CPP Generates Big Returns. What Should Canadian Investors Learn from the Canada Pension Plan's Results?

The assets of the Canada Pension Plan, or the CPP, now sits at a whopping $148.2 Billion. For the year, it returned 11.9 percent, or about $15.5 Billion. This is good news for young Canadians, as the albatross hanging around their necks will soon be the hordes of baby-boomers seeking to collect pension payments all around the same time. To make these payments, younger Canadians will have to make larger and ever-increasing contributions into the plan to ensure that their parents and future generations will continue to be able to draw sustainable support payments. As long as the plan continues to experience higher returns, hopefully younger Canadians will be able to keep more of their hard earned money. Importantly, the Intelligent Investor must now ask how the plan generated such positive results?

CPP management said that their time horizon and investment views extended to the longer-term, with many investments made for the next 50-75 years! This long-term thinking has helped the plan to snap up a number of bargains during recent economic and financial turmoil around the world. These bargains should help the fund to remain positive in the coming decades.

Importantly, most of the opportunities for the fund were found outside of Canada. Presently, 51.7 percent of the fund's holdings are outside of the country, which is very interesting considering Canadians are apt to invest the vast majority of their hard earned wealth within domestic boundaries. With the rise of the Canadian dollar over the last year, foreign assets have become cheaper and the fund is utilizing this fact to Canadians' long-term advantage. The Intelligent Investor must do the same with their own portfolios so as to ensure that their risk and exposure is not so concentrated in Canada, which, by any stretch of the imagination, is not a large country for investment purposes. When you limit your opportunities to the Canadian marketplace, you eliminate the possibly to take advantage of investing in thousands of companies in other countries, which are often growing much faster than one's at home.

On the whole, stocks make up about half of the CPP, bonds 30 percent, and real-estate and infrastructure the remainder. Clearly, therefore, the management at the CPP trusts in the long-term opportunities to be found in the international stock markets, where many Canadians fear to tread. Most recently, the CPP has entered into an arrangement with the other members of a new entity titled "Maple Group," in the hopes of buying the Toronto Stock Exchange for $3.6 Billion. As an owner of TMX Group, (TSE: X), the operator of the Toronto Stock Exchange, I think this deal is a very good offer, and personally, believe that it is superior to a merger with the London Stock Exchange.

It is always a good idea to pay attention to what the large pension funds are doing with their money, as it is often pension funds that higher the savviest and most astute investors, especially the CPP. To be sure, international equities are clearly going to form the basis of the fund going forward, and this should be a lesson for many Canadians to personally increase some of their exposure in this area, as it is often badly neglected.

Happy Investing : )

Matthew Clarke.

TMX Group Posts Great Results, but Merger with London Exchange Still Ahead.

The Intelligent Investor Top 10 Pick, TMX Group (TSE: X), the operator of the Toronto, Montreal, and Boston Exchanges, today announced positive and well-received financial results. For the first quarter of 2011, revenue for the exchange group was $175 million, up 17 % over last year. Net income was $64 million, up 13 percent, and earnings per share was $0.84, up 9 percent. 


Many investors have been worried that TMX Group's business is slowly being eaten away by Canada's major banks, which began their own competing stock trading platform recently. These fears, though somewhat true, have clearly not materialized as seriously as many thought. TMX is posting strong trading volumes and has developed a number of key growth areas, such as options, futures, and natural resource exchanges. To be sure, in the company's quarterly report, it states that its "energy business continued to flourish," and that volumes at its Boston Options Exchange soared 79 percent... very good news!


The huge question to be answered regarding the TMX Group, of course, is its merger with the London Stock Exchange. Would this merger be a good deal for shareholders? It would allow the companies to experience greater economies of scale and realize substantial cost savings, while at the same time allow it to expand internationally in Europe and developing countries that will be in need of financing for natural resource development, a speciality of both London and Toronto.


For the Intelligent Investor, TMX Group's recent results should be seen as a sign of the company's continued viability, profitability, and success in both Canada, and hopefully international markets as well. Not to mention, with its healthy dividend of almost 4 percent, owning this company pays. 


Happy Investing, and for more information on this topic:


http://www.tmx.com/en/pdf/TMXGroup2011Q1Release.pdf