The main changes ushered in by the bill are new controls on health-insurance premium costs and new rules that prevent insurance companies from using pre-existing medical conditions to refuse coverage. Most Americans will now be forced by law to get health insurance — there’s a penalty if they don’t — and new government subsidies will help families pay for it. This reform will have both positive and negative consequences for companies in the health-care sector. More drugs and more services will now be used, which should translate into higher profits. But while there are no price controls governing how much medicine can be sold for, pharmaceutical companies will have to pay higher Medicaid rebates and provide a 50% price discount on drugs provided through Medicare. Pharmaceutical company Eli Lilly estimates that the rebates alone will cost it about $400 million in 2010.

Many Canadian investors haven’t been following the changes closely, as at first glance, the U.S. health-care sector may not seem like a must-have for northern portfolios. However, Bob Gorman, a portfolio strategist and vice-president at TD Waterhouse, says that view could be a mistake. He points out that health care is vastly underrepresented in the Canadian equity market, which is overweight on commodities and financials. To ensure a properly diversified portfolio, it’s wise for Canadians to focus their foreign equity holdings on sectors that are underweight at home. Stephan Patten, portfolio manager in charge of health-care strategy for Montreal-based Sectoral Asset Management, says Canadians should have a market-weight exposure to the global health-care industry of about 10%.

According to Jerome Pfund, Sectoral’s CEO, now may be a good time to buy. He says U.S. health-care stocks are currently undervalued due to the new rebate and price discount rules. But over the long run, the sector will likely benefit from 32 million additional Americans gaining access to care. “These two things — negative effect on pricing and positive volumes — are not happening at the same time,” he says. “That presents great opportunities.”

One of the big winners may turn out to be the biotech sector, which Derek Taner, lead manager of the Invesco Global Health Care Fund, finds very cheap right now. Many companies in the field have demonstrated consistent growth, he says, and it’s a sector ripe for consolidation. Patten also likes biotech because it’s one of the more innovative, faster-growing areas in health care.

The picture for the big pharmaceutical companies isn’t as clear. They could also benefit over the long term, as more insured Americans means more sales, with the generic drug makers benefiting the most as insurance companies try to control their costs. But John Power, senior vice-president of U.S. equities and portfolio manager for Fidelity Investments, is worried that big pharma may not see the boost some are suggesting. That’s because Medicaid rebates on prescription drugs — money pharmaceutical companies must pay back to states to keep Medicaid-related drug costs low — are set to jump from 15% to 23%. Due to that increase, Power is downgrading expectations on pharma companies in general.

HMOs may also be at risk. These insurance companies work with doctors, hospitals and employers to get patients low-cost care, and some say they may eventually lose control over their rate increases. The current situation in Massachusetts, where state approval has been the norm for years, is an example of what can go wrong. In April, when non-profit HMOs asked the state government to increase premium rates to cover rising health-care costs, it refused, approving only 10% of the increase insurance companies wanted. The HMOs responded by saying they would be forced to deny certain treatments. That’s a major concern for Power, since people are now mandated to have health-care insurance. “The highly politicized nature of health-care rate increases in Massachusetts is likely to be replicated at the national level,” he says, “which bodes poorly for private health insurance.”

Other sectors will undoubtedly benefit from the new legislation. There is wide agreement among Taner, Gorman and Power that the pharmacy benefit managers (PBMs) — such as Express Scripts and Medco Health Solutions — will be big winners. PBMs administer prescription drug programs and act as the middlemen between employers, drug companies and the American people. They also negotiate rebates with drug companies and keep track of what medicines employer health plans cover. With more people accessing drugs, expenses will rise; it’s the PBMs’ job to keep those costs down, which will likely mean guiding people to generic drugs. Power says any service that helps people keep costs low will do well post-reform.

There are many ways for investors to tap into the U.S. health-care sector. Canadians can buy stocks on the American exchanges, as well as health-care-themed mutual funds and exchange-traded funds (ETFs), such as the Health Care Select Sector SPDR (NYSE: XLV), which follows the S&P 500 Health Care Sub-Index, the main benchmark for the industry. There’s also the iShares Dow Jones U.S. Healthcare Sector Index Fund (NYSE: IYH), which tracks the Dow Jones health-care index.

It will likely take years for all the effects of the recent health-care reform to become evident. The S&P health-care index saw a strong rebound from the market crash in 2008, posting a 19.7% return in 2009, but thanks to the uncertainty imposed by the health-care reforms, the sector has dropped a little bit in 2010. That could be good news for investors who missed out on the great rebound of last year, as long as they can handle a bit of volatility. “The market is underperforming,” says Taner. “People need to own more.”

Best bets

These health-care companies were selected by fund managers who follow the sector as likely to benefit from the recent reform:

Johnson & Johnson (NYSE: JNJ) Most of us know this New Jersey–based company as the makers of Tylenol and Band-Aids — but it also produces a number of prescription drugs and medical devices, and thus stands to gain from the changes imposed by the health-care bill, says Bob Gorman, portfolio strategist and vice-president at TD Waterhouse. At the same time, the consumer products operation, which isn’t directly affected by the bill, could provide a stabilizing effect. According to Gorman, the price-earnings ratio for J&J is currently below its long-term average, the stock has a dividend yield of 3.32%, and it has increased that dividend every year for the past 40 years.

Bristol-Myers Squibb (NYSE: BMY) New York City–based Bristol-Myers Squibb is another favourite of Gorman’s. While its fortunes vary depending on how many drugs it’s working on, he says Bristol-Myers is a well-managed operation with a “decent drug pipeline.” It’s also a global company, so while it stands to benefit from the increased health-care demands in the U.S., it will also capitalize on growth from places like China and Mexico. In the past year, the company has focused on building its biotech and specialty drug operations — it purchased cancer drug maker Medarex last September — while divesting its non-pharmaceutical assets.

Gilead Sciences Inc. (Nasdaq: GILD) Derek Taner, lead manager of the Invesco Global Heathcare Fund, likes many biotech companies, but his favourite is Gilead Sciences. The Forest City, Calif., company develops a number of specialty drugs for AIDS, liver disease and respiratory illnesses, among other things, and has operations across Europe, North America and Australia. Thanks to its acquisition last year of cardiovascular drug maker CV Therapeutics, along with the 14 new drugs Gilead has in testing, Taner says he expects to see the company grow significantly over the next five years.

Genzyme Corporation (Nasdaq: GENZ) The last thing a drug company needs right now is a scandal, but in June biotech company Genzyme was forced to close down a plant due to viral contamination. That made it difficult for the Cambridge, Mass., company to produce a new drug it was developing to treat Gaucher disease. As well, U.S. regulators have handed the company a $175-million penalty. Despite all that, Taner likes Genzyme’s prospects. He says activist shareholders may force a change in management, which could drive the stock higher. Taner also likes the product diversification offered by the large-cap biotech. It has four main divisions: genetic diseases, cardiometabolic and renal, biosurgery and hematologic oncology. “It’s got a lot of good business platforms,” he says, “and a great asset value.”

Appeared in Canadian Business magazine’s June 14, 2010 issue.

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About 15,000 kilometres away, in Singapore, Mark Mobius, the executive chairman of Templeton Asset Management, is giddy. He’s not concerned with North America’s stagnant indexes — he’s got his sights set on the world’s emerging markets, countries like Brazil, Russia, India and China (collectively known as BRIC), where growth is still rapid, presenting opportunities almost everywhere he looks. “The economic situation in these markets is very positive,” he says excitedly. Mobius, who manages several emerging-market portfolios for Franklin Templeton Investments, expects this part of the world to grow four times faster than developed markets. Last year, the sector blew away most other asset classes. According to Bloomberg, the MSCI emerging-market index was up more than 78% compared to 35% for the S&P/TSX. Clearly, there are still deals to be had. Investors just have to look beyond Canada’s borders. The BRIC countries house the biggest emerging markets, though any non-developed country counts. Drummond Brodeur, VP of portfolio management with Toronto’s Signature Global Advisors, says a big reason why these countries are so attractive is their low debt-to-GDP ratio. Developed countries generally have 80%–120% debt to GDP — in emerging markets, that number is closer to 40%. The large gap comes from the growing pains emerging markets faced over the years. Many countries had been wildly over-levered in the past, causing fiscal defaults in a number of locales. World leaders have learned from past mistakes, says Brodeur, though investing in emerging markets still hasn’t taken off. According to Investor Economics, a Toronto-based company that tracks the financial services industry, in 2009, Canadian equity funds had about $158 billion in assets, while international emerging-market funds had just over $5.6 billion. Many are still wary of investing in non-developed countries, but, asks Brodeur, “is the risk related to the fact they’re emerging markets, or because of excessive leverage?”

Either way, less attention means better buys, and Mobius says the emerging markets offer good value. The sector is not as cheap as it was at the beginning of last year, when every market around the world had low valuations, but it’s not as high as it has been in the past. “We’re still able to find many investor bargains,” he says.

Of the BRIC countries, Brazil, China and India see the most investment, though Brodeur says the latter nation should be approached with caution. India’s inflation recently hit 10% over the next couple months, meaning it may be better to wait a while before buying. Russia is more complicated: “It’s still driven by political agendas,” Brodeur explains. While valuations are cheap, Brodeur won’t invest there because of the political uncertainty. Mobius, on the other hand, has many investments in the former Soviet Union, and says he’s bullish on Russia’s oil and mineral sectors.

Besides BRIC, Canadians may also want to consider investing in frontier funds — areas such as Africa, the Middle East and the less developed countries in Latin American and eastern Europe. Tim Drinkall, manager of Morgan Stanley’s Frontier Emerging Markets Fund, says these countries are about where the bigger emerging markets were 15 years ago; everything from infrastructure to telecom and energy is rapidly expanding. Best of all, valuations are low, since most investors usually stick to BRIC if they invest in emerging markets at all.

Frontier markets didn’t do as well as their BRIC counterparts during the recession — the asset class was up only 11% in 2009. This year, it’s up 12% compared to about 5% for the more popular emerging markets. Drinkall adds that the frontier market is trading at a 25% discount compared to other emerging markets.

But if political climate was a big deal in Russia, it’s an even larger concern in frontier countries, many of which are run by dictators, and where attitudes toward outside investment vary. Drinkall looks at the macro environment — politics, transparency and economic cycles — to decide where he wants to invest. For him, Bangladesh, which is supportive of bank liquidity and domestic consumption, is a preferred market. Vietnam, which he thinks will have trouble pulling back the policy stimulus initiatives it announced last year, is one country he avoids.

One of the easiest ways to invest in the emerging-market countries is by purchasing a mutual fund or an ETF. That can mean buying a global fund, which can consist of both developed and non-developed countries, an emerging-market fund that invests specifically in BRIC and other locations, or a country-specific fund. Investors can also buy specific companies. And while investing in frontier funds may seem like a good idea, given the growth potential, Drinkall says this may not be the place for first-time emerging-market buyers. “It may be odd for someone who’s never invested in emerging markets to start with frontier countries,” he says.

Obviously, there are benefits to investing in emerging markets, especially since Canada’s markets are in a holding pattern. But while growth is the hot draw, it could also be its downfall. “The slower the markets grow, the better,” says Brodeur. “But those are the cycles you have to manage.”

14 foreign picks for your portfolio
Emerging and frontier markets offer a wide variety of rapidly growing areas to invest in. Here are 14 solid companies with strong growth potential.

China Merchants
Shipping is big business in China, so owning the country’s major port operator is a no-brainer. Drummond Brodeur, a portfolio manager with Signature Global Advisors, says China Merchants is “geared to the continuing growth and recovery in exports and trade.” It’s not a cheap buy — it’s trading at 20 times earnings — but with strong growth potential, there’s a good chance the share price will climb.

China Construction Bank
The majority of China’s growth will come from its consumption-hungry citizens — and if a billion-plus people want to buy, they’ll need credit. This bank is poised to take advantage of the increasing demand for auto financing and mortgages. The bank is trading at 10 times earnings and has “the best upside potential in stock price driven by loan growth,” says Brodeur. It also has a dividend yield of 4.5%.

XinAo Gas
When most people think of “mature” businesses like utilities, they don’t think of emerging markets. This basic gas utility has slowly been building up its distribution capabilities, and while it’s hooked up many homes in China, there are many more to go. The company is putting up about 20% growth. Trading at 19 times earnings, it’s not inexpensive, but its huge potential makes it a solid buy.

Banco Santander
Brazil’s credit market is still in its infancy. That makes Banco Santander a favourite of Brodeur’s. “Growth is very much driving demand for financial services,” he says.

BR Malls
If North America is any indication, the more Brazilians get credit, the more they’ll shop. BR Malls operates several large shopping centres in the country, so it’s well positioned to take advantage of the public’s increasing demands for goods. Brodeur says the company has solid, long-term, inflation-protected assets and good cash flows.

Petrobras
Make no mistake, oil companies are still a fantastic buy. Petrobras, a large Rio de Janeiro–based energy operation, has discovered large offshore oil deposits that it continues to mine. Brodeur says investors will see “strong double-digit growth” and, since the government owns the company, it gets preferential treatment over the multinationals.

Walmart de México
Strong management, vast retail knowledge and consumer growth should translate into double-digit earnings for Walmex (which is 44.7% owned by its U.S. namesake, Walmart). Right now it’s trading at 13 times earnings according to Brodeur, who says that’s a “very reasonable valuation.”

TSMC
TSMC is the largest semi-conductor manufacturing foundry in the world. When companies want to outsource their semi-conductor development, they turn to this Taiwanese company. Not only is it trading at 12 times earnings, but investors will get a 5% dividend yield as well.

Globe Telecom
“This is a pure yield play with a dividend yield of about 8.5%,” says Brodeur of the Filipino telecom business. Globe Telecom isn’t the largest wireless player in the country, but with increasing demand for mobile products, it should see high- to mid-single-digit growth.

FRONTIER MARKETS

Benue Cement
The cement industry may not be the sexiest sector, but don’t tell that to the Nigerians. The African nation uses 14 million tonnes of cement per year, but only manufactures eight million. New modern plants, however, should drive production, and Gboko-based Benue Cement is poised to capitalize. “Cement sales are going to grow leaps and bounds,” says Roelof Horne, a portfolio manager with Johannesburg-based Investec Asset Management.

Access Bank
Thanks to growing credit demands, and Nigeria’s recent banking crisis, many financial institutions have seen their values drop. Access Bank, says Horne, is one of those, but it’s still well-managed, with capital in excess of 30%. With the crisis shuttering many of its competitors’ doors, Access has a lot of room to grow.

CIB Bank
Egypt may seem like one of the more developed African countries, but only in the past few years has it allowed mortgage loans or car lending. As a result, the country is “very under-banked,” says Horne, with “huge growth potential to be had.”

Elsewedy Cables
The energy company makes electrical cables, meters and wind turbines — all products that Middle East and North African countries want. Horne says it’s an “active capacity” product line and, with its competent management team, should do well long term.

Depa
A Dubai real estate company might seem like a strange place to invest, given the property bubble and the recent debt crisis, but market troubles make for good valuations. Depa makes furnishings and finishings for big buildings and hotels. It has international aspirations, too. The company, says Horne, is “totally underpriced.”

Appeared in May 10, 2010 issue of Canadian Business magazine.

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A similar question helped Quain dream up CellWand’s second mobile application. When — or if — it launches this fall, #PIZZA will give consumers an easier way to order a pie. “The service is for when that initial avenue for finding a pizza is all the sudden not there,” says Quain. That happens a lot. According to market-research firm Harris Interactive, pizza is the No. 1 business-listing request made to 411 in the restaurant category — which is the most popular category. Imagine if those callers were to dial #PIZZA instead. With about 250 million mobile users in North America, if even half of them use #PIZZA just once a year, CellWand could easily become a $100-million company, says Quain. But for the service to take off, CellWand must secure some much-needed marketing partners to help spread the word; without them, #PIZZA’s launch, which has already been pushed back by a year, might be further delayed.

Like #TAXI, #PIZZA relies on CellWand’s interactive voice-response technology, created with angel investment “in the low six figures,” says Quain. When you press #74992 (which spells #PIZZA) you’re directed to an automated voice program. The software determines your location, then asks a series of questions to determine your preferences, such as highest quality, lowest price or fastest delivery. Finally, the program connects you to a restaurant that fits your criteria.

To create the database of restaurants, Quain’s employees spoke to thousands of pizza joints across Canada and the U.S. to find out where they deliver, the quality of food, price and service. They also aggregated data from social media, magazines and university-campus discussion groups to determine which pizza places have the best product: “It’s usually some small, family-run business,” says Quain.

The #PIZZA service isn’t meant to circumvent people’s usual pizza-buying methods; Quain is the first to admit that most people craving a pizza will continue to call their favourite local parlour or the one with a catchy ad jingle. CellWand is going after folks who may be out of town or simply across town, where their usual choice doesn’t deliver. “It can be the soccer mom on her way home who doesn’t have a number for a pizza place and needs to order quickly, or the student who’s staying at a friend’s and doesn’t know what restaurant is open,” says Quain. He’s also hoping people new to a city or others who “don’t have the faintest idea who delivers pizza in that area” will use his service.

With the technology and the database ready, Quain is now focusing on marketing. To promote #TAXI, CellWand partnered with Mothers Against Drunk Driving, bars, and liquor and gaming commissions to, as Quain says, “help promote the social responsibility message.” It’s a little more difficult to see buying a slice of pepperoni as an altruistic act, so to get #PIZZA out to the hungry masses, Quain is largely focuing on partnerships with the pizza parlours themselves. His proposition: pizza companies can get premium placement within his service in exchange for his logo being placed on their promotional materials, websites or even pizza boxes. “When you call #PIZZA, we automatically figure out who’s open and delivers to you,” Quain explains. “So, if, say, Pizza Hut is one of those, we could ask, ‘Do you want the cheapest pizza, the best-quality pizza or this cool promotion from Pizza Hut?’”

Quain isn’t worried about securing marketing partners. “Our service is the ultimate shortcut to get a pizza, so stakeholders in the pizza industry are extremely interested in associating themselves with it,” he says. Although he has struck no formal partnerships as yet, he’s had “a lot of conversations” and is confident he’ll soon ink some deals.

Once his marketing partners are in place, Quain will strike up deals with cellphone carriers, who have also expressed interest in the service — not surprising, since it represents a new revenue stream. The $1- to $2-per-call charge to #PIZZA users will be shared between CellWand and the carrier. (Quain won’t reveal the percentage split.)

#PIZZA is most likely to launch in Canada first, with a roll-out in the U.S. soon after. Quain has existing relationships through #TAXI with a number of U.S. cellcos, such as AT&T, Sprint and Verizon, but that doesn’t mean getting a new abbreviated number will be easy. In fact, dealing with the phone companies is the hardest part of his job. “We’re at the whim of carriers,” he says. “And, while it’s easier now, it [still] may be difficult to build a business on the backs of those companies.”

That doesn’t mean Quain won’t try. He says he has other abbreviated phone-number ideas. And he’s also looking beyond dialling codes. For example, CellWand is developing a GPS-based mobile app that, once activated, would tell the system exactly where the user is and what the nearest cab or pizza place is.

But what has Quain most excited is the sheer potential of this business — that is, the millions of students, soccer moms and travellers who have yet to buy a mobile phone. “I remember when there were 10 million cellphone users in Canada,” he says. “Now there are 20 million, and we’re not done yet.”

Appeared in PROFIT magazine’s May 1, 2010 issue.

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At the time, trusts were incredibly popular because they were exempt from paying taxes on the income they flowed to unitholders. Because they were designed to spin off regular cash payments, they had been embraced by seniors, who used them as a source of income for their golden years. Just a few months earlier, in the midst of an election campaign, the Harper government had promised not to touch income trusts. So when Flaherty announced that trusts would be taxed starting Jan. 1, 2011, Lundquist thought there had to be some kind of mistake. She wondered if her job — managing a fund that entirely consisted of trusts — was in jeopardy.

It’s now 3½ years later, with less than nine months to go before the trust tax deadline kicks in, and Lundquist is much calmer. She says she’s “already gone through the various stages of the grieving process,” and she’s feeling much more bullish about the sector. She will not only continue to manage her fund next year, she says now is actually a great time for investors to get into the income trust market.

The reason? Ever since Flaherty made his announcement, Canadians have been wary about investing in the sector, and that wariness, says Lundquist, has made for some bargain-basement deals. Investors fear that when the new trust tax kicks in this January, distributions will be slashed and prices will tumble. But that’s not necessarily the case, because the market has had lots of time to price in the new tax already. The biggest opportunities, she says, lie in undervalued trusts that have not yet announced whether they will remain trusts or convert to corporations and maintain their current distribution levels. “Once the announcement gets out, the uncertainty won’t be in the market,” she says. “If the price needs to adjust, it will, but from then on you’ll be owning a company for its own merits.”

It’s likely that almost all income trusts (except real estate investment trusts, which aren’t generally subject to the tax) will convert to a corporate structure some time in the next two years, says Lundquist. While trusts will have to pay tax on their income come 2011, they have until 2013 to convert into a corporation without having to cough up the taxes associated with the transfer. Remaining a trust without the tax benefit is costly, as it’s more expensive to operate as a trust than as a corporation. But despite the expected exodus from the trust sector, her fund will continue to operate — she’ll just hold many of the same high-yielding businesses as corporations in her portfolio instead.

Martin Ferguson, a director and portfolio manager at Calgary-based Mawer Investment Management, says that for those investors holding trusts when the tax comes into effect, the transition should be fairly smooth. Beginning on Jan. 1, non-REIT trusts will be subject to a tax of approximately 30% of theirpre-tax income. This tax will reduce the cash available to flow out to investors by a like amount, thus ending the tax advantage they had over corporations. But at the same time, regardless of whether they remain a trust or convert to a corporation, their distributions will be considered dividends for tax purposes. In other words, depending on their income bracket, investors may not notice a big difference in the annual income they get after tax. The end result could be that investors will get less cash out of the company, but it will be taxed at a lower rate as dividend income in their hands.

Many investors have been scared out of the trust sector by the impending tax changes, but Ferguson says there are opportunities for investors who focus on the quality of the underlying businesses. He says he looks for trusts with a strong business model, a unique competitive advantage and healthy cash flows. “If they have all that, the only thing that should change is the tax situation,” he says, which the market has already factored in. Nick Dedes, a fund analyst with Morningstar Canada, agrees, adding good companies are good companies no matter how they’re structured. He says investors should look at whether or not the business will take a different strategic direction and how crucial the tax savings were to its operations.

Still, while many of the weaker trusts have already folded or merged out of existence, there’s no guarantee that a trust won’t wind up being a dud after the January deadline. The riskiest bets are the companies that switched to the trust structure just to take advantage of the tax savings — it’s those operations that may get rid of their distributions altogether. Another red flag would be a sudden, major shift in the underlying business model. Generally, good trusts are those with a predictable, regular stream of income. If one of these steady operations decides to go on an acquisition spree, using its cash to grow the company rather than flowing it out to investors, you should ask whether that shift in strategy will increase shareholder value. “Those changes have not been met well by the market,” Lundquist says. “They’ll reduce their distribution down to zero, and there’s usually a period of extreme price weakness until they prove they can grow again.”

In the end, finding a good trust is similar to finding a good corporation to invest in. “We look at the future,” Lundquist says. “If it has a very bright future, but because of the uncertainty the trading price is down, that’s attractive.” As long as a trust has some growth potential, pays a high yield and continues to execute its business plan soundly, it’s possible that it may even decide to increase its distribution down the road.

Best bets

There are now about 150 Canadian income trusts on the market — down from a high of 248 in 2006 — but there are still plenty to choose from. Here are four trusts that investors may want to consider:

Morneau Sobeco Income Fund [MSI.UN]
“We really like this business,” says Leslie Lundquist, co-manager of the Bissett Income Fund. Toronto-based Morneau is Canada’s largest HR services firm, with 2,300 employees in North America. On March 10, the fund announced it would convert to a corporation on Jan. 1, 2011, and continue to pay a distribution. Currently, the fund’s annual yield is 9.17% — next year investors will get about 7.6%, assuming its price doesn’t change when it converts. Because the distribution will be taxed as dividend income in investor’s hands after the conversion, management says distributions will actually increase 10.6% on an after-tax basis for unitholders paying the highest marginal tax rate.

Badger Income Fund [BAD.UN]
Badger Income Fund has been in the trust market for several years now, becoming a flow-through entity in 2004. It has a smaller market cap, but Lundquist thinks it has potential. The company is North America’s largest provider of “non-destructive” excavating services. It digs unobtrusive holes for energy companies, infrastructure projects and other industries. Its annual yield is about 8%, and thanks to its low debt level and strong balance sheet, the company says it will keep paying dividends of between 75% and 100% of the current annual distribution when it converts in 2011. “If you buy Badger today, you’re getting a well-managed company that will continue to succeed many years into the future,” Lundquist says.

First National Financial LP [FN.UN]
According to Martin Ferguson, a director and portfolio manager at Calgary-based Mawer Investment Management, First National has a solid business model, with high recurring revenues and low risk. The Toronto-based operation is the largest nonbank player in the mortgage market. After the company originates a mortgage, it sells it to an institution, retaining the servicing contract. It also securitizes packages of mortgages, again keeping the service contracts. Currently, the trust is yielding about 7% per year and trading at about $21 a unit. When it converts at the end of the year, the yield is expected to drop to 5% a year, or $1.10 per share annually.

Altus Group [AIF.UN]
Altus Group, based in Newmarket, Ont., is another favourite of Ferguson’s. The income fund is one of the country’s largest independent real estate valuation organizations, with more than 50 offices in 11 countries. It has a wide range of clients, but pensions, REITs and other commercial property owners are its main clients. With a strong and focused business, Ferguson expects its annual yield of 8% to stay in place after January. The fund had not announced its conversion plans at press time.

Appeared in Canadian Business April 26, 2010.

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Brock McEwen, a director at Great West Life, says that with his company’s plan, for every $2 of Great West Life stock he buys, the company throws in $1, effectively creating that 50% return on his money—even if the stock price doesn’t go up. “We’re getting tremendous value,” he says.

Bob Gorman, vice-president and chief portfolio strategist with TD Waterhouse, agrees these types of programs can be a boon. Generally, people can invest between 1% and 5% a paycheque in their employer’s stock. Simply doing that, Gorman explains, can net you high returns.

But there are risks. Some plans lock in your money for while, and having a pension, a job, and investments tied up in one place can be dangerous. “Enron,” utters Ted Rechtshaffen of TriDelta Financial, recalling the disaster its employees faced when the company went bust. The staff not only lost their jobs, but the savings they had in the share ownership plan.

To avoid that scenario, Rechtshaffen says you should keep abreast of your employer’s financial situation, and you shouldn’t have more than 50% of your net worth tied  up in your company. “If it exceeds that,” he says, “it may be necessary to get more balance, even if there are great benefits.” Baby boomers nearing retirement should be especially careful of putting all their eggs in one basket.

In McEwen’s case, he says his company appears to be stable, and for him it’s not just about the money. “Imagine being one of the only execs sitting around a table who didn’t invest,” he says. “I want to support my company.”

Appeared in MoneySense magazine’s May 2010 issue.

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That’s exactly what the Lending Club — a California-based peer-to-peer online lender — is doing. The company gives people in need of anywhere between $1,000 and $25,000 a place to raise cash from online investors. Because these transactions are all digital, the company takes some unusual steps to try to sniff out unscrupulous borrowers. Rob Garcia, the Lending Club’s senior director of product strategy, says that besides the usual back-ground and credit checks, they look at publicly available information to make sure everything checks out. “We use what’s online to reduce the risk of fraud,” he says. While Garcia won’t divulge exactly what his company looks for, he says it’s as basic as matching information on an application to information on a Facebook profile. If there’s a discrepancy, more questions need to be asked.

Experts say they’re not aware of big banks and credit card companies that are using online data to determine who to lend to — yet. “Inevitably, it will become more common,” says Brian Bowman, a lawyer and privacy expert with Winnipeg’s Pitblado LLP. New consent forms will mention something about social-networking data, so if you sign on the dotted line, all your public information will be fair game. Some experts have even suggested that financial institutions may want to check the credit histories of people in your online network to help determine your creditworthiness, with the idea being that people tend to share the same consumer habits as their peers.

In the insurance industry, using information from social-networking sites has already become commonplace. Bowman says there’s a developing body of case law around people who have claimed personal injury for insurance and then, when they’re supposed to be bedridden, have posted photos of themselves doing something physical, like skiing. “That’s being admitted in court with increasing frequency,” he says. Industry insiders are now warning that victims of burglaries might have their insurance claims rejected if they had revealed that they weren’t at home on Twitter or on the location-based social network, Foursquare.

However, marketing remains the main reason financial institutions and other companies are scouring social-networking sites. Joel Jewitt, vice-president of RapLeaf, a San Francisco–based company that monitors social-media networks for companies, says financial institutions are always trying to figure out how to send the right message to the right people. His company gathers data from the Internet — gender, age and other demographic information. Banks can use that information to create specific ads or products for niche groups of people.

A Fredericton-based company, Radian6, uses social-media data in a different way. Their computer programs track what people are saying about organizations across the social-media landscape. Tweet something angry about a bank’s customer service and there’s a good chance they’ll get that message seconds later. “You can drill down to specific posts,” says vice-president Dave Alston. The financial institution can use that information for marketing purposes, or they can respond directly to the Tweet, Facebook post or blog entry.

According to Mathew Ingram, a Toronto-based journalist and social-media expert, banks may want to examine every client’s online data to learn more about them, but it would be an enormous task. “It’s difficult to get much detail,” he says. “Someone using a smiley face emoticon is about as close as we can get to saying whether a tweet was happy or sad.” And companies who regularly deny insurance coverage based on social-media data could risk public backlash.

Still, that doesn’t mean that consumers should be complacent. Remember that banks will use this information any way they want — and it may not be in your favour. There’s only one way to guarantee your bank’s not reading your comments: make them private — or better yet, keep them offline.

Appeared on Canadian Business Online, April 12, 2010.

Pic via

Where to stay: If early–20th century Victorian architecture gets you excited, then check out Ryan Mansion. Built in 1909 by James Ryan, once the province’s richest citizen, the massive home’s claim to fame is its large staircase, which was designed by the same team who installed the Grand Staircase on the Titanic. The cozy, old-world rooms are the ideal place to snooze after a long day of meetings at the St. John’s Convention Centre — an easy 15-minute walk away.

For a more modern experience, try the Hometel on Signal Hill, a national historic site. While travellers can choose between various room sizes, business people planning an extended stay may want to set up in one of the many “complete homes” — full-sized apartments with up to three bedrooms.

Where to dine: You can’t visit St. John’s — the heart of Canada’s fishing industry — without trying its famous fish and chips. The Celtic Hearth is the place togo for fried fare. Formerly a pharmacy and candy store, it features an inviting decor with red-brick walls, and houses a museum displaying old pill bottles and vintage toys and candy.

The Gypsy Tea Room is another go-to restaurant among locals. “They do fantastic things with seafood and steak,” says Erin Skinner, marketing co-ordinator for the local Juno hosting committee. The eatery is located in the Murray Premises — a warehouse that was built for cod fishers in 1846 — and has a large wine cellar and an assortment of fish caught by Newfoundlanders.

Where to unwind: Without a doubt, George Street is the place to relax after a busy day. The strip, which is a stone’s throw from St. John’s Harbour, has more than 20 bars and pubs crammed into three blocks. You can be sure many Canadian rockers will hit some of these watering holes during the Junos.

Don’t miss: When the warm weather allows, there’s nothing like seeing Cape Spear, the easternmost point in North America. It is famous for its beautiful views of the Avalon Peninsula, but also for its lighthouses — one has been operating since 1836.

The mini-guide: What you really need to know about St. John’s

What to bring
A hand-knit fisherman sweater ($150–$190) from Nonia.com

How to say
How’s it going?: How’s she cuttin’?
It’s a beautiful day: The sun is splittin’ the rocks
Very cranky: Right crooked

Prices
A night in a Hometel house: $297
Tour of St. John’s and Cape Spear: $59
Blackened salmon fillet at the Gypsy Tea Room: $24
Junos on George Street viewing party: free

Appeared in April 26, 2010 issue of Canadian Business magazine

Pic of St. John’s Harbour via

Where to stay: If you’re in town for business but still want to be close to the cultural hot spots, check out the Hilton Austin. It’s located in the heart of downtown, just one block away from Sixth Street — a main destination for nightlife revellers. An elevator ride to the eighth floor will take you to the Tower Health Club & Spa, which features a 48-foot pool and stunning sight lines.

Take in a ground-level view of Austin at the Hotel Saint Cecilia, located on the city’s trendy South Congress Avenue. The hotel is a favourite of Jim Eno, drummer for popular Austin-based rock band Spoon. “It’s a hip little place,” he says. Patrons can stay in large suites that include a private study, or crash in a colourful bungalow to get a real taste of Austin living.

Hilton Austin: 500 East 4th St., (512) 482-8000; www1.hilton.com, Hotel Saint Cecilia: 112 Academy Dr., (512) 852-2400, hotelsaintcecilia.com

Where to dine: Even though Austin isn’t your typical Texan town, the Grade A beef still stands out. Grab a hearty steak at Eddie V’s downtown location, a popular place for entertaining clients. It has a classic steak housefeel, complete with a piano bar lounge, and has drawn the likes of actress Kate Hudson, baseballer Rogers Clemens and cyclist Lance Armstrong.

Justine’s is a bustling French bistro situated in the up-and-coming East End — a haven for artists and musicians. Beth Krauss from the Austin Convention & Visitors Bureau describes Justine’s decor as “depression-era circus, silent-movie style.”

Eddie V’s: 301 East 5th St., (512) 472-1860, eddiev.com; Justine’s: 4710 East 5th Street, (512) 385-2900, justines1937.com

Where to unwind: You can’t go to Austin, especially during SXSW, without seeing live music. The Continental Club, also located on South Congress Avenue, is the “granddaddy of Austin music venues,” says Krauss, who sums up the ambiance as a hot rod morphed into a music venue. The neon lights, pool table and old-timey wooden bar has played host to the likes of Stevie Ray Vaughan and Kinky Friedman.

Continental Club: 1315 South Congress Ave., (512) 441-2444, continentalclub.com

What not to miss: As the home of the state government, Austin boasts the Texas Capitol, a towering 19th-century building that sits atop one of the city’s highest points. Built in 1888, it features a sprawling lawn, intricate renaissance revival designs and artifacts dating back more than 100 years. Other highlights include the must-see museums at the University of Texas, featuring one of the original Gutenberg Bibles and the first photo ever taken.

The mini-guide: What you really need to know about Austin

What to pack
Stevie Ray Vaughan’s Texas Food CD

SXSW specialty music genres
Digital hardcore: Fusion of hardcore punk and electronica
Freak folk: Psychadelic folk/rock
Musique actuelle: Avant-garde jazz with a francophone twist

Prices
SXSW platinum badge: $1,268
Eight-ounce filet mignon at Eddie V’s: $36
Miller High-Life beer at the Continental Club: $2.50
35-minute tour of the Texas Capitol: Free

Appeared in April 12, 2010 issue of Canadian Business

Pic via

Choosing a social network to join is a lot like figuring where you want to go to university. Are your friends going? Do you want to go alone and meet new people? Will you get something out of it in the end? It’s a decision that shouldn’t be taken lightly — social networking is not only time consuming, it tells people a lot about who you are, whether you post regular photos on your wall or not.

These days, Facebook seems to be the default network for North Americans — more than 350 million people use the site — but others sites such as the business professional-oriented LinkedIn and the giant RSS feed known as Twitter are gaining ground.

Still, some people will also want to sign up to MySpace or Friendster, but they may want to reconsider. Having too many social networks is not a good thing. “The average person can only manage two or three,” says Amber MacArthur, a digital technology expert and author of the soon to be released Power Friending: Demystifying Social Media to Grow Your Business. “It makes sense to have one for personal reasons and one for professional.”

When you’re seeking out a network to join, MacArthur says people should ask themselves a couple of questions: How frequently will they use the site and how much of a community needs to be built there. If the community is built in, like on Facebook, where everyone from your neighbour to your great aunt has a profile, it’s easy to start participating. If you join one of the many obscure sites, or a network where you don’t know anyone, you’ll have to develop your own posse of virtual friends.

Privacy policies are another big factor to consider when choosing a network to join. Facebook received a lot of complaints after it recently made changes to its privacy settings — as of December 2009 users can no longer hide their fan pages, friends, profile picture and friends list — but, says MacArthur, the site still does a decent job of protecting people’s profiles. (You can set it so others can’t see your wall, photos and most of your personal details.)

Twitter on the other hand, isn’t for the publicity-adverse web user. Every update you post, unless your profile is locked — which means you have to approve followers — gets indexed by Google. Search for yourself and you’ll find almost every Tweet you’ve ever sent. “So many social networks make it easy for the information to be public,” cautions MacArthur, “which means you have to be careful with what you write.”

While it’s important to do your due diligence when picking a site to join, it may just be easier to stick to the ones that are already popular. “There are literally thousands of social networks that people haven’t even heard of,” says MacArthur. “There are networks for criminals looking for pen pals and the list goes on. You should just stick with the top ones.” That includes Facebook, Twitter and LinkedIn. Beyond that, people could run into sites with viruses and phishing problems. (Though the big sites are not immune to that either.)

It may come as a surprise, but one site that’s not on MacArthur’s list to join is MySpace. The once popular social network that still has millions of users is considered by many to be the out-of-touch dad of social networks. Besides looking sorely outdated, it’s a haven for spam messages and creepy lurkers. “MySpace has definitely changed over the past year,” she says. “It’s not a place for the average person to network. There’s lots of trash talk.” Where MySpace succeeds is in promoting music. So far, no other network has been able to connect bands to fans, but these days that’s all it has going for it.

Another network to watch out for is the new Google Buzz. Its main drawback is its redundancy. The network is supposed to act a bit like a Twitter for Gmail users. You can share photos and comments to your entire contact list. The problem with that is that you’re already sharing that type of information — through email, if not on another social network.

“Google Buzz is a weird one,” MacArthur admits. “It’s confusing in that it connects people who are already in your Gmail account. Why wouldn’t you just email them?” To really make it work, she says, you have to find people who are using it in a meaningful way and you’ll have to devote time and effort to connect with them.

There are plenty of other networks to avoid, but it may be difficult to know which ones. Besides sticking to the most popular sites, MacArthur has another tip: Make sure the social network you join will be around longer than a couple months. “If you’re putting personal information into these networks and haven’t read up on them, they could be gone in two or three months,” she says. “A lot of these are the hot thing today, but the chances of them being around down the road are slim.”

Appeared on MSN.ca on April 5, 2010.

(View seven social networks to avoid slideshow on MSN.ca)

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