ONCAP II Hits Home Run With Sale of Canadian Securities Institute

Canadian Securities Institute Global Education Inc. was recently sold by one of Onex’s private equity funds to Moody’s Analytics for $155 million Cdn.

ONCAP paid $25 million for a 91% stake in the company which was spun off by the securities industry back in 2006. Onex’s share of the company was 40%.

When the sale was made back in 2006, the multiple that ONCAP paid was somewhat frothy. However, closing regional offices, converting all exams to mutiple choice for quick computerized marking, coupled with 200% fee increases to take an industry exam made CSI extremely profitable on what can be considered a monopoly as an education content provider in the securities industry in Canada.

As an industry participant, one can only hope that Moody’s will keep fees reasonable as educational requirements keep increasing and double digit course fee increases seem to be the norm.

Your comments are always appreciated.

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Action List Worth A Look

Our Canadian research comes from National Bank. Since November, 2009, they have produced an Action list where their analysts provide their best ideas. In conjunction with their recommendations, they also recommend when to sell these holdings based on price appreciation or earnings surprises.

From November 30th, 2009 to June 30th, 2010, 27 names have appeared on the list with 13 still on the list. In the last quarter, five names were removed while six were added.

In the last quarter, the NBF Action List returned 3.76% vs. -0.33% for the TSX. Since November 30, the Action List netted 6.13% vs. 0.81% for the TSX.

The Action List is updated daily. To get the current action list, please don’t hesitate to contact us and we would be happy to email or send you a copy.

Have a great weekend. Your comments are always appreciated.

Consider Corporate Bonds over Alberta Capital Bonds

The Alberta government announced the rate on Capital bonds on Friday with a rate of 3.3%. The rate is equivalent to what is available on 5 year GIC’s. Considering limited liquidity, you may want to consider buying corporate bonds or 5 year Fixed Rate Reset Preferred shares.

The rates on corporate bonds can be as high as 7% depending on quality and maturity and a select number of preferreds are yielding above 5% with preferrential tax treatment.

Call your Rothenberg Investment Advisor today discuss the various options available in the market place. Your comments and thoughts are always appreciated.

Alberta Capital Bonds On Their Way

Albertans are sure to be inundated with marketing on Alberta Capital Bonds in the coming weeks as the Alberta government looks to individuals to raise capital to fund their current deficits. Details of the offering were provided to financial institutions such as ourselves this week. The bonds will go on sale February 16th until March 1.

Unlike Canada Savings Bonds, Alberta Capital Bonds are not redeemable and must be held until maturity except for some very limited circumstances. The bonds will be dated March 15, 2010 and have a 5 year term. Interest can be paid annually or compound annually.

The minimum purchase amount will be $1,000 with a $25,000 maximum regardless of how the bonds are registered. You would not be able to buy $25,000 for yourself, $25,000 for your RRSP account and $25,000 jointly with your spouse. The government will not provide certificates which is also a different format compared to Canada Savings Bonds.

While the bonds are not CDIC insured, they do have the full backing of the Alberta government. They will be eligible for RRSP’s within a Self Directed Plan. The only thing that we don’t know about the bonds is probably the most important number.

What are they going to pay? The highest 5 year GIC is currently 3.30%. Expect the announcement to come in around that level.

If you are interested in higher rates, please don’t hesitate to contact us. We have access to some Alberta Capital Finance Authority which is a government agency accrual notes yielding over 5%.

Your thoughts and comments are always appreciated.

Claymore Gold Bullion Trust – A Great Way to Buy Gold

With India adding 200 tonnes of gold to their reserves, gold has hit an all-time high. It was highly anticipated that China was going to purchase this block of gold. With China publicly expressing its wish to increase its gold reserves over the coming years, one can only imagine that gold might appreciate significantly over time.

So what is the best way to play gold? You can buy gold producers but that takes on the risk of an individual companies performance. Some will outperform bullion while others won’t. For those that want exposure to bullion, consider the Claymore Gold Bullion Trust. The symbol is cgl.un on the TSX.

The units trade at a discount to its Net Asset Value (NAV). Today’s closing price was $10.00 and the NAV is roughly $10.40. Most Gold Trusts trade at premiums. Claymore will convert the units into an exchange traded fund if the units trade at a 2% or more discount to its NAV for 10 consecutive trading days starting at the end of November. Once this happens the discount should disappear.

If you buy gold outright as a retail investor, expect to pay a premium over what is quoted in the press. Couple that with any storage costs associated with buying bullion and you will see that Claymore’s product has merit. Another benefit for Canadian investors is that the units are hedged into Canadian dollars.

Typically, commodities move inversely with the US dollar. As gold goes up, the US dollar goes down potentially negating any upside to Canadian investors. In the interest of full disclosure, I do own some of the units personally.

Your thoughts about gold and where its heading are greatly appreciated.

 

 

Life Settlements in Difficulty in Canada

I have seen some ads in the Calgary Herald advertising life settlements yielding 10%. The ads definitely peaked my interest as this was something different than real estate, commodities, equities or even the bond market.

To have a different asset class paying a 10% yield would be quite attractive. Of course, with the rash of real estate deals going south and ponzi schemes rearing their head, one can only be skeptical.

The underlying concept behind life settlements is that a company offers an individual that is diagnosed with a life threatening illness a lump sum while they are alive in return for the proceeds from a life insurance policy upon death.

The company raises money from individuals paying them the 10% interest rate. They are supposed to pay the individuals from the proceeds of the policies which is difficult to pinpoint as they cannot guarantee when a policyholder will die.

The industry is growing in the US with about $12 Billion in policies sold in 2007 according to an article in this weeks investment executive. In Canada, the purchasing of policies is illegal in most provinces so the ones being offered for sale are from jurisdictions outside of Canada.

The main issue that is now plaguing this sector is similar to other unregulated industries. The individuals selling the policies are not registered to do so and are not offering proper documentation to potential investors outlining the risks.

Two companies in Ontario selling these policies have been shutdown while one in Alberta is currently being investigated.

All one needs to do is visit the Ontario Securities Commission or Alberta Securities Commission websites and do a search on life settlements to get more details on some of the issues.

If you have had any positive or negative experiences in this area, your feedback would be greatly appreciated.

 

 

 

Headline Deflation Number Not Worth Reporting

Media outlets have been reporting that inflation was -0.9% for the last 12 months in Canada. Many people will listen to that one number and not look any further.

The headline number includes food and energy prices with energy prices being the main reason for the decline since a barrel of oil in July 2008 was trading as high as $147 a barrel compared to $70 today.

As a result, gasoline prices dropped 28%. The decline in energy prices was quick and steep and will quickly disappear from the deflationary number being reported.

Core inflation which excludes these items was 1.8% and right in line with the 2% target of the Bank of Canada. There was nothing in this report to indicate a change in Bank of Canada interest rate policy.

Going forward, expect energy prices to contribute to the headline inflation number. Just like my post of a couple of weeks ago disecting the jobless numbers, it is always important to read more than the headline in order to say informed.

Your comments and inquiries are always appreciated.