Toronto-Dominion Bank

Investors have generally under-estimated the big five Canadian bank stocks for at least the past 33 years, which is when I started paying attention to them. As a result, the banks have been among the market’s top long-term performers throughout that period, while staying reasonably priced in relation to earnings and dividends. That’s a highly attractive combination. Banks do go through deep setbacks from time to time. But that’s a risk with any stock. The difference is that the banks play a central role in Canada’s economy. When economic setbacks end, they go on to thrive anew and outdo their previous successes. North America economic growth could fall from 3% in 2006 to 2.5% in 2007. That could hurt loan demand and raise loan defaults. But the banks have strengthened their loan portfolios in the past few years, and are doing a better job of controlling costs....

AIC DIVERSIFIED CANADA FUND $46.74 (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 $1.7 billion fund’s 10 largest holdings are Power Financial, Canadian Oil Sands Trust, TD Bank, Shoppers Drug Mart, Loblaw, Thomson Corp., Brookfield Asset Management, Royal Bank, Manulife Financial and Royal Bank of Scotland. The fund holds just 23 stocks. The fund holds 47.8% of its assets in Financial services stocks. The rest of the portfolio breaks down as follows: Consumer staples, 19.4%; Energy, 8.6%; Consumer discretionary, 7.6%; and Health care, 5.5%....

AIC AMERICAN ADVANTAGE FUND $8.21 (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. This segment breaks down as follows: Investment banking & brokerage, 14.2%; Multi-line insurance, 13.5%; Property & casualty insurance companies, 12.9%; Life & health insurance, 12.6%; Diversified banks, 10.4%; Insurance brokers, 8.0%; Regional banks, 7.9%; Diversified financials, 7.3%; Wealth management, 6.1%; Consumer finance, 2.8%; Thrifts & mortgage finance, 2.3%; and Conglomerates, 1.2%. The $119.3 million AIC American Advantage’s top 10 holdings are Progressive Corp., ING Canada, AFLAC, Morgan Stanley, Hartford Financial Services, TD Bank, Northern Trust, Merrill Lynch, JP Morgan Chase and Willis Group Holdings. This fund holds just 18 stocks....

These two AIC funds hold much of their portfolios in financial services stocks. We prefer diversified funds. But 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 they won’t overly concentrate your stock and mutual fund holdings in the financial sector. AIC AMERICAN ADVANTAGE FUND $8.21 (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....

HARBOUR FUND $20.74 (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 Canadian stocks, and it may hold stocks for four or five years to realize their value. The $4.6 billion Harbour Fund’s top holdings include Royal Bank, Bank of Nova Scotia, Suncor Energy, Royal Bank of Scotland, CIBC, Alcan, EnCana Corp., Rio Tinto, TD Bank and BHP Billiton. The Harbour Fund gained 17.4% over the last year. Its MER is 2.34%....

FIDELITY TRUE NORTH FUND $27.95 (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, Nexen, TD Bank, Sun Life Financial, Canadian Natural Resources, Bank of Nova Scotia, Telus Corporation, Rogers and Talisman Energy. The $6.2-billion Fidelity True North Fund’s one-year gain is 20.2%, compared to a gain of 20.6% for the S&P/TSX over the same period. The fund’s MER is 2.55%....

UNITED CORPORATIONS $69.25 (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, 33.5% of the fund’s $950.7 million portfolio was invested in Canadian equities, 26.7% in the U.S., 19.6% in Europe, 7.7% in the UK and 10.9% in Asia. The fund’s largest holdings included Bank of Nova Scotia, Royal Bank of Canada, Manulife, Talisman Energy, Algoma Central Corporation, Shell Canada, TransCanada Corporation, Altria Group, TD Bank and Chevron....

FIDELITY TRUE NORTH FUND $27.95 (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, Nexen, TD Bank, Sun Life Financial, Canadian Natural Resources, Bank of Nova Scotia, Telus Corporation, Rogers and Talisman Energy. The $6.2-billion Fidelity True North Fund’s one-year gain is 20.2%, compared to a gain of 20.6% for the S&P/TSX over the same period. The fund’s MER is 2.55%....

TORONTO-DOMINION BANK $59 (Toronto symbol TD; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) wants to double the size of subsidiary TD Banknorth Inc., which operates around 600 branches in the northeastern United States. This subsidiary supplies about 10% of TD Bank’s total revenue. Most of the growth will come from acquisitions that enhance TD Banknorth’s market share in New York, New Jersey and Connecticut. It also plans to triple its advertising spending, and focus on improving customer service. In the second quarter of 2006, TD Banknorth’s earnings fell 2.3%, mostly due to one-time charges related to the integration of recent acquisitions. Without these items, profits rose 17.6%....

UNITED CORPORATIONS $55.40 (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, 36% of the fund’s $970.9 million portfolio was invested in Canadian equities, 25.9% in the U.S., 18.5% in Europe, 7% in the UK and 10.8% in Asia. The fund’s largest holdings included Bank of Nova Scotia, Royal Bank of Canada, Manulife, Talisman Energy, Algoma Central Corporation, Shell Canada, TransCanada Corporation, Altria Group, TD Bank and Chevron....