great-west lifeco

With interest rates so low, bonds have become much less attractive to income-seeking investors. However, if you need stable income and want to hold bonds, here are two bond funds that have low fees and top-quality holdings. As well, both cut risk by avoiding speculative trading and emphasizing government bonds. ISHARES CANADIAN SHORT BOND INDEX FUND $29.34 (CWA Rating: Income) (Toronto symbol XSB; buy or sell through a broker) mirrors the performance of the DEX Short-Term Bond Index. This index consists of a wide range of investment-grade federal, provincial, municipal and corporate bonds with between one- and five-year terms to maturity. The iShares Canadian Short Bond Index Fund currently holds 152 bonds with an average term to maturity of 2.9 years....

GREAT-WEST LIFECO INC. $16 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 943.9 million; Market cap: $15.1 billion; Price-to-sales ratio: 0.6; SI Rating: Above Average) is Canada’s largest insurance company. Great-West administers $339 billion worth of assets. The company also offers wealth-management services. It operates in Canada (55% of its earnings), Europe (35%) and the U.S. (10%). Power Corp. (Toronto symbol POW) owns 72.7% of Great-West’s shares. In August 2007, Great-West paid $4.2 billion for U.S.-based mutual-fund manager Putnam Investments. Buying Putnam gave Great-West an opportunity to cross-promote its products to Putnam’s large base of individual and institutional clients. The stock market downturn has lowered the value of Putnam’s assets. This hurts Putnam’s earnings, since its fees rise and fall with the value of the securities in its funds. Moreover, the market’s volatility has caused many of Putnam’s clients to redeem their funds. Consequently, Putnam’s assets under management fell 27% in 2008, to $129 billion U.S. from $176.7 billion U.S. in 2007....

IGM FINANCIAL INC. $33 (Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 262.4 million; Market cap: $8.7 billion; Price-to-sales ratio: 3.2; SI Rating: Above Average) is Canada’s largest mutual fund company. It manages $98.8 billion of assets. Power Corp. owns 56.4% of IGM. IGM has three divisions. Investors Group sells funds through its own network of advisors. Mackenzie Financial sells its funds through independent brokers. IGM also owns 74.5% of Investment Planning Counsel, whose 700 advisors provide wealth-management services to individuals. IGM has few operations outside of Canada. The sharp stock market drop in the latter half of 2008 hurt demand for IGM’s mutual funds. As a result, the company’s earnings dropped 11.3%, to $766.1 million from $863.8 million in 2007. Per-share earnings fell 10.5%, to $2.89 from $3.23, on fewer shares outstanding. IGM owns around 4% of Great-West Lifeco, and these figures exclude its share of Great-West’s writedown of its purchase of Putnam Investments. IGM’s 2008 revenue fell 6.6%, to $2.7 billion from $2.9 billion....

We continue to recommend that all investors own at least two of Canada’s big-five banks. But these should not be the extent of your financial holdings. Other types of financial investments, such as high-quality insurance companies, should play a role in your portfolio, as well. Here are four non-bank financial companies we like. All offer an attractive combination of growth and value. However, only three are buys right now. GREAT-WEST LIFECO INC. $16 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 943.9 million; Market cap: $15.1 billion; Price-to-sales ratio: 0.6; SI Rating: Above Average) is Canada’s largest insurance company. Great-West administers $339 billion worth of assets. The company also offers wealth-management services. It operates in Canada (55% of its earnings), Europe (35%) and the U.S. (10%). Power Corp. (Toronto symbol POW) owns 72.7% of Great-West’s shares....

POWER CORPORATION $17.23 (Toronto symbol POW; Shares outstanding: 407.5 million; Market cap: $7.0 billion; SI Rating: Above Average) is a diversified holding company. It controls one of Canada’s largest mutual-fund companies, IGM Financial, and Great-West Lifeco, one of the country’s largest life insurers. Power Financial, 66.4% held, is a holding company for Power Corp.'s financial assets, which include 72.9% of Great-West Lifeco and 58.4% of IGM Financial. As well, Power Financial holds 50% of holding company Parjointco, which, in turn, owns a 54.3% interest in Swiss-listed Pargesa Holdings SA. Pargesa has 95% of its assets in five large European companies: Imerys (minerals), Total SA (oil), Pernod Ricard (wine and spirits), Suez (energy, water and waste services) and Lafarge SA (cement and building materials). In the three months ended September 30, 2008, Power Corp.'s earnings, excluding one-time items, fell 6.2%, to $332 million, or $0.70 a share, from $354 million, or $0.76. Great-West contributed $203 million to Power’s earnings and IGM contributed $74 million....

The bulk of Power Corp.’s investments are in financial services companies, and turmoil in credit markets has hurt those holdings. But both of the major businesses it controls are leaders in their fields. They remain well capitalized and are cheap in relation to earnings. POWER CORPORATION $17.23 (Toronto symbol POW; Shares outstanding: 407.5 million; Market cap: $7.0 billion; SI Rating: Above Average) is a diversified holding company. It controls one of Canada’s largest mutual-fund companies, IGM Financial, and Great-West Lifeco, one of the country’s largest life insurers. Power Financial, 66.4% held, is a holding company for Power Corp.'s financial assets, which include 72.9% of Great-West Lifeco and 58.4% of IGM Financial. As well, Power Financial holds 50% of holding company Parjointco, which, in turn, owns a 54.3% interest in Swiss-listed Pargesa Holdings SA. Pargesa has 95% of its assets in five large European companies: Imerys (minerals), Total SA (oil), Pernod Ricard (wine and spirits), Suez (energy, water and waste services) and Lafarge SA (cement and building materials)....

ING Canada, $28.20, symbol IIC on Toronto (Shares outstanding: 119.9 million; Market cap: $3.4 billion), is Canada’s largest property and casualty insurer. ING’s 3.5 million customers give it an 11% market share across Canada. Ontario accounts for 43% of ING’s revenues, Quebec, 25%, Alberta, 20%, B.C., 6%, the Maritimes, 5% and elsewhere in Canada, 1%. Auto insurance accounts for 57% of revenues and property insurance, 43%. ING sells insurance through 1,875 independent brokers under the ING Insurance brand. This division accounted for $3.3 billion, or 79.1%, of revenues in 2008. Brokers can also sell ING’s Grey Power insurance, which sells auto insurance to customers who are 50 years of age or older and accounts for 2.7% of ING’s revenues. Through Belairdirect, ING sells home and auto insurance directly to consumers by telephone or through the Internet; Belairdirect generates 18.2% of ING’s revenues. ING also owns Canada Borderlink, one of Canada’s largest insurance brokerages....

A: Fairfax Financial Holdings, $398, symbol FFH on Toronto, (Shares outstanding: 16.9 million; Market cap: $6.7 billion), is a good replacement for Northbridge. Fairfax is a financial services holding company with assets of $27.9 billion. Fairfax engages in insurance, reinsurance and investment management. Fairfax provides reinsurance through Odyssey Re and Group Re. Reinsurers provide insurance to insurers. Crum & Forster is Fairfax’s main U.S. insurance subsidiary, and Northbridge Financial is its principal subsidiary in Canada. Fairfax also sells insurance in Asia. Fairfax recently acquired the 36.9% of Northbridge Financial that it didn’t already own. Northbridge was a recommendation of our Stock Pickers Digest newsletter. Fairfax’s insurance operations have remained profitable, excluding hurricane losses. Insurance businesses hold a lot of cash for investment. Since 2003, Fairfax has invested conservatively, offsetting stock and bond holdings with investments that rose when stock markets fell. These included short sales and credit default swaps (insurance against defaults on bonds). Its biggest gains came last year....

BANK OF NOVA SCOTIA $33.65 (Toronto symbol BNS: Shares outstanding: 991.9 million; Market cap: $33.4 billion; SI Rating: Above average) has completed the $2.3 billion purchase of Sun Life Financial’s 37% stake in TSX-listed CI Financial Income Fund, Canada’s third-largest mutual fund company. Bank of Nova Scotia’s revenue in its fiscal year ended October 31, 2008 fell 4.9%, to $11.9 billion from $12.5 billion. Earnings per share excluding writedowns fell 3.5%, to $3.87 from $4.01. The bank still has around $690 million U.S. of exposure to asset-based commercial paper. However, even in the unlikely event that the entire portfolio became worthless, that would mean at worst a potential after-tax loss in the range of $200 million. That’s manageable, given that the bank made $315 million in the latest quarter, even after $642 million in writedowns. Bank of Nova Scotia now trades at just 9.6 next year’s forecast earnings of $3.50 a share....

BCE INC. $21.23, Toronto symbol BCE, has confirmed that its $42.75-a-share takeover by a private consortium led by the Ontario Teachers’ Pension Plan will not proceed. The deal required auditing firm KPMG to provide an opinion on BCE’s solvency following the takeover. KPMG concluded that BCE would fail this test. BCE disagreed with KPMG’s assessment, and hired a second auditing firm, PricewaterhouseCoopers, to help it address specific items in KPMG’s report. However, KPMG did not change its opinion, and the deal died....