Toronto-Dominion Bank

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....

TORONTO-DOMINION BANK $66 (Toronto symbol TD; Conservative Growth Portfolio, Finance sector; Shares outstanding: 717.8 million; Market cap: $47.4 billion; SI Rating: Above average) is Canada’s second-largest bank, with assets of $422.1 billion. In the fiscal year ended October 31, 2007, TD’s earnings rose 23.4%, to $5.75 a share (total $4.2 billion) from $4.66 a share ($3.35 billion) in 2006. These figures exclude several unusual items, including a $135 million after-tax gain on the Visa restructuring. Revenue rose 8.3%, to $14.3 billion from $13.2 billion. Despite its expanding operations in the United States, which now supply 8% of its earnings, TD’s exposure to U.S. subprime mortgages is minimal. TD’s bad loans remained unchanged in 2007 at 0.2% of total loans. It also cut its efficiency ratio to 59.6% from 62.4%....

Bank stocks have moved down in the past few months, mainly because of concerns over a general lack of liquidity for securities backed by risky assets, such as subprime mortgages in the United States. This lack of liquidity makes it difficult to assess the market value of these securities, and has led to significant writedowns. Canada’s big five banks remain well capitalized, so these charges shouldn’t hurt their strong profit and dividend outlook. They’re still cheap in relation to earnings, and provide above-average yields. Investors should own at least one of these five banks in the Finance segment of their portfolio. CANADIAN IMPERIAL BANK OF COMMERCE $69 (Toronto symbol CM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 335.0 million; Market cap: $23.1 billion; SI Rating: Above average) is Canada’s fifth-largest bank, with assets of $342.2 billion....

CANADIAN IMPERIAL BANK OF COMMERCE $71.31, Toronto symbol CM; moved down this week due to growing uncertainty over hedges it purchased from troubled U.S. bond insurer ACA Financial Guaranty Corp. These hedges are intended to protect CIBC from U.S. subprime mortgage losses, but ACA may not be able to meet its obligations. CIBC has already written off about $1 billion of its U.S. subprime-related securities, and could face further charges of roughly $2 billion. CIBC earned $3.1 billion or $9.24 a share in the year ended October 31, 2007, excluding unusual charges. The bank remains well capitalized, which reduces the possibility it will have to issue new equity. It’s also selling its riskier operations, and doing a good job controlling costs....

TRIMARK CANADIAN FUND $19.97 (CWA Rating: Aggressive) (AIM Funds Management Inc., 5140 Yonge Street, Suite 900, Toronto, Ontario M2N 6X7. 1-800-631 -7008; Website: www.aimfunds.ca. Buy or sell through brokers.) uses a bottom-up stock-picking style (using fundamentals such as earnings, cash flow and low debt) that looks at valuation measures and then tries to pick stocks selling at a discount to long-term value. The fund’s 10 largest holdings are TD Bank, Bank of Nova Scotia, Manulife Financial, Power Corporation, Plum Creek Timber, Alimentation Couche-Tard, Thomson Corp., Yamana Gold, Toromont Industries and Molex Inc. The fund’s portfolio breaks down by sector as follows: Financials, 30.5%; Consumer discretionary, 19.1%; Information technology, 11.2%; Industrials, 9.5%; Materials, 8.2%; Consumer staples, 7.0%; Health care, 6.4%; Energy, 4.2%; and Telecommunication services, 2.6%....

UNITED CORPORATIONS $62.50 (Toronto symbol: UNC) (165 University Ave., 10th Floor, Toronto, ON M5H 3B8. 416-947-2583. Buy or sell through a broker) invests in a wide variety of average-quality to above-average quality Canadian and foreign stocks. At last report, 34.6% of the fund’s $1.1 billion portfolio was invested in Canadian equities, 23.7% in the U.S., 20.7% in Europe, 6.2% in the UK, 13.1% in Asia and 1.0% in Mexico and Latin America. The fund’s largest holdings included Bank of Nova Scotia, Royal Bank of Canada, Manulife, Talisman Energy, Algoma Central Corporation, Nexen, TransCanada Corporation, General Electric, TD Bank and Chevron....

AIC DIVERSIFIED CANADA FUND $44.27 (CWA Rating: Conservative) mainly holds shares of Canadian companies of average or above-average quality. It also holds stocks of some U.S. firms. The $1.4 billion fund’s 10 largest holdings are Power Financial, Canadian Oil Sands Trust, TD Bank, Shoppers Drug Mart, FedEx, Thomson Corporation, Brookfield Asset Management, Royal Bank of Canada, Manulife Financial and Royal Bank of Scotland. AIC Diversified Canada holds just 19 stocks. The fund holds 53.0% of its assets in Financial services stocks. The rest of the portfolio breaks down as follows: Consumer staples, 16.1%; Energy, 9.9%; Consumer discretionary, 7.4%; Health care, 7.0%; Industrials, 4.0%; and Conglomerates, 1.6%....

These two AIC funds hold much of their portfolios in financial services stocks. This sector has moved down lately, mostly on concerns over a general lack of liquidity for asset-backed securities. We prefer diversified funds. But if you must focus on something, then the finance sector still offers sound long-term prospects. If you do invest in these funds, be sure to adjust the rest of your portfolio so they won’t overly concentrate your stock and mutual fund holdings in the financial sector. AIC AMERICAN ADVANTAGE FUND $6.20 (CWA Rating: Aggressive) (AIC Group of Funds, 1375 Kerns Road, Burlington, Ont., L7R 4X8, 1-800-263-2144; Web site: www.aicfunds.com. Buy or sell through brokers) invests mostly in U.S. stocks, with over 99% of assets in the financial services area....

FIDELITY TRUE NORTH FUND $31.61 (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 “bottom-up” approach (using fundamentals such as earnings, cash flow and low debt) to identify undervalued companies. Fidelity True North Fund’s top holdings include high-quality stocks such as Manulife Financial, TD Bank, Suncor Energy, Rogers Communications, En- Cana Corporation, Bank of Montreal, Research in Motion, Canadian Natural Resources, Potash Corporation and Royal Bank. The fund now invests 8.6% of its assets outside of Canada. The fund’s breakdown by economic segment is: 28.8% in Financials, 25.5% in Energy, 13.7% in Materials, 8.8% in Information technologies, 7.4% in Telecommunication services, 5.1% in Industrials, 4.8% in Consumer discretionary and 1.2% in Consumer staples....