World financial news

ST. LOUIS — Anheuser-Busch unveiled a shake-up in its marketing department Tuesday that divides responsibility for beer brands along consumer-segment lines and places greater importance on developing new products and reaching multi-cultural consumers.

But the brewer was close to mum on any layoffs that might result from the shake-up. A-B marketing Vice President Keith Levy said, "There were some, but we’re not getting into numbers."

The only specific departure mentioned, via an e-mail sent to A-B workers, was Marlene Coulis. She is an 18-year A-B veteran who holds the title vice president of consumer strategy, insights and innovation. She will stay through month’s end, A-B said. The brewer gave no reason for Coulis’ departure. She could not be reached for comment.

The marketing changes were anticipated since A-B announced last month that it planned sweeping changes to both its sales and marketing. Company President Dave Peacock said the changes were aimed at making A-B "optimally organized and as efficient as possible."

The changes were developed after months of work under the code name "Kashi" — as in the cereal with the slogan "Go Lean." Sources said about 450 jobs would be cut as part of the initiative free credit report online.

A-B’s sales force learned its fate two weeks ago, with a series of promotions and, according to sources, 90 layoffs, including four vice presidents.

In the marketing department, A-B said three top-line executives were promoted to new roles: Linda Tucker to vice president of insights, Julia Mize to vice president of marketing solutions and Juan Torres to senior director of value brands.

All are A-B veterans.

Several others are staying in their current roles. But across the board, there is more emphasis on reporting directly to Levy, including Pat McGauley, vice president of innovations, and Eduardo Pereda, senior director of multicultural marketing.

Such changes represent the company’s priority on brand development and multicultural segments, Levy told the Post-Dispatch on Tuesday.

The brewer also realigned the way it handles marketing to fit consumer segments — premium light (Bud Light, Michelob Ultra and Select 55), imports and crafts (higher-end consumers), value brands (important brews, but with less marketing support) and Budweiser.

Source

Solve your money worries and apply for a faxless payday loan today!

Prime Minister Gordon Brown will pledge today to make Britain’s tax system attractive to large multinational companies in an effort to secure the backing of business leaders before this year’s election.

Brown’s government will propose a set of principles that include promises to ensure new taxes aren’t too complex and a commitment to hold consultations before introducing new corporate taxes. The plan will be published by Chancellor of the Exchequer Alistair Darling at a conference in London.

“By maintaining a world-class environment for business to do business we can attract the investment that will underpin our move from recession to recovery to growth,” Brown said in his weekly podcast yesterday.

Brown’s Labour Party and David Cameron’s Conservatives are competing to win credibility with business leaders before the election, which Labour Party documents suggest will be held on May 6. So far, the campaign has centered on which party has the best recipe for tackling Britain’s record peacetime budget deficit.

Darling began talks with company leaders in April 2008, establishing a panel of more than 10 executives from international companies who meet regularly with Treasury ministers and civil servants.

Brown, Darling and Business Secretary Peter Mandelson will be joined at the London conference by executives from companies including Bombardier Inc., China Merchants Bank Co. Ltd., Burberry Plc and Lockheed Martin Inc.

Bank Stakes

The Conservatives pledged yesterday to sell U.K. government stakes in Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc to voters as their support continued to slip in opinion polls.

The plan to sell shares at a discounted price, outlined by Conservative Treasury spokesman George Osborne, came as opinion polls show the party’s lead slipping after it called for spending cuts to start this year to reduce the deficit and the economy exited recession in the fourth quarter of 2009.

A poll by YouGov Plc in the Sunday Times newspaper showed the Conservative lead over Labour at its narrowest since December 2008.

YouGov said the Conservatives had the backing of 39 percent of those surveyed, down one percentage point from a month ago, while Labour were backed by 33 percent, up two points. Details of when the poll was taken and the margin of error weren’t given.

Source

Zhu Zhu Pets robotic hamsters, the must-have toy of Christmas 2009, were named Toy of the Year on Saturday by the Toy Industry Association, also winning two category awards.

The toys, a product of Clayton-based Cepia LLC, won the award for Girl Toy of the Year, for a toy developed for girls of any age, and for Innovative Toy of the Year, for an outstanding toy that combines innovation and play value.

Russell Hornsby is founder, owner and chief executive of Cepia, which has 15 employees.

The Toy of the Year Awards program in New York City is the kickoff to this week’s American International Toy Fair. The Toy Industry Association is a not-for-profit representing more than 500 producers and importers of toys and youth entertainment products sold in North America.

For a complete list of winners, go here.

Cepia created Zhu Zhu Pets (which means “little pig” in Chinese) with affordability in mind personal business card. The suggested retail price for each hamster is $7.99, and accessories range from $3.99 to $19.99.

Sean McGowan, a toy industry analyst with Needham & Co. in New York, projected sales of $300 million in 2010.

The robotic hamsters have a video game in the works.

A former Mattel designer, Russell Hornsby previously founded Trendmasters, a St. Louis toy company with $189 million in revenue that was best known for its Rumble Robots. Trendmasters sold its assets and products to Malibu, Calif.-based JAKKS Pacific Inc. for about $25 million in 2002.

Source

European leaders ordered Greece to get the bloc’s highest budget deficit under control and promised “determined” action to staunch the worst crisis in the euro currency’s 11-year history.

The agreement, brokered by German Chancellor Angela Merkel, Greek Prime Minister George Papandreou and European Central Bank President Jean-Claude Trichet, called for closer monitoring of the Greek economy and stopped short of offering concrete steps to help Greece handle a debt load exceeding annual economic output. Greek bonds rose and the euro fell after the deal was announced at a European Union summit today.

“It’s a political message that we wanted to send out,” EU President Herman Van Rompuy told reporters in Brussels. “The Greek government will take the responsibility for cleaning up its public finances.”

The declaration, which Merkel called a “clear political signal” to Greece, left open how the EU would respond to a fresh wave of speculative attacks against Greece or countries such as Spain and Portugal, which are also struggling to cut their budget deficits. The statement echoes prior calls for Greece to get its accounts in order and gave the International Monetary Fund a monitoring role.

Finance ministers are working on measures such as setting up a lending facility for Greece, with each country paying in according to its size, an EU official said. The official, who spoke on condition of anonymity, said it’s premature for a European bond.

‘Breathing Space’

“Markets will only normalize once they outline more detailed measures,” said Andreas Rees, an economist at UniCredit MIB in Munich. “The statement won’t be enough to reassure investors. It’s some breathing space.”

Greek bonds, which have plunged since December on concern the country will be unable to tackle its deficit, extended a three-day rally, with the yield on the two-year government bond falling 35 basis points to 5.11 percent at 7:45 p.m. in Brussels.

Concern about the costs of a hazily worded commitment by Europe’s richer countries pushed the euro down 0.4 percent to $1.3685. Its slide to a nine-month low of $1.3586 on Feb. 5 forced Greece to the top of the EU agenda out of concern that market turmoil might spread.

Called by Van Rompuy to sketch out a 10-year economic strategy, the summit turned into a crisis-management exercise that tests Europe’s ability to run a common currency with 16 separate national fiscal policies.

Rescue Talks

The main event came before the 27-nation EU meeting, when Merkel piloted the Greek rescue talks with Papandreou, Trichet, Van Rompuy, French President Nicolas Sarkozy, Spanish Prime Minister Jose Luis Rodriguez Zapatero and Luxembourg Prime Minister Jean-Claude Juncker, who heads the panel of euro-region finance ministers paydayloan.

Under pressure from political allies at home who are opposed to giveaways to countries that live beyond their means, Merkel pressed for strict conditions on any European financial lifeline for countries that spend too much and save too little.

Demonstrating Germany’s sway in the euro region, the declaration was issued in the EU’s name before other leaders were consulted. Irish Prime Minister Brian Cowen said there was “no detailed discussion” over the Greek backstop.

U.K. Prime Minister Gordon Brown, the main mover behind the EU-wide rescue of banks in October 2008, also wasn’t involved. In London when Merkel’s crisis meeting started, Brown later said Greece is in the hands of countries using the euro.

Greek Deficit

Greece, representing 2.7 percent of the bloc’s $13 trillion economy, posted a budget deficit of 12.7 percent of gross domestic product in 2009, the highest in the euro’s history and more than four times the EU’s 3 percent limit.

Papandreou’s government needs to sell 53 billion euros ($72 billion) of debt this year, the equivalent of about 20 percent of GDP. Greece’s credit rating was cut by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings in December.

Greek plans to cut public-sector wages, trim welfare provisions and raise taxes have provoked street protests that threaten to throw the government’s aim of slicing the deficit by 4 percentage points in 2010.

By living under EU strictures, Greece no longer controls its own economic destiny, Papandreou said. Speaking after the summit, he said: “We have lost a part of our sovereignty because of this loss of credibility. We are determined to regain this lost credibility. We will do anything necessary.”

Resisting IMF

EU leaders resisted putting Greece in the sole hands of the IMF, concerned that recourse to outside assistance would expose Europe’s inability to get its own house in order.

EU treaties bar the ECB or national central banks from bailing out members countries through buying their debt or offering loans, while rules on government-to-government support are more flexible.

Whether from individual countries or the EU as a whole, a financial lifeline for Greece would open a new chapter in the euro experiment by breaking with the orthodoxy that each country has to steer its own economy.

“I don’t think there is any bluff here. This is a very, very serious commitment to back up Greece,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Plc in London. “This is once in a lifetime moment for monetary union.”

Source

The U.S. economy is in much more serious trouble than news reports, policy makers and pundits might lead you to believe. Cam Harvey explains in his blog payday loans guaranteed no fax.

Source

Since cratering at 12-year lows in March, the S&P 500 has staged a powerful rebound as investors turned what could have been an abysmal 2009 into the second best year of the decade for stock returns.

Between war, recession, corporate malfeasance, and the collapse of the housing market, investors have had a tumultuous 10 years. The S&P 500 plunged 23%, seeing its first losing decade in close to a century.

But the decade could have been even worse, if not for the turnaround in 2009.

In the just-completed year, the S&P 500 gained 23.4%, the Dow industrials gained 18.8% and the Nasdaq added 44%. That’s trumped only by 2003, when the S&P 500 gained 26.4%, the Dow added 25.3% and the Nasdaq climbed 50%.

Like 2009, 2003 marked a big turnaround for the stock market as the economy emerged from a recession brought on by the 9/11 attacks and the collapse of the tech bubble.

For 2009, the big recovery has come in the aftermath of the housing market collapse and credit crisis and the worst recession since the Great Depression.

Although 2009 gains are strong historically, gains are even more substantial since stocks bottomed in March at the height of the financial market crisis. Since closing at a 12-year low on March 9, the Dow has gained 59% and the S&P 500 has gained 65%. Since closing at a 6-year low on the same date, the Nasdaq has risen 79%.

All 10 S&P 500 economic sectors managed gains this year, with technology the leader, rising 62% versus a year ago. Materials took second place, rising 47.1% from a year ago. The biggest losers were telecom, up just 3.6% and utilities, up just 8.4%.

Gains this year were driven by several factors, notably the government injection of trillions in fiscal and monetary stimulus into the economy.

A weak dollar also played a big role, boosting commodity prices and shares as well as the stocks of big blue chips that do a lot of business overseas who benefit when the U.S. currency is weaker.

Investor psychology also contributed, as investors went from factoring in another Depression to a recession to an eventual recovery.

But the year ahead is unlikely to see similar gains, either for the major indexes or the individual sectors, as investors look for signs that the slow-growing economy can charge ahead without unusual assistance.

"The biggest question is employment and whether the economy can start creating enough jobs to create a sustainable economic recovery," said Michael Sheldon, chief market strategist at RDM Financial Group business card design.

He said that as this issue works its way through the market, stocks could be vulnerable, particularly if the dollar continues to firm up, as it has through most of December. The other potential catalyst for a selloff later in the year ahead could be rising interest rates, although the Ben Bernanke-led Federal Reserve is unlikely to change its policy stance until the second half of next year.

"I think that prices will drift moderately higher in the year ahead, at least until Ben Bernanke decides to land the helicopter," said Mark Travis, president and CEO at Intrepid Capital Funds. "We could end up as much as 8% higher by this time next year."

Next year also starts what is likely to be a better ten-year period for Wall Street, after a rough decade.

The awful 00s: A tumultuous 10 years brought two recessions, two major wars, one contested presidential election, terrorist attacks in the U.S. and abroad, the credit crisis, the housing market bust and the near collapse of the financial market.

In light of the events that took place, perhaps its unsurprising that the stock market experienced its worst decade in nearly a century. The S&P 500 plunged 23%, seeing its first decade of losses in 90 years. Compare that to the 1990s, when the S&P 500 gained 316%.

The Dow lost 8% this decade after gaining 418% in the 1990s and the Nasdaq, still reeling from the bursting of the tech bubble, is down 44% in the 10-year period. In the 1990s it gained 794%.

For a look at the best and worst stock performers of the decade, click here

The best-performing sector of the decade was energy, up 104%, according to Standard & Poor’s. That’s roughly the same gain it made in the 1990s, but in that decade, nine of the S&P’s 10 sectors added at least 100%, with utilities the lone exception. Utilities gained 37%.

In this decade, only half of the ten sectors gained, with the rest sliding. Telecom and technology were the two worst performers of the decade, notable in that both were stars of the 1990s, in particular tech. Telecom lost 66% in this decade after gaining 223% in the 1990s. Technology lost 57% this decade after gaining 1,148% in the 1990s, the decade it defined. 

Source

Bombardier

$405M contract awarded

Bombardier Inc. has received an order from Spain’s national rail operator to maintain a fleet of high-speed trains for 14 years, the Montreal-based transportation equipment maker announced Thursday.

RENFE will pay $917 million (U.S.) to Bombardier and Spanish railway vehicle maker Talgo to maintain the new trains. Bombardier’s share of the contract comes to $405 million.

The maintenance work will take place at RENFE’s depots in Spain.

Rusal

$2.6B U.S. IPO planned

Russian aluminum giant UC Rusal will try to raise as much as $2.6 billion (U.S.) by selling shares in Hong Kong in late January to reduce its mountain of debt, the company said Thursday.

Moscow-based Rusal – run by tycoon Oleg Deripaska – is seeking to sell more than 1.6 billion shares at a price between 12.50 Hong Kong dollars ($1.61 U.S.) and $9.10 (Hong Kong), according to the filing with Hong Kong’s stock exchange.

The potential proceeds range from $1.9 billion (U.S.) to $2.6 billion.

Washington Times

Paper to axe 40% of staff

The Washington Times will slash newsroom staff by more than 40 per cent and eliminate its sports section as it revamps to focus on politics, business and investigative reporting.

The newspaper’s Thursday edition announced the layoffs and said the last sports section would appear Friday. Among those let go was managing editor David Jones.

A new print edition will be launched Monday.

Diners Club

BMO completes buyout

BMO Financial Group announced Thursday that it has completed the acquisition of the Diners Club North American franchise from Citigroup. The acquisition, announced in November, puts BMO among the top commercial card issuers in North America.

BMO said the purchase will accelerate the bank’s expansion into the travel-and-entertainment card sector, particularly in the United States.

Marvel

Holders okay Disney deal

Shareholders of Marvel Entertainment Inc., home of Spider-Man and the Hulk, have approved the company’s acquisition by The Walt Disney Co., as expected.

Shareholders of the 70-year-old comic-book company voted at a special meeting Thursday.

With the $4.3 billion (U.S.) deal, Disney gets Marvel’s stable of more than 5,000 characters. Most of them are obscure, but several have been the basis for blockbuster movies in recent years.

From the Star’s wire services

Source

Coal is used to generate almost half of the world’s electricity and demand is projected to grow by more than 50 percent by 2030, according to the International Energy Agency’s most recent projections.

But burning coal to generate electricity is one of the top two sources of carbon dioxide, the main heat-trapping gas linked to global warming.

Curbing CO2 emissions from coal-fired power plants was a central theme at the Copenhagen talks this month, and the primary driver behind the establishment of the Consortium for Clean Coal Utilization at Washington University a year ago.

Richard Axelbaum, a professor of energy, environmental and chemical engineering, leads the consortium. The goal is to bring together university researchers, industry, foundations and government to research better ways to utilize one of the nation’s most abundant, but dirtiest, fuels.

The effort is partially funded by three St. Louis area companies. Peabody Energy Corp. and Arch Coal Inc., the two largest coal producers in the nation, each committed $5 million over five years and Ameren Corp., one of the nation’s biggest coal-burning utilities, agreed to give $2 million.

Does clean in "clean coal" specifically mean CO2 and other greenhouse gases?

(The term) clean really goes back about 100 years, and it has meant different things at different times. Right now, the pressing issue is reducing greenhouse gases, so present perspective of the term really is focusing on ensuring that we can burn coal in a way that doesn’t emit CO2.

What do you hope the consortium can accomplish? And what’s the time frame?

As you know from Copenhagen, the critical issue that really faces us is that we have to be able to minimize greenhouse gases in a way that the entire world can accept. And, clearly, a critical issue is the economics of that.

So we have to develop technologies that will supply us with electricity in a way that the difference in the cost of electricity is minimal but, at the same time, minimizing greenhouse gases. So the focus of much of what we do, probably 80 percent of the consortium, is determine the best approaches to that sam day payday loan.

When it comes to minimizing CO2 emissions from coal-fueled power plants, the technologies most often referenced are carbon capture and sequestration (separating the carbon from coal and injecting it underground). How close are we to commercializing that technology or making it economically viable?

Right now, there are some demonstration sites that are small scale versions of carbon capture and sequestration. And there’s considerable investment right now both from government and industry to develop this at a larger scale.

I expect — and this is my perspective, and there are different perspectives on the time frame — but certainly in 10 years I expect we will be seeing large scale carbon capture and sequestration sites. And I believe that in 2020 to 2030 it will ramp up considerably.

What other technologies are being studied beside carbon capture and sequestration?

Other studies are what we consider carbon capture and utilization, where you would take the CO2 and, for example, one study is to grow algae from the CO2 and use that to process into useful products. It could be nutraceuticals. Also bioproducts, biodiesel products. Also you can convert CO2 into useful fuels not from algael approaches, but from catalytic processes. We’re studying that as well.

What role do the consortium’s international partners play?

The consortium was really founded on the principal that the challenges of clean utilization of coal and minimizing CO2 emissions were global challenges and really would require us working together, both so that we can transfer knowledge, but also so we can understand the challenges that the rest of the world faces in addressing emissions. So we have a major effort to ensure that the research that we support is actually going to support collaborative efforts between Washington University and other institutions in China, India, in Japan, Israel and other nations.

Source

The U.S. economy remains mired in a recession, prospects for next year are weak and home prices may resume declines, Harvard University economics professor Martin Feldstein said.

“The recession isn’t over,” Feldstein said today in an interview on Bloomberg Radio in New York. “It will be a while before we have enough information to know if the recession ended.”

Feldstein is a former president of the National Bureau of Economic Research and remains a member of the group’s Business Cycle Dating Committee, the panel charged with determining when recessions begin and end. His comments are at odds with those of the panel’s chairman, Robert Hall, who said early this month that the recession may have ended.

Employers in the U.S. cut 11,000 jobs in November, the fewest in 23 months, and the unemployment rate unexpectedly fell to 10 percent from 10.2 percent, a government report showed on Dec. 4.

The report “makes it seem that the trough in employment will be around this month,” Hall said in an interview on the day the figures were released. “The trough in output was probably some time in the summer. The committee will need to balance the midyear date for output against the end-of-year date for employment.”

The economy has lost more than 7.2 million jobs since the recession began in December 2007. The total number of workers collecting unemployment checks as well as those taking extended government benefits totals about 10 million, according to Labor Department statistics released today.

‘Extended Period’

The Federal Reserve yesterday repeated its pledge to keep interest rates “exceptionally low” for “an extended period” and said the “deterioration in the labor market is abating.”

Ben S. Bernanke won backing for a second term as Fed chairman today in a 16-to-7 vote by the Senate Banking Committee. The nomination next goes to a vote of the full Senate.

Gross domestic product expanded at a 2.8 percent annual pace in the third quarter after shrinking for each of the previous four quarters. Growth will average 2.6 percent next year, according to the median forecast in a Bloomberg News survey of economists early this month.

Restrained consumer spending suggests “2010 is going to be a very weak year,” said Feldstein, 70, who was chairman of the White House Council of Economic Advisers during the Reagan administration.

“Thrift in the long run is a very good thing, but increasing thrift as you come out of a recession is going to be a drag,” he said easy to get unsecured personal loans.

Housing Market

Regarding the residential property market, where the recession initially emerged, Feldstein said the Obama administration’s effort to revive the housing market is a failure and home prices will continue to decline.

“It was just not well enough designed,” Feldstein said. “They ended up failing.” That suggests the housing slump will “continue to push down house prices,” he said.

“We saw a little pause in home-price declines in the summer but I think that was because of the first-time home buyers program,” Feldstein said. “We’re not going to get that boost.”

The U.S. House voted Dec. 11 to tighten rules for derivatives and create powers to break apart healthy financial firms that pose a risk to the economy. The House rejected a “cram-down” amendment that would have given federal judges the power to lengthen mortgage terms, cut interest rates and reduce loan balances for homeowners in bankruptcy court.

Mortgages Modified

Lenders permanently modified 31,382 of the 4 million mortgages targeted for loan relief under the Obama administration’s main foreclosure prevention plan through last month, the Treasury Department announced on Dec. 10.

Economic reports today suggested the government’s efforts to revive growth with fiscal stimulus may be working for now, Feldstein said in a separate interview on Bloomberg Television. “The danger is we will run out of steam,” he said.

The index of leading economic indicators rose for an eighth consecutive month in November, a sign growth will extend into the first half of 2010. The Conference Board’s gauge of the outlook for the next three to six months increased 0.9 percent after climbing 0.3 percent in October.

Manufacturing in the Philadelphia region expanded in December for the fifth month, led by sales and employment gains. The Federal Reserve Bank of Philadelphia’s general economic index climbed to 20.4 this month. Readings greater than zero signal growth. The bank’s district covers parts of Pennsylvania, New Jersey and all of Delaware.

(In the U.S., hear Bloomberg Radio on satellite radio: Sirius Channel 130 and XM Channel 129. In New York City, tune to WBBR 1130 on the AM dial.)

Source

Here’s a conundrum for yield-seeking investors: What buys and then gets rid of stocks, behaves like a bond fund and is taxed like a stock fund?

Answer: A specialty fund that mimics the returns of a bond portfolio while spinning off capital gains.

Recent new offerings of these bond fund alternatives, both launched in November, include Claymore Advantaged Canadian Bond ETF (CAB/TSX) and Renaissance Corporate Bond Capital Yield. Similar financial engineering is occurring in the fixed-income portions of some balanced funds.

Simply put, here’s how interest is transformed into capital gains: First, the fund buys stocks. Then it sells the stock portfolio in what’s called a forward agreement.

The counterparty, commonly a bank, agrees to pay a future price that’s tied to the returns of a bond index or bond portfolio. This enables interest to be re-characterized as capital gains.

Som Seif, president of Claymore Investments Inc., says the returns of his firm’s exchange-traded fund are not related in any way to the equities that are bought and then sold forward. "The equities are only there for the purpose of providing the tax efficiency," Seif says.

If you’re investing in an RRSP or other registered account, your decision is simple. Avoid these funds, since there’s no advantage to receiving distributions in the form of capital gains. But in a taxable account, you’re better off receiving capital gains, which are not taxed as heavily as interest.

As the Claymore ETF’s prospectus warns, there are risks associated with derivatives. These include the risk that the counterparty in the forward agreement may default on its obligations.

However, such risks are low, since the fund managers generally deal with very creditworthy institutions. The Claymore ETF’s counterparty, for instance, is Toronto-Dominion Bank.

Taxes are always an important consideration when investing in a nonregistered account paydayloans. But the investment in a virtual bond fund must stand on its own merits, the risks should be understood by the investor and the fees should be reasonable.

The pioneer of this genre is Mackenzie Financial Corp.’s Mackenzie Sentinel Managed Return Class, first offered in March 2002. It’s not a pure play on fixed income, since Mackenzie portfolio manager Chris Kresic maintains a 10 per cent weighting in stocks to give the fund a little more growth potential. He sells forward all the rest of his stocks, using the proceeds to obtain bond exposure.

The fund’s performance has generally lagged that of Mackenzie Sentinel Bond, the more conventional fixed-income fund that Kresic runs. Over the past five years, the gap in returns is about 80 basis points (0.8 per cent) on an annualized basis.

Both funds have roughly the same management expense ratio, so MERs don’t explain the performance disparity. What has made a difference is contrasting bond exposures and counterparty costs.

Mackenzie Sentinel Managed Return is mostly exposed to Government of Canada bonds, which are lower-yielding than the corporate bonds that normally make up a substantial portion of the holdings of Mackenzie Sentinel Bond.

Also exerting a drag on the performance of the virtual bond fund are the fees charged by the counterparties to the forward agreements. These fees are reflected in the prices the counterparties are willing to pay for their forward purchases.

Though forward agreements don’t get factored into MERs, their effective cost would typically be in the range of 25 to 50 basis points. Investors take heed: This alone will offset some of the tax advantages of holding a bond fund substitute rather than the real thing.

rudy.luukko@morningstar.com

Source