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By Patrick White
Reuters
Sunday, November 9, 2003
QUEBEC CITY, Nov 9 (Reuters) - Don't compare
apples with oranges in assessing the impact
of a U.S. mutual funds scandal on Canada's
much smaller industry.
Adrian
Mastracci, investment counsel and
president
of Vancouver based ‘fee-only’ KCM
Wealth Management, says, “It is a
worrisome kind of situation. It is another
obstacle
that investors don't need.”
Analysts do not expect Canada to face the same
problems as those that have hit the United
States, where state pension plans pulled
billions of dollars out of a firm charged
with civil securities fraud -- but they do
admit confidence is already an issue.
"It is a worrisome kind of situation.
It is another obstacle that investors don't
need," said Adrian
Mastracci, investment
counsel and president of KCM
Wealth Management Inc. in Vancouver, British Columbia.
"We have always had a lot of these things
going on. Investors had to endure a lot of
things, the Enron scandal, accounting difficulties," he
told Reuters.
Canadian authorities have announced plans
to survey the sector, but have reported no
irregularities so far. And observers say the
U.S. and Canadian mutual fund industries are
very different.
"We are comparing apples to oranges.
The Canadian context is very different," Thomas
Hockin, chief executive officer of the Investment
Funds Institute of Canada, told Report on Business
Television.
Analysts say Canada, with a mutual fund sector
worth some C$420 billion ($320 billion) does
not have the very large capitalized funds present
in the $7 trillion U.S. sector, and unlawful
practices like late trading would be spotted
quickly.
"We have large proportions of mutual
fund orders going through a system called Fundserv.
The orders are time-stamped as they come through,
making it fairly obvious if late trading is
taking place," said Eric Pelletier, spokesman
for the Ontario Securities Commission, Canada's
largest securities regulator.
Late trading happens when purchase or redemption
orders are received after the close of business,
but are filled at that day's price rather than
at the next day's price.
Market timing, a prohibited practice, but
not an illegal one, involves buying and selling
of mutual fund shares at out-of-date prices.
The Ontario Securities Commission wrote last
week to all managers of mutual funds that trade
in Ontario to confirm the funds have effective
policies and procedures in place to prevent
trading abuses.
"We have no evidence that these abuse
of practices are taking place in our market
... but we need to bolster confidence in the
market," the OSC's Pelletier said.
The three big Canadian mutual fund independent
groups are AGF Funds Inc. (AGFb.TO), C.I. Fund
Management Inc. (CIX.TO) and Investors Group
(IGI.TO), although the big banks and insurance
companies have fund arms too.
The financials index of the Toronto Stock
Exchange gained about 0.31 percent last week
despite the U.S. scandal. The Toronto Stock
Exchange S&P/TSX composite index (.GSPTSE)
rose 87.74 points, or 1.13 percent, to 7.860.44,
in the period.
The name of Canadian Imperial Bank of Commerce
(CM.TO) came up in the Massachusetts regulator's
indictment against former Prudential Securities
Inc. (WB.N) brokers who had ties to a CIBC-backed
U.S. hedge fund.
Massachusetts' top securities regulator this
last filed fraud charges against five former
Prudential brokers.
Another Canadian company, Sun Life Financial
Inc. (SLF.TO) (SLF.N) recently said in a press
release that its U.S. mutual funds unit had
received routine questions from investigators.
So, could the U.S. scandal affect the bottom
lines of some of these Canadian companies?
"If there was an erosion of confidence
in one sector of the market, would it lead
to outflows of cash from that sector to another?
It is too early to determine that," OSC's
Pelletier said.
But Mastracci of KCM
Wealth Management said
the threat of funds being pulled out of the
sector is substantial. "Public companies
don't welcome that," he said.
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