Why does Cymbria punch above its net asset value?

It’s not a normal situation for a closed-end fund that owns a portfolio of publicly listed stocks to trade consistently above its net asset value (NAV): Most investors shy away from buying a stock that costs more than its worth. As well, such a stock would attract the interest of short sellers.

But there is at least one TSX stock that has consistently traded above its NAV and that shows no sign of returning to its proper value. That stock is Cymbria Corp., which also ranks as one of the TSX’s more unusual companies. On Thursday, the shares closed at $52.75; on its website Cymbria listed the NAV at $45.57.

Toronto-based Cymbria, which went public in 2008, is unusual because it offers its owners an interest in a portfolio of public securities as well as an interest in a money manager, EdgePoint Wealth Management. (A group of managers, all of whom worked together at Trimark, now known as Invesco, formed EdgePoint.)

In its IPO, Cymbria raised $233.9 million, of which $142 million (at $10 a share) came from the public and the rest from a private placement. At the time, Cymbria had a 22 per cent stake in EdgePoint.

“The Manager believes the wealth management company has the potential to be a material contributor to the long-term value of the company, however, this investment will only require a minimal amount of capital as a proportion of the size of this offering,” Cymbria said then. Cymbria’s original EdgePoint investment was a tad over $500,000.

Since then Cymbria hasn’t been in the public markets raising additional capital, although on a regular basis it announces a normal course issuer bid. And it doesn’t talk much: messages sent to two of its management team weren’t returned.

But EdgePoint, which now accounts for 15.48 per cent of its portfolio, has been the big winner.

For instance, at the end of 2017, retail assets under management were about $15 billion while institutional assets were about $3.2 billion. Those assets come from a concentrated source of providers: at the retail level, 20 per cent of advisors represent about 83 per cent of the assets; at the institutional level, 20 per cent account for 93 per cent. “We look forward to building wealth for our investment partners over the long term,” said Cymbria.

Given the growth of EdgePoint’s business, what is the stake worth? Last December, Cymbria determined it was worth $185.9 million. (It has also received a total of $33.5 million in dividends.)

Given that Cymbria originally invested only $509,000, the returns have been rather spectacular. Cymbria said it determined that valuation “with the assistance of an independent valuator and the Valuation Committee.”

One year earlier, (December 2016) EdgePoint was valued at $110.3 million. At end of 2013, it was valued at $35.6 million. But over the years, Cymbria, according to its annual information form, has used a number of valuation approaches. While it’s now mainly a discounted cash flow model, “as circumstances dictate, alternative valuation approaches to determine the fair value of EdgePoint may be utilized.”

For the period 2012 to 2014, the methodology was a combination based on metrics (a percentage of assets under management, or a multiple of EBITDA) as well as a DCF model.

So what gives? It would seem investors are prepared to pay up based on the strength and quality of EdgePoint, which, could for example, realize full value by going public. In rough terms, Cymbria’s 15.48 per cent stake accounts for about $7 of Cymbria’s NAV and Cymbria trades around $7 above NAV. Accordingly, EdgePoint would have to double to bring NAV and trading price in line.

Financial Post


2018 Tax Refund Chart Can Help You Guess When You’ll Receive Your Money

Looking for your tax refund? Here’s a chart of projected refund dates, along with information that you need to know about your tax refund.

Startling orangutan population decline recorded in Borneo

WASHINGTON (Reuters) – Hunting by people and habitation destruction by oil palm, paper, logging and mining industries helped drive a startling drop of about 50 percent in the orangutan population on the island of Borneo from 1999 to 2015, scientists said on Thursday.

Three Ways You’re Self-Sabotaging Your Next Career Move And How to Stop

You can have clarity. You can have a 5-year plan plastered to your mirror. You can have a rolodex of contacts and know the best people in your industry. But, you’re still probably self-sabotaging your career in more ways than you realize.

Fed seen stepping up pace of rate hikes, Bloomberg survey shows

A growing number of economists expect the Federal Reserve to step up the pace of its interest-rate increases this year after congressional passage of a US$300 billion government spending package that is seen lifting U.S. economic growth and inflation.

Lewis Alexander, chief economist at Nomura Securities International Inc., and Greg Daco, Oxford Economics’ chief U.S. economist, were among those who now see four Fed rate hikes in 2018 instead of three, according to a Bloomberg survey of 29 respondents conducted Feb. 12-14. That brought the survey’s median estimate for the upper bound of the central bank’s federal funds rate target to 2.5 per cent by year-end. It is currently at 1.5 per cent. 

“Stronger growth and higher inflation would increase the odds of four Fed rate hikes in 2018,” Daco said in his survey comments. He added that the recent market strains won’t prevent a rate increase at the central bank’s next policy-making meeting on March 20-21.

In their last quarterly projection in December, Fed officials penciled in three rate hikes for this year, according to the median forecast in their so-called dot plot. They tacitly reiterated that view at their Jan. 30-31 meeting, when they said they expected “further gradual increases in the federal funds rate.”

Economists are getting more upbeat about economic growth this year and next, according to the survey. They see gross domestic product expanding 2.9 per cent in 2018 and 2.5 per cent next year. GDP has averaged a 2.2 per cent advance since the expansion began in mid-2009.

Inflation forecasts also edged up in the poll. Economists expect a price gauge tied to consumer spending and closely watched by the Fed to rise 2 per cent in 2018 from a year earlier. That would meet the central bank’s goal. The year-over-year gain in the personal consumption expenditures price index was 1.7 per cent in December, the latest available data shows.

The US$300 billion package passed last week comes on top of a US$1.5 trillion, 10-year tax cut that President Donald Trump signed into law in December. Trump this week also called for increased spending on roads, bridges and other infrastructure projects.

“Too much of a good thing is too much,” Joel Naroff, president of Naroff Economic Advisors Inc., said in his survey response. “The tax cuts, spending increases and potentially infrastructure package are likely to accelerate inflation and cause the Fed to raise rates higher and faster than expected.”


Canadians’ high debt levels could pose challenge to how Bank of Canada manages policy, says deputy

WINNIPEG — A senior Bank of Canada official says the central bank is looking at how the high levels of household and public debt could pose a challenge to how it manages monetary policy.

In a speech to the Manitoba Association for Business Economists on Thursday, Lawrence Schembri said low interest rates have encouraged households to take on debt and higher levels of government debt are largely a legacy of the financial crisis in 2008-09.

“Now there is less space, on average, across the G7 for more borrowing to stimulate demand,” he said according to notes of his speech released in Ottawa.

The central bank is also looking at what the gradual decline in interest rates over the past 25 years as well as a reduction in the estimates of the “neutral interest rate” mean for the monetary policy framework.

Schembri defines the neutral interest rate as “the interest rate consistent with the economy growing at its potential and inflation staying on target. It serves as a benchmark for us to gauge the degree of monetary stimulus in place and provides a medium- to long-run anchor for the policy rate.”

The Bank of Canada’s current estimate of the neutral rate of interest is 2.5 to 3.5 per cent, down from a range of 3.0 to 4.0 per cent a little more than three years ago.

Schembri said the trend rate of economic growth has been decreasing and that could also pose challenges because cyclical forces that normally help propel an economy out of an unexpected downturn my be less powerful.

During the financial crisis, both aggressive monetary and fiscal stimulus were used to help boost the economy.

Schembri noted that although monetary policy is normally seen as the most effective countercyclical policy tool, it may need help from other policies more frequently in the future.

“Indeed, studies have shown that when rates are at the effective lower bound, countercyclical fiscal policies, such as automatic stabilizers and discretionary policies, such as infrastructure spending, are highly effective,” he said.

“Our agreement with the federal government includes a commitment by both the bank and the government to the inflation target. that means all economic policies — including monetary, fiscal and marcoprudential — can work together in a complementary fashion for this purpose.”

The Bank of Canada sets its key interest rate target with the goal of keeping inflation at two per cent.

It has raised its target for the overnight rate three times in the past year after cutting it in response to a drop in oil prices.

The benchmark rate, which influences the prime rates at Canada’s big banks, stands at 1.25 per cent.

Markets shrug off US inflation worries to make fresh gains

Last week’s steep drop in equity prices is fading memory despite predictions of US interest rate hikes

New evidence of mounting US inflation has failed to derail the recovery from last week’s plunge in share prices, with global stock markets registering fresh gains.

Last week’s steep drop in equity prices was a fading memory as Wall Street shrugged off concerns that mounting cost of living pressures could force the Federal Reserve, the US central bank, into a series of interest rate rises in 2018.

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Sun Life Financial to add medical marijuana option to group benefits plans

TORONTO — Sun Life Financial Inc. is adding medical marijuana as an option for its group benefits plans, marking an industry shift and the latest sign of growing public acceptance of cannabis.

The Toronto-based insurer’s chief executive Dean Connor said the move was influenced by rising interest from Sun Life’s employer clients.

“Medical marijuana has become a very important part of their treatment program and pain management program,” said Connor, referencing patients who have cancer, multiple sclerosis, rheumatoid arthritis, or those requiring palliative care.

Sun Life provides health benefits coverage to more than three million Canadians and their families, or one in six Canadians. This comes as the country moves to legalize cannabis for recreational use later this year and as the number of registered medical marijuana patients grows.

There were more than 235,000 medical marijuana patients in the system across Canada at the end of September 2017, compared to roughly 98,500 a year earlier, noted Vahan Ajamian, a Beacon Securities Ltd. research analyst.

“The insurance companies have been getting pressure to cover this as a regular medicine,” he said.

Starting March 1, plan sponsors will have the option to add medical cannabis coverage to extended health-care plans, ranging from $1,500 to $6,000 per covered person per year.

Medical cannabis coverage will be available for specific conditions and symptoms associated with cancer, rheumatoid arthritis, multiple sclerosis, HIV-AIDS, and palliative care.

Sun Life will also conduct periodic reviews of the growing body of clinical research supporting the use of medical cannabis for other conditions, and update its criteria if necessary, the company said in a document updating their client base.

Jonathan Zaid, the executive director of patient advocacy group Canadians for Fair Access to Medical Marijuana, said the enhanced coverage comes after years of litigation to gain this level of acceptance for medical marijuana.

“Although there may not be immediate benefit for patients as specific plan sponsors will need to purchase the coverage, this move will make covering medical cannabis simpler than today’s exception process and speaks volumes to the broader acceptance and legitimacy of medical cannabis,” he said.

Sun Life’s employer client base includes 22,300 plan sponsors.