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Canada's investment future bright

Raymond James' recent purchase of a Canadian brokerage is just another sign of economic health and potential.

When St. Petersburg-based Raymond James Financial got ready to make a big investment, it decided to put $76-million north of the border. It bought a Canadian brokerage firm.

Lots of small investors have been looking north, too, helping turn the Canadian stock market into one of the world's top performers.

"Times have been good in Canada," said Kate Warne, Canadian market strategist for Edward Jones, a St. Louis brokerage firm.

Just how good? The Toronto Stock Exchange's TSE 300 Index is up 50 percent over the past year. By comparison, the Standard & Poor's 500 Index rose 9.9 percent and the Dow Jones Industrial Average gained a measly 1.3 percent over the same period.

A big portion of the outperformance is thanks to a single stock _ Nortel Networks Corp. of Brampton, Ontario, a producer of equipment used in the Internet's infrastructure. But the stock, which also trades on the New York Stock Exchange, hasn't been the only winner.

"More recently, gains have broadened out to financial services, oil and gas and other sectors of the market," Warne said. "Even if you pull Nortel out, the other stocks (in the TSE 300) are up about 15 percent year to date, which is still one of the best performances in the world."

Higher oil prices have given a boost to stocks of oil and gas exploration and services companies, which are a big part of the Canadian economy. The weakness in the Canadian dollar also has helped by making Canadian exports more competitive in foreign markets. And although it has not been as robust as the U.S. economy, the Canadian economy is still growing with little sign of inflation.

Not surprisingly, good market conditions for investors have created opportunities for brokerage firms.

"The demographics for Canada say that in the next five to seven years, there's no reason why we shouldn't have 1,500 offices," said Gary Reamey, who heads Edward Jones' Canadian operations. The company has opened 400 one-broker offices in Canada since 1994.

Raymond James is making its move with the acquisition of Vancouver-based Goepel McDermid, an employee-owned firm with 250 brokers.

The Canadian securities market has been going through consolidation since deregulation began 13 years ago. Six Canadian banks and U.S.-based Merrill Lynch together control three-fourths of the market. But small firms are still finding opportunities to grow. Goepel McDermid now claims a 1.5 percent market share with about $103-million in annual revenues.

"We think that by teaming up with Raymond James, we're virtually certain to get 3 to 5 percent of that market in the immediately foreseeable future," Goepel McDermid president Ken Shields said. Although it will operate as a separate subsidiary, the company plans to adopt the Raymond James name as part of its expansion strategy.

"We just started moving into Ontario, where a lot of people know Raymond James because of the stadium," Shields said, referring to the company's sponsorship of the Tampa Bay Buccaneers' football facility. "We expect to grow by adding new branches and attracting new investment advisers to our firm."

Raymond James and Goepel McDermid also will be swapping research and collaborating on investment banking, particularly in the energy sector.

Shields said Canadian interest in U.S. stocks is increasing because the government is loosening restrictions on including foreign investments in retirement accounts. That creates potential new business for Raymond James' money management subsidiaries.

"There is a lot of opportunity to grow in Canada," said Jeff Julien, Raymond James' chief financial officer. "The entire pie is growing at the same time they (Goepel McDermid) have an independent niche that could grow faster than the bank-owned niche."

Reamey at Edward Jones said Canadians are bigger savers and, on average, more conservative than their U.S. counterparts. That makes the market a good fit for companies such as Edward Jones and Goepel McDermid, which serve clients who want professional advice rather than do-it-yourself discount trades.

The brokerage firms say there are still good opportunities for individual investors, too.

Goepel McDermid's top stock recommendations include Alberta Energy Co., Westcoast Energy Inc. and Air Canada.

"Exploration and production companies in Canada are trading at right around two times cash flow," Shields said. "This group has been doing quite well, and we think it's got room to grow."

Warne at Edward Jones casts her vote for BCE Inc., a telecommunications company; Celestica Inc., an electronics equipment manufacturer; and Toronto Dominion Bank, which owns the brokerage firm TD Waterhouse. In the energy sector, she recommends buying shares of U.S.-based Exxon Mobil Corp., which has a Canadian subsidiary.

For those who prefer mutual funds, there's the Fidelity Canada Fund.

Reamey, who lived in Tampa as a child, said Canadian and U.S. investors are investing for the same reasons:

"They want to make sure they retire financially independent, that they don't have to worry about depending on someone else, that they don't pay more than their fair share of taxes, and that they make sure their children and grandchildren have good educations."