend Fund has posted a 14.9% annual rate of return. That’s less than the S&P/TSX’s gain of 18.3% over the same period....

BMO Dividend and RBC Canadian Dividend hold mostly high-quality stocks. These stocks sometimes run into trouble and go through lengthy struggles, just like lesser investments. Eventually, though, most solve their problems and go on to thrive anew. Both funds hold a high proportion of their assets in financial services stocks. However, if you must focus on something, finance is a relatively stable sector. If you do invest in these funds, be sure to adjust the rest of your portfolio so these funds won’t overly concentrate your holdings in the financial sector....

RBC CANADIAN DIVIDEND FUND $44.84 (RBC Mutual Funds, P.O. Box 7500, Station A, Toronto, Ontario. M5W 1P9. 1-800-463-3863; Web site: www.royalbank.com. No load — deal directly with the bank) has 38.1% of its portfolio in financial-services stocks. It has a further 14.4% in energy stocks and 8.5% in consumer discretionary. The $9.6-billion RBC Canadian Dividend Fund’s top stock holdings are Royal Bank of Canada, Bank of Nova Scotia, Toronto-Dominion Bank, Manulife Financial, Canadian Imperial Bank of Commerce, TransCanada Corporation, Bank of Montreal, BCE Inc. and Power Corporation. Over the last five years, RBC Canadian Dividend Fund has posted a 14.9% annual rate of return. That’s less than the S&P/TSX’s gain of 18.3% over the same period....

BCE INC. $36.29, Toronto symbol BCE, is trading nearly 15% below the $42.75-a-share takeover offer it accepted in July 2007. This is partly because several institutional holders of BCE bonds have launched a class-action lawsuit to oppose it. BCE’s plan to take on more debt has hurt the value of their holdings. If the suit succeeds and forces BCE to compensate the bondholders for their losses, the Ontario Teachers’ Pension and its partners may decide to abandon the takeover. Liquidity problems in the debt markets could also scuttle the takeover, since that could hurt the ability of the takeover consortium to issue new bonds. This group has also lined up loans from several banks, but recent writedowns of U.S. subprime mortgages have raised fears that these banks may withdraw or cut their involvement. However, lower interest rates will cut the buyers’ costs. The drop in BCE suggests that the takeover is unlikely to go through. But at the current reduced price, BCE is once again an attractive buy for income and growth....

AGRIUM INC. $72.10, Toronto symbol AGU, has gained nearly 25% in the past month, partly due to a new energy bill in the United States that mandates a five-fold increase in the production of biofuels by 2022. As a major supplier of fertilizers, Agrium should profit from higher production of crops, such as corn, for use in ethanol production. The new bill may also help Agrium re-open its plant in Kenai, Alaska, which it recently shut down due to a lack of natural gas supplies. Agrium is studying a plan to convert coal into natural gas, and could receive subsidies that would offset the costs of a new facility. However, relying on the largely politically inspired ethanol boom for growth adds to Agrium’s risk. The company is also vulnerable to rising natural gas prices....

BELL ALIANT REGIONAL COMMUNICATIONS INCOME FUND $30 (Toronto symbol BA.UN; Conservative Growth Portfolio, Utilities sector; Units outstanding: 127.1 million; Market cap: $3.8 billion; SI Rating: Above average) transferred the bulk of its wireless business to BCE Inc. as part of the deal that created the trust. Without these operations, the fund now aims to spur growth by expanding the availability and capacity of its high-speed Internet service. Bell Aliant now plans to launch high-speed Internet service in 24 communities in Nova Scotia in 2008. It also plans to add more wireless high-speed access spots in urban areas. Expanding high-speed availability will help Bell Aliant hang on to customers, and encourage them to buy more services such as digital TV. New revenue streams will also help it keep paying monthly distributions of $0.235 a unit (9.4% yield)....