CIBC Asset Management Winds Up Renaissance Fund Merger - Analyst Blog

Canadian Imperial Bank of Commerce (CM) declared that its division CIBC Asset Management Inc. has successfully wrapped up the previously announced merger of the Renaissance Corporate Bond Fund with the Renaissance Corporate Bond Capital Yield Fund. CIBC Asset Management, one of Canada's largest asset management firms, is the manager of Renaissance Investments family of mutual funds.

Flashback

In Sep 2014, CIBC Asset Management had announced its plan to merge the two above stated Renaissance funds. While the Renaissance Corporate Bond Fund was termed as the Terminating Fund, the Renaissance Corporate Bond Capital Yield Fund was termed as the Continuing Fund.

Many funds use forward agreements as part of their investment strategies to take advantage of the related tax benefits as income generated from forward contracts are treated as capital gains. The Continuing Fund also used a similar investment plan.

However, the Canadian 2013 federal budget brought a stop to this. The altered budget stated that it intends to remove the tax benefits from derivatives by Dec 31, 2014. For this purpose, it declared that the future returns from forward agreements will be treated as fully taxable income rather than as capital gains.

As a result, the Continuing Fund needed to be redesigned to reflect the revised budget and thus CIBC Asset Management planned the merger of the Continuing Fund and the Terminating Fund to protect the interests of the unit holders.

Merger Update

On completion of the merger, the unit holders of the Terminating Fund received units of the Continuing Fund. Now, the merged fund's goal will be to earn high returns for investors by spending in bonds, debentures and other instruments.

The Continuing Fund has been converted to Renaissance Corporate Bond Fund and is now open to investors.

Our Take

The altered Canadian budget impacted billions of dollars of mutual funds as well as exchange-traded funds assets. The funds using derivatives-driven strategies had to modify their investment plans and suspend new purchases and sales temporarily to integrate the revised rule.

Currently, Canadian Imperial holds a Zacks Rank #4 (Sell). Some better-ranked foreign banks include Itaú Unibanco Holding S.A. (ITUB), Credicorp Ltd. (BAP) and Banco Latinoamericano de Comercio Exterior, S.A (BLX). All these stocks hold a Zacks Rank #2 (Buy).