'Maybe' ➡️ https://financialpost.com/fp-f.....tf-tmx-ceo

Time Will Tell . . .

Dean

AltaRed said
There is no wealth in a fund where it has to be actually funded with additional deficit. 

Just like there is no perpetual motion machine.

If such a situation existed, where the SWF could generate such returns from deficit funds, then every country should be borrowing and spending every dollar possible towards investing in them.

Ancient Chinese Saying :

"Spitting into an unknown wind, will only get your face wet."

.
My Two Centavos,

Dean

I would go further saying this is a deliberate effort to deceive and manipulate Canadians into alignment with the government's attempt to arrest the flow of capital out of country by investing their own after tax capital along with taxation into projects and infrastructure that have been previously frustrated by intentional regulatory actions/obstacles.

The jury is out due to lack of details so far but this smells a lot like buying oceanfront property in Arizona. The returns will most likely be abysmal when there is going to be a so called guarantee of 'not losing money'. Likely worse than a market linked GIC.

Andrew Coyne has a well thought out Opinion piece on this in the G&M (could be behind paywall) https://www.theglobeandmail.co.....alth-fund/

Norway is different because it's a small country with large oil revenues which does not want to overheat its economy.

What makes Carney’s SWF different is how it's funded. All the others are funded from surpluses. We are running massive deficits. Our version of state capitalism will be debt-financed + funds solicited from the public and backed up by the tax payer. Might be more similar to Pinochet’s pension funds in Chile than to an actual SWF.

Still need to wait for the details but so far this is presented as a win-win:
1. Neat accounting trick involving government borrowing without reflecting added debt in the books +
2. increasing investment after the government created conditions leading to private capital fleeing the country.

RetirEd said
Looks to me like the fund will tank from investing in Canadian companies. Other SWFs never invest in their own countries.  

That's exactly it, a real SWF should never invest in its own country, otherwise totally defeat the purpose of such a fund. Imagine saying CPP can only invest in Canadian assets and projects and nothing else...

mordko said
We still don’t have the small print but this particular market-linked GIC has a twist. Looks like investors in the “sovereign wealth fund” have genuine potential for actual market returns and that the downside protection is provided by the taxpayer.

The devil is in the detail but this has the potential to act like a government-backed stock and shift all (significant) investment risk to the taxpayer. And if so, it's not like a market linked GIC at all because investor’s returns are very real and someone else takes all the risk.

It could be like that ephemeral unicorn, like the market linked GICs are advertised but aren’t. Actual market returns minus the risk.  

That's kinda of what I see from the preliminary info we have. This might actually be the first government benefit I qualify for in years ... 🙂

The devil is in the detail but this has the potential to act like a government-backed stock and shift all (significant) investment risk to the taxpayer. And if so, it's not like a market linked GIC at all because investor’s returns are very real and someone else takes all the risk.

It could be like that ephemeral unicorn, like the market linked GICs are advertised but aren’t. Actual market returns minus the risk.

Such instruments buy options to do their market linked returns. Most options end up expiring worthless. Option buyers end up losing more than they win. Same fate with those who write options.

Quite a few funds have marketed their covered call option writing to boost returns. Instead, they all end up with inferior long term returns from capping the upside of their holdings.

Wrayzor said

I think you'll have to go through the FI's websites to find that. Here is the link to one of BMO's series (matured). It doesn't look good. The unmatured series look better, but mostly because of timing.

https://www.bmo.com/main/perso.....ssive-gic/

The "guaranteed" part of them is usually a small fraction of what a traditional GIC provides.  

Understanding that only 5-10% is Market Based, I've been suspecting very low total return vs the sizeable upside most offer as possibilities. This BMO snap shot kinda confirms it. I was hoping there was a 3rd party view of all market based GIC's ...

Thanks for the link ...

cgouimet said

They are being billed as GIC's with so much more upside potential. I'm just curious how much upside they have actually delivered ...  

I think you'll have to go through the FI's websites to find that. Here is the link to one of BMO's series (matured). It doesn't look good. The unmatured series look better, but mostly because of timing.

https://www.bmo.com/main/perso.....ssive-gic/

The "guaranteed" part of them is usually a small fraction of what a traditional GIC provides.

mordko said

It's a fundamentally different engineered product sharing the name for marketing purposes. I don’t think comparing returns is reasonable in this context.  

I do understand that very well.

They are being billed as GIC's with so much more upside potential. I'm just curious how much upside they have actually delivered ...

zgic said

How does one invest in it? Will it be an ETF?

As Norman said in Post #3, Canada's new 'Canada Strong Fund' is so far missing a lot of it's Meat & Bones.

What's curious though is that it's being billed as a 'Sovereign Wealth Fund' (like Norway's very famous & successful sovereign wealth fund, and Alberta's sovereign wealth fund), but it doesn't appear that Ottawa will be following either of those templates.

Another concern is that unlike true sovereign wealth funds, this Canada Strong Fund is going to be initially funded by yet More Government Debt
... to the tune of $25-Billion Dollars !

More Food For Thought ➡️ https://www.cbc.ca/news/canada.....-9.7184255

On the surface, this new Canada Strong Fund initially sounds like a Great Idea, but until we see all Meat & Bones of it, it's probably best to hold-back on any judgments (pro, or con) for now.

My Two Centavos,

Dean

cgouimet said

That's what it looks like to me too.

Is there data comparing historical market based GIC's vs GIC's?  

It's a fundamentally different engineered product sharing the name for marketing purposes. I don’t think comparing returns is reasonable in this context.