Investment
Ukraine fighting Russia’s de facto block on private investment
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President Volodymyr Zelensky is finally seeing results from his efforts to generate private-sector investment in Ukraine as multilateral organizations such as the European Bank for Reconstruction and Development (EBRD), the World Bank’s Multilateral Investment Guarantee Agency (MIGA), and the US International Development Finance Corporation (DFC) begin to provide comprehensive war insurance to corporate investors.
Ukrainian Finance Minister Serhiy Marchenko was visibly frustrated that he could not generate critically needed private-sector investment into Ukraine while attending the IMF/World Bank annual meetings in Washington in October.
Zelensky himself stressed that West’s financial assistance to the Ukraine must be seen as an investment and not charity during his address to a joint session of the US Congress in December.
“Financial assistance is also critically important. And I would like to thank you, thank you very much, thank you for both the financial packages you have already provided us with, and the ones you may be willing to decide on.
“Your money is not charity, it’s an investment in global security and democracy that we handle in the most responsible way,” Zelensky said in his speech just weeks shy of the 82nd anniversary of Winston Churchill’s address to Congress following the Japanese attack on Pearl Harbor, Hawaii.
The main obstacle blocking private-sector investment or reinvestment into Ukraine is the inability to source war insurance during the ongoing war in the country, said Conal Duffy, the Chicago-based practice leader for political risk insurance for Alliant Insurance.
“There is the five powers’ exclusion [the five permanent members of the UN Security Council] where insurance companies have been barred for decades from providing war insurance if any of the members are involved in a military conflict,” Duffy said.
Duffy also estimated direct losses in Ukraine by private-sector insurance companies to be about US$10 billion.
According to Rothschild’s – the main investment bank operating in Ukraine after JPMorgan Chase – more than $2 billion of private-sector investment into Ukrainian small and medium-sized enterprises (SMEs) operating in agriculture, manufacturing, logistics, information technology and infrastructure is frozen because of the lack of war insurance or clarity whether insurance by multilateral organizations such as the EBRD and MIGA will cover war risk.
“Private-sector investment is as vital as war materiel, especially now with Russia about to launch a new offensive,” a banker working in Ukraine said. “Private companies need to operate so they maintain employment, supply the population along with the war effort.”
Even the mayor of the city symbolizing alleged Russian war atrocities, Bucha’s Anatoly Fedoruk, does not hesitate to remind one and all that Bucha and Ukraine are open for investors.
However, Western donor nations to Ukraine are fully aware of the structural roadblocks to investments and are now acting through multilateral organizations best suited to vet buy-side investors and ensure that new investments do not end up back in the pockets of Russian or Ukrainian oligarchs.
The World Bank’s MIGA insurance agency will next week announce the creation of a $100 million to $200 million trust providing first-loss war risk guarantees for direct foreign investors in Ukraine.
According to a MIGA official, the insurance agency is addressing the impacts of the war in Ukraine on the private sector during and after crises through donor-supported guarantee issuance in Ukraine through a planned Support for Ukraine’s Reconstruction and Economy (SURE) Trust Fund and, second, guarantees for other countries affected by the war in the region, as well as fragile and conflict-affected countries and emerging economies impacted by overlapping global crises.
At the same time the London-based EBRD is working hard to find actionable solutions over the issue of war insurance to trigger private-sector investment into the country.
“There are ongoing discussions about potential mechanisms for war risk insurance among the members of the international community, insurance companies and private investors. We are actively involved in these meetings but unfortunately there is no readily available solution yet,” an EBRD official said in a statement to Capitol Intelligence/CI Ukraine.
“The EBRD cannot provide insurance instruments per se, but it is important to work with other institutions to develop a war insurance product, particularly as this will help to bring back foreign direct investment into the country and could enable faster reconstruction efforts.”
An EBRD source said the UK, the country that has most consistently backed Ukraine in its war to defeat Russian aggression, has made war insurance one of the leading themes for the British government-hosted Ukraine Recovery Conference to be held in London on June 21-22.
The lack of clarity over war insurance is topping the likes of John Crites II and his family-owned, Petersburg, West Virginia–based hardwood processor sawmill operator Allegheny Wood Products from acquiring a Ukrainian competitor in the country’s forestry capital, Lutsk.
Another potential US investor is defense concern and merchant supplier L3 Harris, which could acquire a dual-use Ukrainian company to shorten supply-chain issues and build a presence in a postwar and EU-member Ukraine.
Prior to Russia’s illegal annexation of Crimea in 2014, Ukrainian companies supplied up to 40% of the Russian defense industry.
L3 Harris chief executive officer Chris Kubasik may want to make a Ukraine acquisition to win the hearts and minds the US Senate and House Armed Services Committee but also as a tool to beat back unjustified opposition within the US Federal Trade Commission over its announced $4.7 billion takeover of rocket-fuel producer, Aerojet Rocketdyne Holdings.
But ultimately it will be the United States that can immediately kickstart critical private-sector investment through its often-overlooked US International Development Finance Corp, an agency that provides loans, political risk insurance and equity to private-sector companies investing in countries of geo-strategic importance to the United States.
DFC CEO Scott Nathan used personal leadership to overcome internal DFC resistance by headlining a US Chamber of Commerce event in Kiev on January 31 where he announced the agency is mobilizing some $1 billion of private-sector capital to support the Ukrainian economy.
Unlike the EBRD or MIGA, the White House and US Congress can enable the DFC immediately to provide war risk insurance to private-sector investors and provide new capital and resources to those that have already invested in Ukraine, such as Cargill with its grain port in Odessa or Italy’s Atlantia/Blackstone infrastructure group becoming the future operator of Ukraine’s toll roads and airports.
President Joe Biden with the DFC, EBRD and World Bank can snatch away Russian President Vladimir Putin’s only military achievement in the fratricidal war: effectively blocking foreign direct investment in Ukraine.
Peter K Semler is the chief executive editor and founder of Capitol Intelligence. Previously, he was the Washington, DC, bureau chief for Mergermarket (Dealreporter/Debtwire) of the Financial Times and headed political and economic coverage of the US House of Representatives and Senate.
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Cryptocurrency, a decentralized digital or virtual currency protected by cryptography, is taking the world by storm. Since Bitcoin’s debut in 2009, its popularity has been steadily increasing – and now, with no sign of slowing down! In 2023 there will be several exciting cryptocurrency trends to keep an eye on.
Crypto markets are maturing at a rapid rate. With the adoption of digital crypto assets by governments and institutional investors on the rise, 2023 looks to be an exciting year for crypto enthusiasts! We’ll explore developments in decentralized finance, key regulatory moves that are helping shape this expanding domain, as well as how more countries continue to adopt their forms of digital currency.
Cryptocurrency in the DeFi Sector
In recent years, the cryptocurrency industry has seen explosive growth as it evolves at a rapid pace. Cryptocurrencies are virtual assets that use cryptography to protect their transactions and regulate the production of new currencies. These digital coins do not succumb to any centralized power or government body since they are fully decentralized in nature.
Cryptocurrency has experienced a surge of growth in the DeFi crypto sector, and this trend is predicted to blossom further in 2023. The power behind decentralized finance lies within blockchain technology. It allows for financial services to be delivered without any third-party intermediation. This essentially cuts out banks or other institutions from being involved, which offers people greater accessibility and control over their finances!
As cryptocurrency continues to grow and evolve, 2023 is set to be a groundbreaking year for the industry. Thanks in part to advancements making DeFi applications more user-friendly, we can expect an abundance of new financial products and services offered by decentralized crypto exchange (DEX), lending platforms, stablecoins, and much more! What’s also exciting is the increasing number of regulatory frameworks being developed worldwide – indicating that governments are beginning their journey towards embracing cryptocurrencies while ensuring they remain safe from misuse. All eyes will surely be on what further developments emerge this coming year!
Crypto Regulations Increased
Recently, the European Union and the United States have made moves to bring cryptocurrencies under closer regulatory oversight. The EU has proposed a framework designed to combat money laundering and terrorism activities while the SEC is focused on cracking down by way of Initial Coin Offerings (ICOs) as well as other measures. These steps are aimed at creating an environment where investors can feel secure in digital asset investments both locally and internationally.
Increased regulation of cryptocurrency has been met with mixed reactions in the industry, but it is an important step for greater legitimacy and stability. Not only does this assure existing investors, but it also encourages institutional investment that would otherwise remain hesitant due to a lack of regulatory clarity. With better oversight over the crypto market comes stronger confidence in its future – both from individual traders and major financial organizations alike.
As digital currencies become more and more mainstream, governments across the world are taking note. China has been leading this charge with its innovative Digital Yuan – a revolutionary financial toolset to challenge traditional banking systems as we know them. Currently, in test-mode, it’s expected that the Digital Yuan will be fully rolled out by 2023 and could potentially have an immense impact on global finance!
In 2023, the world of digital currencies is expected to undergo a sweeping transformation with exciting innovations. Governments around the globe will continue to explore ways in which digital currency can revolutionize financial accessibility while simultaneously reducing costs typically associated with traditional payment systems.
Crypto Trends – The FTX Collapse
The crypto industry has been dealt a disastrous blow with the collapse of one of its largest exchanges, FTX. Its repercussions have sent shockwaves throughout the market and shaken investor confidence in digital assets to its core. With overall market capitalization on a downward trajectory and liquidity issues afflicting many firms, 2023 promises only further turmoil as regulatory clarity is still lacking. This could cause difficulties for DeFi protocols too while potentially hampering NFTs’ growth opportunities this year – there’s no doubt that cryptocurrencies are facing an uphill battle ahead!
Meme Cryptocurrencies
Dogecoin may have been born out of an Internet joke, but 2021 proved it to be a serious contender within the cryptocurrency space. Influencers like Elon Musk and Mark Cuban along with Naomi Osaka’s co-signs aided its rise in popularity this year. As crypto continues evolving on the verge of mass adoption, we can expect some seismic changes happening across all financial markets around the world – making for one exciting era indeed!
Crypto Betting on the Rise
In today’s rapidly changing digital landscape, crypto betting has become the latest trend. As more and more people seek out quicker ways to get their bets in on sports events, politics, or entertainment news – cryptocurrency has surged as a preferred option for quick transactions with the ease of accessibility. 2023 saw an unprecedented increase in demand across all areas related to crypto gambling due largely to advancements within technology which enabled these assets as payment methods that are now accepted worldwide by many industries. Betting is no longer what it used to be: its evolution reflects how far we’ve come since then! Therefore, nothing prevents you from betting on your favorite sport or playing online roulette with real money using any cryptocurrency.
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What are we looking for?
Top-rated mutual funds with top-rated investment processes.
The screen
When investors look at the performance of mutual funds, they are likely looking for something simple – are those performance numbers positive or negative? Considering why those numbers are positive or negative is also important. Why a fund performs a certain way can be the direct result of its investment philosophy and process. An understanding of these components can help investors better gauge if performance results are expected given the goal and method applied. This can be particularly helpful during periods of volatility, such as the one we have experienced since the collapse of Silicon Valley Bank earlier this month. A strong investment process is well-defined and consistently executed, and generally able to withstand short-term market shocks and reward investors over the long term.
A fund’s investment process can be nuanced. To help guide investors, Morningstar’s manager research team assigns ratings to Canadian funds and ETFs that include an explicit component focused on understanding their investment philosophy and process. We refer to this component as the “Process” pillar and rate each asset manager as either Low, Below Average, Average, Above Average or High, depending on the efficacy of their practices. To highlight a few great mutual funds available to Canadians with top-rated investment processes, I used Morningstar Direct to screen more than 3,400 Canadian-domiciled mutual funds and ETFs to find a selection of options to consider. The criteria include:
- A Morningstar Quantitative or Analyst Process Pillar rating of High, indicating the fund has a clearly defined investment process and performance objective that is repeatable and implemented effectively.
- A Morningstar star rating of five stars. The star rating is an objective look back at a fund’s after-fee, risk-adjusted returns relative to the category to which the fund belongs. Though the measure is backward-looking, Morningstar’s research shows that over time and on aggregate, five-star funds continue to outperform four-star funds, three-star funds, etc., after receiving the rating.
- A top quintile category rank month-to-date indicating the funds selected have outperformed their peers since March 1, 2023.
*Data as of March 23, 2023
What we found
The list above highlights funds from 13 different mutual fund categories (as defined by the Canadian Investment Fund Standards Committee) from six different asset managers, indicating strong processes are not confined to a specific asset class or investment style. Although not explicitly screened for, each of these funds also earned a Bronze, Silver or Gold Morningstar Analyst or Quantitative Rating indicating a forward-looking view of the fund’s ability to outperform its peer group and/or relevant benchmark on a risk-adjusted basis over a full market cycle. Every fund on the list has delivered, with all but two ranking in the top decile of their respective categories over the past five years.
Note that the management expense ratios listed here are reflective of the f-share class. In the table, f-class (also known as fee-based share classes) shares exclude the cost of advice and are held in fee-based accounts where the adviser charges separately for advice.
This article does not constitute financial advice. Investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.
Danielle LeClair, MFin, is director of manager research, Canada for Morningstar Research Inc.
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Fee competition in the exchange-traded fund business is driving down the cost of investing to new lows.
A simple little ETF strategy I call the Freedom .08 Portfolio proves it. Some previous names for this portfolio included Freedom 0.15 and Freedom 0.11. The numbers are based on the aggregate management expense ratio for the portfolio, which has fallen ever lower through the years. That’s how we get to Freedom .08 in early 2023. That’s 8 cents in fees for every $100 you have invested.
Here’s how the Freedom .08 Portfolio is put together using a 70:30 asset mix of stocks and bonds.:
-30 per cent in the Desjardins Canadian Universe Bond Index ETF (DCU-T): The MER for this fund is 0.08 per cent, which is at the low end for aggregate bond ETFs covering the broad Canadian market for government and corporate bonds. It tracks the Solactive Canadian Bond Universe total return Index, which is a relative newcomer to the Canadian market. You can compare returns to competitors using the bond fund installment of the 2023 Globe and Mail ETF Buyer’s Guide, but they’re very similar to more established indexes.
-30 per cent in the iShares Core S&P/TSX Capped Composite Index ETF (XIC-T): The MER for this fund is 0.06 per cent and the underlying index is the ultimate benchmark for Canadian stocks.
-20 per cent in the Franklin International Equity Index ETF (FLUR-NE): The MER here is 0.1 per cent, which is strikingly low for the international equity category. That’s markets outside North America, by the way. Solactive is again the index provider. In doing your research, compare returns against international equity ETFs tracking the more traditional MSCI EAFE index.
-20 per cent in the Vanguard S&P 500 Index ETF (VFV-T): The MER is 0.09 per cent and the index is one you know and love, the S&P 500.
ETFs trade like stocks, which means you’ll need a digital brokerage account to build a portfolio. For extreme frugal investing, consider the zero-commission brokers Wealthsimple, National Bank Direct Brokerage, and Desjardins Online Investing. CI Direct Trading and Questrade offer ETF purchases at no cost, but you pay the usual commission to sell.
A final point of comparison for the Freedom 0.08 Portfolio is a popular kind of exchange-trade fund called the asset allocation fund. You can buy these fully diversified portfolios with MERs of 0.2 to 0.24 per cent.
— Rob Carrick, personal finance columnist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Stocks to ponder
Bombardier Inc. (BBD-B-T) The plane maker is generating cash, paying down debt and raising its financial targets. Investors are paying attention, too: The share price has rallied more than 250 per cent over the past eight months. David Berman asks: Has the stock become relevant again?
WELL Health Technologies Corp. (WELL-T) After this health-care company reported record quarterly financial results last week, the share price rallied nearly 16 per cent on high volume. Analysts believe this positive price momentum will continue. The average one-year target price implies a 61 per cent potential gain for the stock. Jennifer Dowty takes a look at the investment case.
The Rundown
Banking woes, Fed keep investors on edge in nervous stock market
Investors are settling in for a long slog in the U.S. stock market in coming months, braced for more tumult in the banking sector and worries over how the Federal Reserve’s tightening will ripple through the economy. As David Randall of Reuters reports, many worry that other nasty surprises are lurking as the rapid series of interest rate hikes the Fed has delivered over the past year dry up cheap money and widen fissures in the economy.
Grocery REITs are a safe harbour in the market storm
Feeling gouged by high grocery prices? Bummed out by bank runs? Sick of stock market volatility? With inflation and rising interest rates creating turmoil in the economy and financial markets, these are tough times to be a consumer – or an investor. John Heinzl is here to offer some help by profiling some real estate investment trusts in the grocery sector. The goal: put some of that grocery money back in your pocket while enabling you to sleep better even as markets gyrate.
Throw caution to the wind with the Free Cash portfolio
It’s time to catch up on the value stock race. Norman Rothery pitted 14 popular measures of value against each other in the U.S. market. Each measure was used to form a tracking portfolio containing the cheapest 10 per cent of the stocks in the S&P 500 index based on that measure. The 14 tracking portfolios were equally weighted and rebalanced annually. So far, the trend favours investors who keep an eye on debt while hunting for bargains.
Read more from Norman Rothery: Portfolios for Value and Dividend Investors
Canadian bank stocks may not be quite as special as we think
Canadians are used to thinking of bank stocks as a safe, nearly guaranteed way to bet the market. They may want to think again. As Ian McGugan tell us, investors would be wise then to consider the prospect of a future in which Canadian banks no longer churn out market-beating results with clockwork regularity.
Strength in megacap stocks masks broader U.S. market woes
Investors are relying on an old strategy to navigate the current tumult in asset prices: buying shares of the massive U.S. companies that led markets higher for years. Shares of the top five companies by market value — Apple , Microsoft, Alphabet, Amazon and Nvidia — have gained between 4.5% and 12% since March 8, when troubles at Silicon Valley Bank set off banking system worries. In that period, the S&P 500 has fallen 0.5%. Lewis Krauskopf of Reuters tells us more.
Others (for subscribers)
Monday’s analyst upgrades and downgrades
Globe Advisor
Where investors put their money in this year’s RRSP season
How to play the demand for microprocessors as chatbots, robots and EVs disrupt sectors
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis.
Ask Globe Investor
Question: Harvest Healthcare Leaders has units that trade in U.S. dollars on the TSX. For tax purposes, is the income considered foreign income or Canadian? For example, can donations to registered charities in the U.S. be deducted against the income from HHL.U? – Michael K.
Answer: Only a small amount (9.26 per cent) of the income from this ETF was classified as foreign income in 2022, according to the Harvest Funds website. Most of the distributions (about 94 per cent) are treated as return of capital. So, you won’t get much help here for U.S. charitable contributions.
–Gordon Pape (Send questions to gordonpape@hotmail.com and write Globe Question in the subject line.)
What’s up in the days ahead
Bond markets are suggesting interest rate cuts loom for this summer in both Canada and the U.S. But central bankers are dropping few hints. Who should we believe? Veteran bond fund manager Tom Czitron will provide some insight.
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