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The Bank of Canada has slashed its key overnight lending rate by 75 basis points yesterday, to 1.5%.  The Chartered Banks’ new prime rate is 3.50%. Many Bank watchers had been anticipating a cut of just 50 basis points. 

“The outlook for the world economy has deteriorated significantly and the global recession will be broader and deeper than previously anticipated,” the Bank said in a statement. “Measures taken by major governments are beginning to encourage credit flows, although it will take some time before conditions in financial markets normalize.” The Bank said that the Canadian economy had unfolded as expected through the summer and early fall, and admitted that it is now following the rest of the world’s economies into recession.

Lower borrowing cost is good news if you have debts.  However, you may be surprise d to find out that credit cards have not lowered their interest rates and Home Equity Line of credit have only dropped by a fraction of recent cuts.  The spread banks now make between mortgages / HELOC and GICs is getting thinner.  Major Banks have reported that they can’t pass on the full reduction of recent rate cuts to the consumer.  New HELOC rates now range from prime +.5% to prime +1% currently from 4.25% to 4.75%.

Please note that if you have a HELOC in place you may be grandfathered the Bank’s prime rate of 3.5%.  Make sure to never close that grandfathered HELOC.  You may never be able to get prime rate again. 

Should you consider ethical investing for your portfolio? Can changing the world also make you money?

We ask ourselves the same question every year.  Should we add socially responsible investments to our fund line up for our clients?  Sure, the concept of avoiding “sin” stocks such as purveyors of tobacco and weapon makers gives you an instant feel good reward.  But, as your financial planner, my question is, do these funds make profits and what are the risks?  How are these funds managed and are they diversified enough to preserve capital over the long term?  The face of socially responsible investing has changed dramatically over the past few years. Let’s review what they are today and why you may be interested. 

When SRI was first created, it was a mission or values based approach that often looked at the company for their moral behaviour above their financial potential. However, time and experience have evolved products in this area. Many firms are moving, or have moved, away from negative screening, and are now using positive performance metrics when evaluating a company’s environmental, social and governance performance.

Positive screening is the process of selecting, rather than excluding, securities based on established SRI criteria. Specifically, positive screening looks for companies that provide social justice and environmental accountability. Responsible investors seek to align their investment strategies with their values. They consider the impact of their investments on the world and invest in companies that aim to minimize the negative impacts or produce positive ones. 

In the 1990’s environmental problems came to the forefront of public awareness with issues including ozone depletion, climate change and hazardous waste. As a result corporations began assessing and reporting on a variety of environmental programs to demonstrate their level of commitment and progress in addressing these problems. At the same time some shareholders took responsibility for their ownership in companies and became more active at annual shareholder meetings. They sought improvements in environmental policies and practices, as well as in the level of disclosure and quality of reported information.

Over time, company reporting became more sophisticated and broadened to include other factors and issues that demonstrate corporate social responsibility: employee relations, corporate governance and community relations.

Today responsible investing has evolved as an intentional investment strategy aimed at generating financial returns from responsible companies. A key part of this strategy is shareholder engagement, which encourages and promotes responsibility and helps investors identify companies with the best practices.  In recognition of the importance of responsible investing in financial performance more than 200 international pension funds, including the Canada Pension Plan and other institutional investors, holding more than $9 trillion US in assets have adopted the UN Principles of Responsible Investing. The Principles include:

Incorporating environmental, social and governance issues into financial analysis and decision-making, becoming active shareholders, seeking disclosure on these issues, promoting acceptance of the Principles in the investment industry and reporting on activities and progress towards implementation. Recognition that environmental, social and governance performance can have a profound impact on financial performance, as well as on the small planet we share, has brought responsible investing to the forefront of mainstream investor consciousness.

Responsible investing is the foundation of a few Mutual Funds companies. They rigorously incorporate environmental, social and governance criteria into in-depth financial analysis and portfolio construction.  They identify core corporate responsibilities and ensure they are being appropriately addressed by the companies they invest in.  You may want to read a blog written by Dermot Foley from Inhance Investments on the subject.

Click here to read: Can ESG cure the markets?

We short-listed several leaders in the Responsible Investment space who may be the right fit for your portfolio. Please ask us for more details.

As hard as it is to imagine, UBS strategist George Vasic predicts the Canadian market rising 50% to 12,500 by the end of next year.

“Our TSX target of 12,500 reflects an improvement in valuations that can overcome the downdraft from earnings estimates,” Mr. Vasic’s optimism is buoyed by the index’s low price-to-book value ratio. 2009 is still loaded with significant uncertainty and his forecast hinges on how quickly monetary and fiscal intervention already in motion can improve credit market conditions.

David Pett, Financial Post Published: Thursday, December 04, 2008

This article is worth reading.

Click to view the full Financial Post article