encana

ENCANA CORP. $89.25 (Toronto symbol ECA; SI Rating: Average) now plans to split itself up into two separate companies — one focusing on natural gas, the other on oil sands and oil refineries. The gas company will keep the EnCana name, while the oil company will assume a new name. Shareholders will receive one new common share in each new company for every EnCana share they hold. Investors will not be liable for capital gains taxes until they sell their new shares. EnCana intends that the initial combined dividends of the two companies will be equivalent to its current annual dividend rate of $1.60 U.S. per share (1.8% yield). EnCana aims to complete the plan in early 2009....

CIBC CANADIAN EQUITY FUND $27.83 (CWA Rating: Conservative) (CIBC Securities, 5140 Yonge Street, Suite 900, Toronto, Ontario M2N 6X7. 1-800-631-7008; Website: www.cibc.com. No load — deal directly with the company.) uses a “bottom-up” approach (using fundamentals such as earnings, cash flow and low debt) to identify companies that trade at reasonable valuations and also have growth potential. The $560.8 million fund’s top holdings are EnCana, Manulife Financial, Research in Motion, Bank of Nova Scotia, TD Bank, Teck Cominco, Suncor Energy, Canadian Natural Resources and Petro-Canada. The fund’s MER is 2.22%. CIBC Canadian Equity holds 40.3% of its portfolio in Resource sector stocks and 31.5% in Financial services stocks....

BMO EQUITY FUND $33.80 (BMO Mutual Funds, 77 King Street West, Suite 4200, Royal Trust Tower, Toronto, Ont., M5K 1J5, 1-800-665-7700; Web site: www.bmo.com. No load — deal directly with the bank) (CWA Rating: Conservative) generally invests mostly in ‘blue-chip” Canadian companies. These stocks are selected based on the manager’s outlook for the industry they operate in, the earnings record of each company, the strength of management and the potential for growth. BMO Equity Fund’s 10 largest holdings are Potash Corp., Manulife Financial, EnCana Corporation, Suncor Energy, Royal Bank of Canada, TD Bank, Canadian Natural Resources, Bank of Nova Scotia, Sun Life Financial and Research in Motion. The $2.1 billion fund currently holds 43.6% of its portfolio in the Resources sector. Its next-largest holding is Financial services at 24.4%....

RBC CANADIAN EQUITY FUND $29.08 (CWA Rating: Conservative) (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) invests mostly in larger-capitalization stocks, but also looks for opportunities in small and mid-cap stocks. The fund’s 10 largest holdings are EnCana, Potash Corp., Research in Motion, Manulife, Royal Bank, Suncor Energy, TD Bank, Canadian Natural Resources, Bank of Nova Scotia and Goldcorp. The $5.1 billion fund holds 45.3% of its holdings in Resources stocks. It also holds 27.7% in Finance. Over the last ten years, RBC Canadian Equity posted an 8.7% annual rate of return. That’s just over the S&P/TSX’s gain of 8.1%. The fund made 5.9% over the last year, less than the gain of 6.6% for the S&P/TSX. The fund’s MER is 1.99%....

TD CANADIAN EQUITY FUND $32.66 (CWA Rating: Conservative) (TD Asset Management, P.O. Box 7500, Station A, Toronto, Ontario. M5W 1P9. 1-800-386-3757; Web site: www.tdcanadatrust.ca. No load — deal directly with the bank) uses a “bottom-up” approach (using fundamentals such as earnings, cash flow and low debt) to identify undervalued companies with strong growth potential. TD Canadian Equity Fund’s 10 largest holdings are EnCana, Canadian Natural Resources, Suncor Energy, Research in Motion, TD Bank, Potash Corp., Bank of Nova Scotia, Freeport McMoran, Canadian Pacific Railway and Sun Life Financial. The $3.3 billion fund currently holds about 54.8% of its portfolio in Resources shares. It also has a bias towards Financial services stocks at 18.1%....

The performance of these five large funds run by each of Canada’s big-five banks has differed widely. That’s because they typically have high weightings in certain sectors — most recently Financial services and Resources stocks. Some, like TD Canadian Equity have benefited from a focus on Resources. Others, like CIBC Canadian Equity were hurt by a concentration in Finance shares. We still feel that the best way to profit in the stock market is to stick with high-quality, well-established companies, and to diversify among the five sectors, and within each sector. However, you won’t go too far wrong with these five funds. They stick with high-quality issues with sound fundamentals, so their concentrations in certain sectors don’t add a lot of risk over the long term. Each has its quirks, but overall they are well positioned for low-risk returns....

RBC CANADIAN EQUITY FUND $29.08 (CWA Rating: Conservative) (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) mainly invests in larger-capitalization stocks, but also looks for opportunities in small- and mid-cap stocks. The fund’s 10 largest holdings are EnCana, Potash Corp., Research in Motion, Manulife, Royal Bank, Suncor Energy, TD Bank, Canadian Natural Resources, Bank of Nova Scotia and Goldcorp. The $5.1-billion fund invests 45.3% of its holdings in resource stocks. It also holds 27.7% in finance. Over the last ten years, RBC Canadian Equity posted an 8.7% annual rate of return. That’s just over the S&P/TSX’s gain of 8.1%. The fund gained 5.9% over the last year, less than the S&P/TSX’s 6.6%. The fund’s MER is 1.99%. RBC Canadian Equity Fund is a buy....

ENCANA CORP. $92 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 750.0 million; Market cap: $69.0 billion; WSSF Rating: Average) plans to split itself up into two companies — one focusing on natural gas, the other on oil sands and oil refineries. The gas company will keep the EnCana name, while the oil company will assume a new name. Stockholders will receive one new common share in each new company for every EnCana share they hold. Investors will not be liable for capital gains taxes until they sell their new shares. EnCana intends that the initial combined dividends of the two companies will be equivalent to its current annual dividend rate of $1.60 per share (1.7% yield). EnCana aims to complete the plan in early 2009....

ENCANA CORP. $91 (Toronto symbol ECA)differs from the typical spinoff in that the two portions are of comparable size. More often, the spinoff company is much smaller than the parent. But the principle is the same. The management is breaking up the company into two or more parts, despite the fact that this works against management’s interests, by reducing the assets to manage. Good managers do this for two reasons. First, they aim to serve shareholders’ interests. Second, the two companies generally experience an increase in stock values and/or a speedup in growth, which generally lead to higher pay for management. Of course managers sometimes negate the value of the spinoff or corporate breakup by taking huge bonuses for themselves, for arranging it. But that’s not happening at EnCana....

As we’ve often pointed out, most spinoffs lead to above-average results for a period of years, for both the parent company and the company that gets created and spun off. So it’s no surprise that EnCana’s decision to split itself up into two companies — one focusing on natural gas, the other on oil sands and oil refineries — has already begun to pay off for its shareholders. ENCANA CORP. $91 (Toronto symbol ECA) differs from the typical spinoff in that the two portions are of comparable size. More often, the spinoff company is much smaller than the parent. But the principle is the same. The management is breaking up the company into two or more parts, despite the fact that this works against management’s interests, by reducing the assets to manage. Good managers do this for two reasons. First, they aim to serve shareholders’ interests. Second, the two companies generally experience an increase in stock values and/or a speedup in growth, which generally lead to higher pay for management....