manulife financial

Great-West and IGM have recovered nicely from their March lows. Despite this, both remain cheap in relation to their earnings. They also stand to expand their leading market shares as weaker competitors fold. This should let them continue paying above-average dividends. GREAT-WEST LIFECO INC. $23 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 944 million; Market cap: $21.7 billion; Price-to-sales ratio: 1.0; SI Rating: Above Average) is Canada’s second-largest insurance company after Manulife Financial Corp. (Toronto symbol MFC). The company also offers wealth-management services and owns Putnam Investments, a major U.S.-mutual fund company. Power Financial Corp. (Toronto symbol PWF) owns 68.7% of Great-West’s shares. The stock market downturn cut Great-West’s assets under administration by 14.7%, to $332.9 billion as of March 31, 2009, from $390.5 billion a year earlier. Great-West’s fees rise and fall with the value of the securities it manages, so the drop hurt its earnings: In the first quarter of 2009, earnings fell 33.9%, to $326 million from $493 million a year earlier. Earnings per share dropped 41.7%, to $0.35 from $0.60, on more shares outstanding....

We still think high-quality mutual funds with a long-term focus will beat stock-market indexes over time. If funds invest as we advise — sticking with well-established companies and spreading their assets across the five main economic sectors — they will likely lose a lot less than the indexes during a significant market downturn. That’s because big market slides are particularly hard on the stocks that were the most popular during the preceding rise, and our approach avoids excessive investment in these companies. In contrast, index funds do tend to load up on the hottest, most popular stocks as they rise. That’s because these stocks make up a growing proportion of the index as they increase in value. The most recent example is Potash Corporation of Saskatchewan, which, propelled by soaring fertilizer prices, had the highest market capitalization on the Toronto exchange last June. The shares have since dropped 54%....

When we judge the investment quality of an individual company, we take nine key factors into account. These are: a record of profit; a record of dividends; an influential industry position; balance-sheet strength; geographical diversification; freedom from business cycles; freedom from excess regulation or insider abuse; ability to profit from lasting secular trends (such as global economic liberalization); and the ability to cash in on habitual customer behaviour. Mutual-fund ratings are more complex, since they are a step removed from these factors. Before we award our CWA Fund Ratings (Aggressive, Conservative or Income), we assess a fund’s strengths and weaknesses in several key areas. We start by looking at the quality of the fund’s holdings, based on our nine key factors. Then we look at the degree to which its holdings are spread out across the five main economic sectors: Manufacturing, Resources, Consumer, Finance and Utilities. Funds that focus on narrow segments are more risky or aggressive than those that diversify, even if they focus on a conservative area, such as Utilities....

RBC CANADIAN DIVIDEND FUND $37.65 (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 in well-established, dividend-paying companies. In fact, it invests solely in common stocks. That’s why, despite the fund’s name, we rate it Conservative rather than Income. The $7.1-billion RBC Canadian Dividend Fund’s top stock holdings are: Royal Bank of Canada, Bank of Nova Scotia, TD Bank, Manulife Financial, Brookfield Asset Management, EnCana, Bank of Montreal, TransCanada Corp. and Power Corp. RBC Canadian Dividend is a Conservative buy.

ISHARES CDN LARGECAP 60 INDEX FUND $15.54 (Toronto symbol XIU; buy or sell through a broker) (units split 4-for-1 in August 2008) 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 on the units are just 0.17% of assets. Most of the stocks in the index are high-quality companies. However, as it must ensure that all sectors are represented, the index holds a few we wouldn’t include, such as Biovail Corp. The index’s top holdings are: Royal Bank of Canada, 7.2%; EnCana Corporation, 5.2%; Research in Motion, 5.2%; TD Bank, 4.9%; Bank of Nova Scotia, 4.2%; Manulife Financial, 4.0%; Potash Corporation, 3.9%; Canadian Natural Resources, 3.7%; Suncor Energy, 3.7%; Barrick Gold, 3.7%; Goldcorp, 2.9%; Canadian National Railway, 2.8%; Bank of Montreal, 2.6%; and CIBC, 2.5%....

These five large funds — one from each of Canada’s big-five banks — have suffered over the last year. That’s because they were heavily weighted toward financial services and resource stocks. Financial services companies are still dealing with tight credit markets. As well, the recession has cut demand for resources. This, in turn, has driven down the prices of resource stocks. We still feel that the best way to profit in the stock market is to stick with high-quality, well-established companies and to spread your money out among the five sectors.You should also ensure your investments are diversified within each sector. These five funds continue to stick to high-quality investments. However, you still should adjust your portfolio to reflect the funds’ high weightings in certain sectors....

BMO EQUITY FUND $20.70 (BMO Mutual Funds, 77 King Street West, Suite 4200, Royal Trust Tower, Toronto, Ontario, M5K 1J5, 1-800-665-7700; Web site: www.bmo.com. No load — deal directly with the bank) (CWA Rating: Conservative) mostly invests in blue chip Canadian companies. The fund’s managers aim to identify stocks based on their analysis of the outlook for the industry the firms operate in, as well as their earnings records, management strength and growth potential. The $1.4-billion BMO Equity Fund’s 10 largest holdings are Bank of Nova Scotia, Royal Bank of Canada, Toronto-Dominion Bank, Canadian Natural Resources, Suncor Energy, EnCana Corporation, Barrick Gold, Manulife Financial, CIBC and Goldcorp. The fund currently holds 35.9% of its portfolio in the resource sector. Its next-largest segment is financial services, at 21.6%....

Brompton VIP Income Fund, $6.28, symbol VIP.UN on Toronto (Units outstanding: 47.2 million; Market cap: $296.4 million), holds a portfolio of mostly income trusts, along with some common stocks and bonds. The fund focuses on business trusts, with smaller weightings in real estate investment trusts (REITs), oil and gas trusts, power and pipeline trusts. The fund may also invest a portion (less than 10% of its value) in common shares. The Brompton VIP Fund first sold units to the public at $10, and began trading on Toronto in February 2002....

FIDELITY GROWTH AMERICA FUND $11.98 (CWA Rating: Conservative) (Fidelity Investments Canada, 483 Bay St., Suite 200, Toronto, Ont. M5G 2N7. 1-800-263-4077; Web site: www.fidelity.ca., load fund — available from brokers) uses a broad “bottom-up” approach to identify undervalued companies using fundamentals, such as earnings, dividend yield, book value, cash flow and debt level. The $160.2-million Fidelity Growth America Fund’s top holdings, among the 122 stocks it holds, include Exxon Mobil, Wal-Mart, Apple, Nuance Communications, Chevron Corp., Qualcomm, Bristol Myers Squibb, Coca-Cola, 3M and Phillip Morris International. Fidelity Growth America Fund is broken down by economic segment as follows: 13.9% in Information Technologies, 13.3% in Health Care, 11.9% in Energy, 10.3% in Consumer Staples, 9.1% in Financials, 8.7% in Industrials, 7% in Consumer Discretionary, 3.9% in Utilities, 3.5% in Telecommunication Services and 2.5% in Metals & Minerals....

HARBOUR FUND $14.56 (CWA Rating: Conservative) (C.I. Mutual Funds, 151 Yonge St., 7th Floor, Toronto, ON, M5C 2W7. 1-800-268-9374; Web site: www.cifunds.com. Load fund: available from brokers.) invests in only 25 to 40 high-quality mostly Canadian stocks, and it may hold stocks for four or five years to realize their value. The $4.3-billion Harbour Fund’s top holdings include Canadian National Railway, Goldcorp Inc., Suncor Energy, Tim Hortons, EnCana Corporation, CIBC, Cisco Systems, Manulife Financial and BHP Billiton. The Harbour Fund lost 24.5% over the last year. That’s less than the S&P/TSX’s loss of 33.0%. The fund’s five-year return has averaged 5.7% annually. Its MER is 2.31%....