A Comment -- General Comments From an Expert (A Commentary)

One of his favourites, he's overweight right now in his equity exposure. Hecla Mining is one of the names he likes a lot. Silver has some good running room ahead relative to gold.

There is. Speaks to the whole universe of Canadian Depositary Receipts that have come up. You can buy fractional shares with an embedded currency hedge in a lot of the big names in the US. If you feel the CAD is very low here, and you want that US exposure, you're probably better off buying it with a CDR that has currency hedge embedded as opposed to buying the stock on the US exchange.

If you like the stock and think the CAD is expensive and likely to get cheaper, then you want to own the US dollar version of that and keep your exposure to the USD. 

Larry thinks the CAD is somewhat undervalued right now in the context of the next 5 years. Fair value for the CAD is probably somewhere between 75 and 80 cents. When it's below 75 or 70, you want something that's hedged. When it's above 80-85, you want the US dollar exposure. If it's somewhere in the middle, you're a bit indifferent to the currency risk.

You can buy an ETF that's listed in Toronto that has the euro exposure. For example, ZWP gives you exposure to the euro via a Canadian holding. 

This question is probably prompted by the whole narrative around a weaker US dollar and the euro getting stronger. That's very much a USD-Euro story, than a CAD-Euro story. So you might need to look more for a US holding than something in Canada.

FLUR gives you international exposure. XEU gives you broad exposure to MSCI Europe.

Are you getting compensated enough by that additional yield for a shorter-term bond to take that interest rate risk? Right now, he prefers the US to Canada. Canadian long-bond yields are about 125 bps below those of the US. So he's not wild about them.

Much prefers the long end of the US curve where the yield is north of 5% at this point. But the challenge is the currency exposure. It speaks to being a sophisticated investor in terms of bond exposure. If you think a hard landing's coming, they'd absolutely be good for a trade. Institutional investors can do these kinds of trades all day, much more difficult for individual retail investors. 

Tweaking Investment Exposure

He often gets questions about whether it's a good time to invest now, and it's usually new money coming off the sidelines. Right now, the US equity market's at all-time highs. One of the ways you can be a bit more conservative at times, or aggressive at times, is by looking at different ways to get exposure to the US large-cap area. And you can do that by using factors.

He brought along a chart of 5 different ETFs as ways to play:  SPHB, SPLV, SPHQ, SDY, and SPY. 

SPY -- low-cost MER, broad S&P 500 exposure.

SPHB -- S&P, high beta. Rebalanced a couple of times a year into the higher-volatility names. Typically exposed to ~20% of the index.

SPLV -- S&P, low volatility. About 20% of the index, typically higher yield. In the long run, similar returns to the broader market.

SPHQ -- his favourite factor. High quality. In the long run, uses filters to give you 20 names of the highest-quality companies in the S&P. Good balance sheets, less sensitive to the economic cycle. Some dividends, some growth. High-performing names. If you can handle the ride, this is the one to buy and hold.

SDY -- a way to play the S&P with a dividend basket.

Reality is that depending on what kind of investor you are, there's a different solution for everyone. Right now, with markets at all-time highs, he's not comfortable telling people to take $$ out of the bank and put it in the market. If you did right now, he'd say to go low volatility or high dividends. Because...look at his next chart.

The next chart shows that, during volatile periods over the years, when it's bad (as it was during Covid or 2015-2016) the low volatility and higher dividend options give you a better experience. They keep you invested, with more yield and less downside. But after a correction (typically about 13%), you want to pivot and shift into high-beta names for more growth, the broad S&P, or high-quality names. But do this when markets are cheap, not when they're expensive.

Learn which tools work in which environment, but there's an ETF for just about every person out there. Always stay fully invested for the long run, as it's really the best thing people can do. But tweak your exposure, so if we go through an adverse period, it's a little bit less bad. We can't time markets perfectly.

Investing 101: Have the correct investment expectations

Risks widely vary across investment markets and products. Be wary of implied rates of return that sound too good to be true, because they probably are, at best, very high risk or, at worst, complete scams. Many investors get attracted to high yields: some derivative products have current yields of 15 per cent or more. But past and current returns are not the same as future returns.

A realistic long-term return for stock investors might be in the eight-per-cent range. For a bond investor, five per cent or so. Don’t chase returns. Don’t envy someone bragging about 20-per-cent returns — they are not you, and they might be taking on huge risks.

But if things do work out for you as an investor, don’t get greedy. If one of your stocks has soared, that’s great, but it likely now represents a big portion of your net worth. As such, any future disappointment in that stock is going to be far more painful. In addition to maintaining realistic expectations, we would also maintain portfolio balance and discipline — always.
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Editor's Note: The Global Equities Description is focused on Small Caps which Greg considers to have a market cap between $500 million and $5 billion, The dispersion between between small and large caps is getting larger with some large caps reaching the trillion dollar mark and NVIDIA now having a market cap of $4 trillion.
He calls this year's volatile market ideal hunting grounds and doesn't necessarily see volatility as risk. He likes volatility and pessimism. and doesn't see pessimism in large caps. Some of the small caps don't have analyst coverage. Equities that they buy have between 0 and 6/7 analysts covering them.
He looks for a long term management track record of success. Companies should be cash generative and operate business that you can understand. He doesn't like debt.

Correct, as we've seen such an extended rally. Valuations are very high, especially in US stocks. People seem to be ignoring potential risks such as tariffs, and rhetoric has accelerated in the last week or so. If you look from January 1 to today, you have more geopolitical risk, earnings estimates coming down, US market continuing to rally. He's a little more positive on Canada.

Investors are being complacent right now, and it's time to be a little bit cautious.

The bond market's really telling us it's concerned about inflation, the US deficit, and tariffs potentially being inflationary. With today's additional tariff rhetoric we've seen bond yields moving up. That's a clear sign that the bond market has one view, and people often find that the bond market is a better gauge than the equity market of what's going on from a macro standpoint. 

Equity market's being driven by momentum, retail investors, a lot of hype around AI. AI will definitely be important, but we don't know how profitable companies are going to be from this massive capex investment. A lot of positive news is already built in, and the market's focusing on that and pushing all the negatives aside.

He doesn't typically tend to have a ton of commodities exposure. He owns a bit of gold and a bit of energy, but overall his firm is not a heavy commodity investor. It is the time for defensive businesses with good cashflow generation, and value investing should have a bit of a comeback. He favours Canada over the US right now for equities.

Market Update:

President Trump imposed 25% tariffs on goods from Japan and South Korea, starting on August 1. In addition, the copper market is currently in turmoil as President Trump announced a higher-than-expected 50% tariff on copper imports. The Canadian dollar was 73.04 cents USD. The U.S. S&P 500 ended the week up 0.4%, while the TSX was slightly down 0.1%.

A lot more greens this week than reds. Consumer discretionary and industrials gained 1.8% and 1.7%, respectively. Real estate and consumer staples added 1.5%, each, while energy edged up by 0.7%. Financials ended the week up 0.4%. Technology and materials ended the week down 1.7% and 1.6%, respectively. The most heavily traded shares by volume were TC Energy (TRP), Toronto-Dominion Bank (TD) and National Bank of Canada (NA).
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