THE LONG, HOT SUMMER

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  It’s been a long, hot summer. Temperatures continue to hit record highs, war in the Middle East is inflaming passions around the globe, oil prices have reached new levels, and stock markets are gyrating wildly. And there’s no end in sight for a while yet.

I can’t do anything about the climate, other than urging anyone who still has doubts about the reality of global warming to go see Al Gore’s movie, An Inconvenient Truth. Nor can I offer any solution to the seemingly intractable problems of the Middle East. But I can provide some advice about stock markets and your money, which can be summed up in two words: get defensive.

We’ve seen some tremendous gains in Canadian stocks since the beginning of 2006. According to Globeinvestor.com, the S&P/TSX Composite Index gained 64% in the three years to July 31. Resource stocks have done even better: energy stocks are up 167% over that time while mining and metals stocks have soared an amazing 291%. Anyone who invested in Canada during this period should have made a lot of money!

But it can’t last forever. It never does. We may have a few more months of fat profits but the clock is winding down. Resource stocks, and the mutual funds that invest in them, are notoriously cyclical. When things go well, they go very, very well. But when they go badly, beware. You can swing from double-digit gains to double-digit losses in the blink of an eye.

So this is a good time to consider taking some profits. I’m not saying to sell everything and head for the bunkers but it wouldn’t hurt to switch some assets from high-risk cyclical securities to more defensive holdings such as bank stocks, utility stocks, and bonds. Just remember to consider the tax implications if you are doing any of this outside a registered plan.

An example of one stock I like for these conditions is Canadian Utilities, an Alberta-based natural gas and electricity distributor that trades on the TSX under the symbol CU. I originally recommended this company in my Internet Wealth Builder (IWB) newsletter back in May 2000 at a split-adjusted price of $18.88. The shares were trading on Tuesday at around $41.

As you can see, IWB readers have already made a lot of money on this pick but I still regard it as a buy. Here is what I wrote in last weekend’s edition:

“Canadian Utilities surprised analysts by posting much better than expected profits in the second quarter. Earnings came in at $70.2 million (56c a share), up substantially from $50 million (39c a share) for the same period last year. The Thomson One analysts’ consensus was for 37c a share so CU beat the forecasts by more than 50%. The company said the second quarter improvement was due to two main factors, the impact of rate increases and ‘higher storage earnings due to the timing and demand of storage capacity sold and higher margins for natural gas liquids’.

“The share price responded by jumping $1 on Thursday, the day after the results were released, and continued to move higher from there to close the week at $40.25. At that price, the annual dividend of $1.16 yields 2.88%. The stock remains good value at this level.”

One of the attractions of a company like Canadian Utilities is that it has a great record of increasing dividends. At the time I originally advised buying, the shares were paying 90c a year (adjusted for a 2 for 1 split in 2005). Today the annual dividend is $1.16, an increase of 29%. People who bought the stock at the time it was recommended now enjoy a dividend yield of 6.1% on their original purchase price. That’s equivalent to an 8.5% interest rate after tax if the shares are held outside a registered plan because of the application of the dividend tax credit.

Stocks such as this are not immune to a market correction. But they are much less vulnerable to a big drop, which is why they are classified as defensive in nature. Think of them as a way to cool down what may be an overheated investment portfolio.

IWB SUMMER SPECIAL

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  While we’re on the subject of Internet Wealth Builder recommendations, let me tell you about a summer offer now going on. Many people have told us they’d like to test out the IWB to see if it would work for them. So we’ve come up with a special deal to make it easy.

For only $32.95 plus tax you can try the IWB for the next three months (it’s a weekly newsletter, sent by e-mail each weekend). You’ll also receive unlimited access to our IWB Member Section where you can check out all current recommendations and review past issues. Plus, as part of this Summer Special, you’ll receive two valuable free bonuses.

BONUS #1 – An electronic copy of our Special Report titled The Top 50 Funds for 2006. It’s a $24.95 value if purchased alone but it’s yours FREE with this offer.

BONUS #2 – Three months of unlimited access to our On-Line Buyer’s Guide to Mutual Funds with reviews and ratings for more than 1,300 funds.

There’s no risk to you, thanks to our money-back guarantee. If you're not completely satisfied, cancel within the first two weeks and we'll send you a full refund, no questions asked. After that, you may cancel at any time and we’ll refund the amount of all remaining issues.

You’ve got nothing to lose and potentially a lot to gain. Check out full details of this offer at http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=582

But remember, it is only available for a limited time. Don’t wait.

TRIMARK HANGS TOUGH

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  I’ve received many e-mails from people who own Trimark funds asking why they have performed so poorly recently and wondering whether to keep holding them. To find some answers, I went right to the person who should know, the funds’ chief investment officer, Patrick Farmer. He offered some surprising insights, including an admission that his funds were coming off “a crap year”. But he promises the future will be better. We published the full story in my Mutual Funds Update newsletter and an excerpt is available at http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=2589

AIM TRIMARK FUNDS REPORT

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  We have just completed a new, in-depth report on all the funds offered by the Aim Trimark organization. It contains some surprising findings, including two AIM funds that we rate $$$$ and which are much better picks at this time than anything from Trimark.

A total of 40 funds are reviewed and rated, with an analysis of each plus such useful information as managerial style and RRSP/RRIF suitability. If you own any AIM or Trimark funds, or are considering buying some, read this report first. It’s available in a downloadable version for just $21.95 plus tax, or in a print version with binder for $34.95 plus tax. To order a copy go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=583

WHERE TO FIND VALUE NOW

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  With the Canadian bull market getting long in the tooth, where should you be looking for good value now? Many professional money managers have an answer that may surprise you: the United States. They feel that American stocks are underpriced and that the danger of a further rise in the value of the Canadian dollar, which would erode U.S. stock gains, is minimal. You can read the whole story at http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=2587

NEW BOOK PAGE

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  We are now able to offer a range of great books on our website at terrific discounts, thanks to an arrangement with Amazon.ca. You can view all the current selections by going to our new Book Page at http://www.buildingwealth.ca/best_books.cfm

The selections include several of my books, including some that are out-of-print and unavailable anywhere else, as well as non-fiction and fiction bestsellers which I have personally selected. Some of the titles you’ll find include:

The One Percent Doctrine, by Ron Suskind, an inside look at the Bush Administration's war on terror written by a Pilitzer Prize-winning journalist. We offer it at 34% off suggested retail price.

An Inconvenient Truth by Al Gore, a compelling case for the need to act now to stop global warming. You save 40% on this one.

Freakonomics by Steven D. Levitt and Stephen J. Dubner, an off-beat and provocative refutation of some of the economic and social "facts" we take for granted. This one has been a huge bestseller and we have it available at 40% off suggested retail price.

My latest book, The Retirement Time Bomb, a practical guide to the crisis facing retiring baby boomers and how to deal with it. Available at a 34% discount.

The Da Vinci Code by Dan Brown, a terrific summer page-turner at 40% off.

All orders placed through this page are shipped free if the total exceeds $39 (qualifying books and merchandise). So if you want some great reading, check it out. We’ll be adding new titles all the time, so be sure to bookmark it.

THE DANGERS OF LEVERAGING

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  I recently received an e-mail from a 62-year-old woman that left me shaking my head in sympathy and frustration. She and her husband were persuaded by a mutual fund salesperson to borrow $300,000 against their home to invest. They had already lost $10,000 and she was worried sick about the future. She wanted to sell but her husband didn’t – you can imagine their dinner table conversation. She wrote to me asking for help.

This sort of thing can happen to anyone and too often does. Unfortunately, it can lead to serious financial losses and a lot of personal stress. You can read the whole story and my advice to this couple by going to http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=2583

MUTUAL FUND TO CHECK OUT

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  Once a mutual fund has reached its third anniversary, it is eligible for inclusion in my On-Line Buyer’s Guide to Mutual Funds, which currently contains reviews and ratings for 1,333 funds.

This week, we added a new entry from the Franklin Templeton organization that so impressed us that we gave it a debut rating of $$$ (out of four). It’s called the Mutual Discovery Fund and here is what we had to say about it:

Nobody pays much attention to the Mutual Series of funds offered by Franklin Templeton. In fact, “Series” is a misnomer since there are only two of them – Mutual Beacon and this one. It’s too bad they’re such deep, dark secrets since both funds have a place in any portfolio where risk avoidance is a priority. Whereas Mutual Beacon focuses on the U.S., this is a global fund with a world-wide mandate. Manager Anne Gudefin, who is based in London, uses a deep value style, buying only stocks that are trading well below their intrinsic value. This reduces the risk element significantly although we can’t accurately judge to what degree because the Canadian version of this fund was only launched in early 2003, after the bear market had ended. Returns so far are very good, however. Over the three years to June 30, the fund gained an average of 13.7% annually, more than three percentage points ahead of the category average. The latest one-year gain was 12.7%. There is one big caveat, though. Socially-responsible investors will want to avoid this fund because the manager has an extremely heavy weighting in tobacco companies (almost 12% of the assets as of March 31). The top ten list is populated with cigarette giants such as British American Tobacco, Japan Tobacco, and Imperial Tobacco. If that’s a problem for you, look elsewhere. Otherwise, this is a very good global fund and we are giving it a debut rating of $$$.

Our On-Line Buyer’s Guide is available by subscription for a yearly fee of $49.95 plus tax. That gives you unlimited access to all the selections plus a minimum of four free special reports annually. You’ll find complete details at http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=72

That wraps things up for now. Enjoy the rest of the summer and we’ll see you again after Labour Day.