We will publish our quarterly report next week, but in light of the turmoil in the markets, we wanted to provide a brief update on the third quarter today.  As well, we are planning to do a podcast later this week.  We won’t be reporting on a whole lot of changes.  The managers are making some adjustments, but their moves have been measured in anticipation of further turbulence in the economy and capital markets.

Savings Fund - There are no concerns about the securities in this fund.  It is meant to be a secure place to park money and has not stretched needlessly for additional yield, nor will it.  With short-term interest rates dropping, the fund yields a modest 2.6% (pre-fee).

Income Fund - The credit crisis has impacted the Income Fund.  Half of the fund is invested in corporate bonds, with an emphasis on financial companies.  Across all sectors, corporates have performed poorly (the yields have not declined in line with Government of Canada bonds), but the financials have been the worst.   Most of the fund’s exposure is in the Canadian banks, but it has small holdings in a number of Wall Street firms (including Merrill Lynch, Goldman Sachs and Morgan Stanley).   Our manager, Connor Clark & Lunn, believes this is a unique opportunity in the credit market and is sticking to their guns on corporates.  Overall, the high yield on the fund (roughly 7% pre-fee) is reflective of a higher risk profile than government bonds (the Government of Canada benchmark 10 year bond is yielding approx. 3.5%), but CC&L thinks the tradeoff is heavily in our favour.  The fund holds a diversified mix of income securities, which suggests that it will continue to pay out healthy quarterly distributions and will not stay down for too long.

Equity Fund – CGOV continues to hold 25 high quality stocks and 7-8% in cash.  The portfolio is focused on companies that will not only survive the slowdown (60% have increased their dividend this year), but will enhance their competitive position in the process.  They haven’t made many changes to the names, but have started to add modestly to select stocks.  Financial strength and strong cash flow continue to be the watch words.

Global Equity Fund – Since we started, this fund has been the hardest hit by the financial crisis and weak European and Asian markets in general.  Recently Edinburgh Partners brought the cash level down below 10% by adding two new holdings (Unilever and Deutsche Telekom) and increasing the fund’s technology exposure (Cisco, Dell).  They reduced the financials just prior to the recent sell-off by swallowing hard and eliminating AIG and HBOS, two of the ugly ducklings.

Small-Cap Equity Fund – Wil Wutherich keeps doing what he always does.  He holds concentrated positions in a limited number of small to mid-sized companies that he believes are underappreciated.  His type of stocks have been very volatile over the last few weeks and he hasn’t been afraid to add or reduce positions accordingly.  The fund holds 16 stocks, including two new names – Canadian Helicopters Income Fund and Gennum.   He still has cash (10% of the fund) available to invest when he sees opportunities.

Overall, we are staying the course.  We would have liked to preserve more capital on the downside, but the sell off has been broad-based and there hasn’t been a lot of places to hide.  In that context, we would encourage our clients to sit steady and stay positioned for the inevitable recovery.  For those who have the stomach, we would recommend further purchases of equities and/or some re-balancing towards those funds.