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Basic Ontario Budget Summary

Below is a brief summary of the Ontario budget from April 27, 2017.  You can download a full review from Scotiabank here.

  • Children’s Prescription Medication: All children and youth aged 24 and under, regardless of family income, get free prescription medication
  • Electricity: Lower household electricity bills on average by 25% beginning this summer (even greater reduction for on-reserve First Nations and low income)
  • OSAP: Starting this fall, Ontario will roll out the new OSAP
  • Affordable Childcare: Removed Ontario childcare waitlist fees (creating new licensed spaces and renewed investment in childcare)
  • Elimination of Drive Clean Emissions Test Fee: As of April 1, 2017 government eliminated $30 fee for Drive Clean emissions test
  • Lowering Public Transit Costs for Seniors: Available July 1, 2017 government proposing a new Ontario Seniors Public Transit Tax Credit for all Ontarians aged 65 or older
  • Rent Control: The government is proposing to expand rent control to all private rental units, including those occupied on or after November 1, 1991.
  • Ontario Lifelong Learning Skills Plan: Investment in adult education, New OSAP support for mature students, updating Key Employment Ontario programs that support unemployed workers who require retraining or new skills
  • Personal Ontario Caregiver Tax Credit (OCTC): Replacing the separate caregiver and infirm dependant tax credits with a new Ontario Caregiver Tax Credit beginning in the 2017 tax year.
  • Personal Ontario Medical Expense for Fertility Treatments: Following the measures in the 2017 Federal Budget, the Ontario Budget proposes to adopt the Federal changes to allow Ontarians to claim tax relief at both Federal and Ontario levels.
  • Personal Tax Planning Strategies for Private Corporations: The Ontario Budget proposes to work with the Federal Government to examine tax planning strategies involving private corporations relating to: income-splitting with family members, holding passive investment portfolios inside a private corporation, converting business income to capital gains
  • Burden Reduction Initiatives: The budget proposes 150 changes to existing statues that will save businesses costs due to reporting requirements
  • Tobacco Tax: The Budget proposes to increase tobacco tax rates by $10 per carton of 200 cigarettes over 3 years
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Canadian Banks: We Love ‘Em & We Hate ‘Em

From the desk of Erin Gendron

You probably haven’t been able to avoid seeing the negative media attention (and resulting share volatility) the Big 5 Banks have been receiving over the past month. We’ve certainly taken note. The attention on the banks is due to alleged high pressure sales tactics used by under qualified advisors. These stories may or may not remind you (or a family member or friend) of dealings with the banks…but I used to work there, so I have a pretty good perspective to share.

Many aspects of these media stories rang true for me having spent the last 8 years of my career working for 2 of the largest Canadian banks.

Of course, the media does like to create a sensational story. Amidst all this noise, the banks have great employees and managers that do truly care about customers.

The parts that did ring true centered around the misalignment of the banks employee’s interests/priorities and the banks client’s interest/ priorities. These were the primary drivers that led me to leave, and ultimately join Vandermeer Wealth Management!

Where we truly differ;

“Clients really do need advice from people they can trust. If banks can’t guarantee that trust, maybe regulators must step in. In the meantime maybe customers must look elsewhere for advice they really can trust.”

By way of licensing, Brent is licensed as a discretionary Portfolio Manager, which gives him the highest level of fiduciary duty to our clients.

Being a fiduciary involves due care, loyalty and good faith. Simply put, it means legally (not just ethically) putting yourself in your client’s shoes and sacrificing your interest for the client’s interest. Bank branches and any broker not licensed as a PM do not have this same level of licensing and responsibility.

We differ in our ability to offer independent investment solutions –
we don’t have a product shelf that we “recommend as the best options for clients”. We literally go out to the universe of solutions, complete a thorough due diligence process and choose the best one. Of course, a thorough monitoring process starts right after purchase and changes are made as needed with no pressure to retain “in house” products.

We invest the time and attention that every one of our clients deserves every day. On top of that, we care. Every day, in my previous bank life, it became a frustrating conflict of interest between taking care of existing clients and the constant pressure to look for new clients or find new ways to sell more products and ‘solutions’ to existing clients. The significant financial incentives that geared actions towards the latter became an every day struggle.

All this being said, if you have friends and family being served by someone who may be less qualified, or not have their best interest in mind, we would love the opportunity to meet them, and explain how our industry works and how we could serve them better.

Didn’t catch the recent news:

Despite the ads begging for your trust, banks are not your mom: Don Pittis

‘I feel duped’: Why bank employees with impressive but misleading titles could cost you big time

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Offering Professional In-House Tax Preparation Services

We are pleased to offer you the services of our in-house Tax Specialist. Robert Westgarth is an accountant and tax consultant, and has years of experience with tax preparation. We will continue to facilitate the tax preparation services of Steve Ernst (Converge Financial) via our office if you’re one of the many clients who have used him over the years too.

Interested in using our tax preparation services?  Please let us know here.

Even if you don’t want to use our tax preparation services, please know that you can contact us at any time with tax questions or to request duplicate slips (but please, do so as early as possible!)

Here is some information to get you started:

  • Download our 2016 Personal Income Tax Checklist here »
  • March 1, 2017 – Last day for 2016 RRSP contributions.
  • April 10, 2017 – Last day to drop off taxes for guaranteed
    completion by the deadline
  • April 30, 2017 – Deadline to file your 2016 personal income taxes.

 

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Industrial Alliance (iA) Acquires HollisWealth from Scotiabank

The rumours in last week’s article in the Globe and Mail have been confirmed with today’s announcement that Scotiabank will sell their ownership in HollisWealth to Industrial Alliance (iA) effective in the third quarter of 2017.

STABILITY

We view this change positively as this acquisition will make HollisWealth a member of one of the largest independent advisory network in Canada. Industrial Alliance is a major player in Canada as they manage $126 billion in assets with over four million clients. They use National Bank as the custodian of client accounts, which brings the same level of stability we’ve been accustomed to. Industrial Alliance is a publicly traded company, listed on the Toronto Stock Exchange under the symbol IAG and will become one of the largest non-bank wealth management firms in Canada.

INDEPENDENCE

We want to assure you that it is business as usual. There is no material change to our personnel, processing and systems. Of equal importance is that over the years, we have fiercely guarded our independence in order to offer the best possible solutions to meet your wealth management needs. Your advisory team, Vandermeer Wealth Management, is an independent firm and we are not employees of Scotiabank nor will we become employees of Industrial Alliance.

DUE DILIGENCE

While there may be some aspects of this transition that will require further clarity, rest assured that in the weeks and months ahead, we will monitor this transition on a continuous basis. We will undertake the necessary due diligence of this new association with Industrial Alliance to ensure we are aligned with the right partner to best serve your needs.

We wanted to make sure we communicated this news to you in a timely fashion and we will continue to keep you updated of any pertinent developments. As always, please feel free to contact us with any questions you may have.

Thank you for your continued loyalty and the trust you have placed in our team to manage your wealth. We truly appreciate it and we hope that you and your family have an enjoyable holiday season.

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Stay the Course

Following the US election results, we would like to share some research on the impact this may have on markets and the economy.

We also want to remind you about our investment philosophy and what that means in terms of portfolio management strategy during times like this:

As high-conviction, long-term investors, we do not change our process or philosophy in response to elections or other short-term events; we believe investors would be well-served not to do so either. In our view, the approach we take holds true no matter which party is in office:

  • Work with us to build a diversified portfolio designed to meet your long-term needs, and stick to your plan over time.
  • Update the plan when your needs change, and don’t abandon it due to market volatility — after all, volatility often presents the opportunity for investors to buy quality stocks at cheaper prices.
  • Discuss any fears or concerns with us.

 

While we don’t change our approach due to politics, we will certainly continue to keep a close eye on Washington over the coming months and will assess any ramifications of the incoming administration’s policy goals for the US economy, global markets in general and certain market sectors in particular. This may result in moving our tactical weighting to the US up or down in our model portfolios.

Thank you for partnering with us. We sincerely appreciate it.

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Brexit Vote: This is Not a “Today” Event

As you likely know, the UK people voted to exit the European Union yesterday.  This has and will continue to create political uncertainty as other member countries like the Netherlands, Spain, Italy, etc consider their own “leave” decisions. It’s important to note that it will take at least two years for an exit to actually occur and so there is still plenty of time for this to be sorted out in a reasonable fashion.  The decision has also created economic uncertainty and we are seeing that in the markets today…markets that were likely caught off guard by the result. Markets had priced in a “stay” decision and are now reacting to the uncertainty and potential domino effect across the EU – something referred to as “contagion-risk”. Broad markets are selling off around 3-4% with the hardest hit markets in Europe. A flight to safety is in effect with US dollars, bonds and gold reaching higher prices.

We’d like to offer some comments regarding your portfolio and what our strategy has been and will be going forward:

First, we all need to maintain proper perspective. Headlines will be scary but we can’t focus on those. We need to focus on the quality of the businesses and sectors we own and, in fact, be looking for the right opportunity to buy these assets at now lower prices.  We also need to focus on maintaining balance in our portfolios and ensuring we have proper diversification across the asset classes we own. Remember, proper asset allocation is the key to driving long-term returns.

Second, we had positioned the portfolio a few months ago for uncertainty by shifting to “low-volatility” ETF’s in the Canadian, US and International models. This trade continues to be exceptional with these positions experiencing less than half of the downside move in the markets.  We also added to our sector positions in agriculture, water, infrastructure and healthcare. These positions offer us high-quality businesses that pay good dividends (cash flow is very important) and this gives us the confidence to hold them through uncertain times like this.

We don’t believe that net earnings from quality businesses will be impacted very much from these political decisions. Yes, some will have adverse effects from higher tariffs, etc. but the majority will seek opportunity in global markets and will adapt. Strong demand remains for businesses that produce items that are in need and their experienced management teams will navigate uncertainty with confidence. Therefore, while we see the price multiple contracting today, we think their earnings will stay strong and we’ll be able to pick-up high quality businesses at better valuations.  Further, we don’t see this event as a “Lehman-like” collapse that occurred in ’08. The contagion risk is present but we don’t believe the magnitude will be the same.

Over the coming days and weeks we will continue to manage the asset allocation of the portfolios and we’ll be looking for ways to add value and grow your wealth as opportunities present themselves.There will be no action today as we don’t believe events like this warrant a knee-jerk reaction but rest assured we’ll be ready to take advantage of price dislocations that are inevitable when other people panic.

We thank you for your continued loyalty and for the honour of managing your wealth. Feel free to get in touch with us at any time if you have any questions or concerns.

Sincerely,

Brent Vandermeer

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Brent Vandermeer Awarded the ETF Champion of the Year

Last week, over 400 attendees from across the wealth management industry in Canada came together to celebrate the outstanding value that financial professionals provide to their clients. The 20 award categories recognize excellence across the industry, from community service to best practice.

The Canadian ETF Association (CETFA) presented the first CETFA ETF Champion of the Year award to Brent Vandermeer, CIM®, FCSI® of Vandermeer Wealth Management – HollisWealth, at the 2016 Canadian Wealth Professional Awards.

This award recognizes the achievement of an individual, group or firm whose efforts have gone beyond the requirements of their position to advance the ETF industry in Canada. Consideration is given to how each nominee is promoting, innovating with, demonstrating the tax efficiency, and communicating the value of ETFs to their clients, networks or industry.

Read the CETFA Press Release »

Read the HollisWealth Press Release »

 

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2016 Budget Overview

The Liberal government released its first budget earlier this week. Here are a few of the details that we thought you might like to be aware of:

TFSA’s

TFSA contribution room is back down to $5,500 for 2016. If you haven’t opened or topped-up your account yet, please let us know.  (Remember: the best way to definitively find out your current contribution room is to login to CRA’s “My Account” website.)

OAS

As expected, the start date for OAS will be moved back to 65 from age 67. Various additional income amounts are available for very low income families (i.e. GIS enhancements and additional support for seniors who live alone or when one spouse has to move into facility care and the other doesn’t.)

Child Care Benefit

The fitness tax credit, tuition tax credit, arts credit and income splitting will be eliminated. Universal Child Care Benefit and Canada Child Tax Benefit programs are cancelled and payments will cease in June. A new Canada Child Benefit has been introduced and will pay $6,400 per child under age 6 and $5,400 per child from 7 to 17 years old. The benefit will be income tested and reduced for higher income families. The benefit will be tax-free now.

Personal Tax Rates

Generally, top tax rates are going down for middle income earners and increasing for top earners. The top marginal rate on income is now 53% in Ontario.

Business Tax Rates

Rather than continuing to decline to 9.0% over the next few years, the small business tax rate will stay at 10.5%.  Various measures to multiply the $500,000 small business deduction limit across owners/partners will be eliminated.  This is especially welcome news to the many incorporated professionals we serve.

Investments

Labour-sponsored funds (LSVCC’s) are back!  The 15% federal credit has been restored… but don’t get too excited. These investments have had a horrible track record in the past and we’ll be hesitant to recommend them unless the investments merits and thesis improve substantially.

The corporate capital class structure of some mutual funds that allowed tax-free switching between funds inside the corporate structure (thereby avoiding capital gains tax) has been eliminated – however, there is a 6-month grace period for implementation. This takes a significant advantage away from mutual funds and levels the playing field with ETF’s and stocks, something we’re quite happy with.

Linked-Notes will also be taxed according to the underlying investments and not has a bond if sold early.

For more information on the budget’s impact on investments, click here for HollisWealth’s perspective.

Thankfully, there are no changes to stock option taxation.

Insurance

Rather significant changes have been made to limit the benefit of moving a personally owned life insurance policy into a non-arms-length (i.e. likely your own) corporation.

Donations to Charities

It has been decided that the government will not proceed with a measure announced by the previous Conservative government in last year’s budget that would have allowed investors to donate the cash proceeds of the sale of private corporation shares or real estate without triggering capital gains tax, as long as the donation was made within 30 days of the disposition. The measure was to have started in 2017.  Many charities are disappointed as they were expecting larger inflows of capital from this measure.

Bank “Bail-Ins”

The government is planning to introduce a bank recapitalization “bail-in” regime that would hold bank shareholders and creditors, — and not taxpayers — responsible for a bank’s risks should one of Canada’s big banks fail.

The proposed legislation would “allow authorities to convert eligible long-term debt (not bank accounts of depositors) of a failing systemically important bank into common shares to recapitalize the bank and allow it to remain open and operating,” the budget document states. “Such a measure is in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as ‘too big to fail’.”

Economics – Increased Spending & Deficits

Well, there is certainly a lot of spending about to begin. Deficits will be substantial.  Notably, $120 billion in infrastructure over the next ten years will mean a lot of work for construction and related industries. The economists at Scotiabank have put together some great summaries here:

General economic overview from the budget

Scotia analysts overview

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Turbulence Part II

Back in late November, we wrote a Market Commentary entitled “Turbulence” and mused it was “time to buckle up”. In the late summer (August 26th to be precise) we had started to meaningfully decrease risk exposure in the portfolios. We took further steps on December 17th to de-risk by shifting to less volatile companies within our equity models. We did not see the future (let me be clear on that…) nor are we trying to “time the market” as we believe this to be a futile effort. Rather, we are applying our risk management discipline combined with our tactical allocation strategy all within the parameters of your chosen model portfolio and risk level. That said, and as it turns out, this was a wise decision as markets have continued a severe cyclical decline. The start of 2016 has seen some of the worst returns in years.

Our advice? Stay invested and ride this turbulence out. This is what all great investors do – they have confidence in the businesses they own and they won’t be scared out of their positions when others start to sell. Frankly, it doesn’t matter, in the short-term what the market screams the businesses we own are worth… it may be far less than what we want it to be, but we know that, in time, the market’s confidence will return (even euphoria will come again) and prices will rebound. Staying invested will drive long term returns.

We’ve seen these cycles before and we know we can add material value by capitalizing on volatility such as this. We’ve said this many times in the past, but on days like these it’s worth repeating: Volatility is the friend of the investor who knows the value of a business and the enemy of the investor who doesn’t.

So, what’s been happening? (Keep reading to find out how our models – your investments – have performed…)

Well, we’ve seen softer global growth, China has capitulated and is losing export dominance while trying to devalue its currency, interest rates are threatening to rise (although we suspect that risk is decreasing substantially now) and we’ve seen a steady decline in Central Bank stimulus.

Energy’s drag on Canadian stocks has shown no signs of abating and we are now enduring the longest losing streak since 2002. Canadian equities have lost 6.4% to start the year and over the last 12 months they are down over 14%. US equities have are off over 4% to start the year.

Crude oil declined to a 12-year low dropping, for a moment, below $30 a barrel and currently sitting at around $30.56 (Wednesday close).

The Canadian dollar has suffered alongside this energy decline and now finds itself just above $0.70 US. Tough times for the Canadian economy and for Canadian tourists as well. This cartoon, forwarded by a client, nicely illustrates the present situation for those hoping to travel down to the US:

jan2016_cartoon

The New Year has brought more volatility in part due to anxiety about global growth (i.e. China) and relatively high valuations on stocks based on earnings that are reportedly to be lower than anticipated this year.

So what are you to do?

Well, the key question is: has your risk tolerance changed or do you think it is still properly assessed? If it is still accurate, then I would humbly suggest that you ride this out… close your eyes and check back in about 6-12 months from now. (I say this with some element of humour and some – or lots of – truth). If your risk tolerance has indeed changed or you think it has been incorrectly assessed, then we need to make an allocation change.

One of the worst things you could do now would be to react in fear to the market conditions and make an exit… only to change again when conditions are perceived to be improved. That’s a sure recipe for continued stagnant returns.

It’s very important to understand that this is what markets do and while I can’t guarantee 2016 will be a positive return year, I do firmly believe that staying invested in the quality businesses we own and riding this out is the best way to grow capital over time..and it WILL grow over time, despite the panic setting in again now. This type of panic is cyclical and norma. We won’t be able to produce positive returns ever year, but we will mitigate the downside moves and we will produce solid returns over the longer-term.

So what have our models done in this wild environment?

Despite how wild things have been, here are our short-term return numbers. Over three months, our Balanced (medium risk) model is down 1.6%. The TSX is down over 11% in the same period of time. The TSX is down over 19% in the last 9 months and we’re down just over 4%. I don’t like any negative returns, but this is really stellar downside protection and it bodes well for producing good long-term returns when the markets recover.

vwm_chart

This downside protection has been achieved by lowering equity exposure slightly and by swapping out higher risk equity positions for higher quality, lower volatility investments. These investments are ones with strong earnings reliability and strong balance sheets with low leverage. They also have a sustained competitive advantage and operate in sectors that we can clearly identify a long-term theme that will support growth and expansion.

Tune in to our webinar in a few weeks (details to be sent out soon on how to register) to find out more details on our trading strategy and performance numbers.

The best course of action is to sit back and continue to let the portfolios work for you – we’ll endure this downturn together and come through it stronger than before if we maintain our discipline and investment philosophy. I truly appreciate the trust you have given to me as we team together to achieve your goals. On that topic, I thought you might like to see the results of this survey from Environics. It shows that investor behaviour is often the cause of sub-par returns over time and using an advisor to help you stay the course is very important:

2016_survey

Well, there you have it. I’d love to help you stay on track and help you avoid doing the wrong thing.

 

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Turbulence

Commentary from the desk of Brent Vandermeer

Market turbulence often causes increasing amount of concern for investors. This is completely understandable.  This is especially true given the last few years of market performance.

Interestingly, many of you (my clients that is) haven’t appeared to be overly concerned the last few months (based on your questions, calls or emails to me, at least). I commend you.  Not because I don’t like discussing these things with you – I absolutely do and I want you to contact me if you are concerned – but because I think this shows a high level of understanding of market cycles, of perseverance and of discipline to an investment strategy.

There’s no doubt it’s been a frustrating few months for all of us. I’ve done a lot of work to redesign the portfolios in the past year to more closely match my investment style and philosophies.  I’m VERY confident in my approach and that it will work for you.  That said, one of my early concerns seems to have happened – that is, a market correction while I’m in the process of moving back into good quality, dividend paying stocks.  As you’ll see in this graph, the Canadian stock market has dropped 14% since the summer, only a few months into the transition:

S&P/TSX Composite Index

Source: TMX Powerstream Professional

It’s bad timing…but out of our control and I don’t believe it will matter in 5 years from now after we’ve endured many more ups and downs and delivered strong returns because the businesses we invest in are growing in value and paying us dividends while we wait.

I want you to understand though we are in a very separate period of time in regards to management style, philosophy of investment, etc.   We’re now in a very good place as we own businesses I think will do well for a very long period of time (agriculture, healthcare, infrastructure, water, etc.) and the key to earning solid returns is to hold them through these choppy periods in the market. We were starting our recovery… until this downturn started in the summer…and yet this type of downturn is actually quite normal and healthy…and our strategy should be to “buckle up” and just get through it.

Since we’re now much more correlated to the market direction itself, my secondary objective is to try to limit downside participation while not capping upside capture too much.  So, if the tide is going out (markets are dropping) I know we will also drop (I can’t control that…) but I want to try to find things that don’t drop as much.  We then hold on tight and wait for the tide to come back again…it always does.   So far this cycle, we’ve done a very good job at finding things that aren’t dropping as much.  This chart shows how our model portfolio is down 2.6% over the last 9 months while the market is down 14%.

Model Portfolio

For those of you in our Fixed Income model (read: safe model) while not 100% immune from short-term losses, the interest rate on this model has been excellent – far exceeding GIC’s or high-interest savings accounts – note the 1 year return number at 4.6%:

Fixed Income Model

Lastly, I also wanted you to know I’m constantly monitoring the portfolio…and taking action in terms of switches/trades to better position it.  There will actually be more trades coming – exiting and capping losses on a few positions and adding to ZLB and a new one ZLU – which are both doing really well. (Note, ZLB is actually up 0.8% over the last few months – amazing!)

So, while I dislike the downturn as much as you, I really think it’s in your best interest to take advantage of it by buying low on this dip and continuing your investment strategy.  It’s hard to do so when it dips like this, but by extending your time invested in the market and my experience tells me this is what is best to do.  (There is some risk of me sounding biased and self-serving, I know…but I sincerely believe this to be true).

I apologize for the length of this commentary but I really wanted to give you a good explanation and overview of what is happening in the markets and your portfolio.

Worth the Read….

These articles crossed my desk recently and contain some interesting information.

Interest Rates…Will they rise and what should you do?

STOP Using Transaction Based Advisors

Canadian mutual funds are the world leader in ‘closet indexing’

You Should Open an Account with CRA

Why Did Canadian Preferreds Fall?

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