Dennis da SilvaA Comment -- General Comments From an ExpertA CommentaryCOMMENTJul 17, 2019

The Canadian budget will run hefty deficits for the next few years: a deficit in line with 2-3% growth in the economy is not something that would significantly to the debt over time. The problem happens when deficits far exceed potential economic growth. That was a factor in the last government for sure. Things are a little better. For instance, oil prices were higher so oil royalties were a lot stronger in last year's budget. Not sure if this will be repeated. When times are good, governments should reduce, not add to the debt load. The bond market: with recent highs, yield were around 5.70-5.75%, which makes it pretty compelling as risk-free money over 30 years. There are challenges to valuations like Apple's which should be lower, so this makes government bonds become attractive. U.S. company earnings are still good. Forward estimates continue to inch up.

The big banks make up 24.33% of the TSX; metals and mining 17%, oil/gas 14.5%, software 7.14%, insurance 7%. The budget offers slightly more headwinds than benefits, such as more competition for the banks, but more of the beneficiaries will be in the private sector, not public. Metals: this sector will grow, but mining is cyclical. Also, critical minerals mining is very small in Canada. So supporting this sector doesn't benefit the TSX much overall. Energy boils down to commodity prices, so the budget can't control that. The outlook for oil/gas is negative. It doesn't matter if we build more pipelines, though getting oil and gas to foreign markets will increase Canadian market share. Overall, the best play is the utilities sector and he recommends the XUT ETF.

The company is about to go public.

We have this AI selloff. It's not that people have stopped believing in it, but they're questioning the economics of the buildout. Will the returns justify the investment? A technological revolution doesn't necessarily guarantee a profitable investment. In the era of railroad-building, many went bankrupt and a lot of people lost money. AI could follow the same pattern.

You want to look for the businesses that are going to capture the resulting productivity gains. Businesses that have moats, durability, and can exploit AI to their productivity advantage. It may not be those who are producing the intelligence. Healthcare is a space that's ripe for disruption from AI.

Focus on diversification. Manage the inflation and growth risks in your portfolio. Make sure you have the risk right during all this market chaos. If your portfolio was uncomfortable during recent weeks, use any year-end rally to get your risk balance on par with your risk objectives.

Yes, you should look at the distribution calendar as we come to the end of the year. Keep an eye that you're not getting returns in excess of what you've been there for.

Market-cap weighted means that you own a stock in exactly the proportion that the market tells you to own it. Whereas in an equal-weight breakdown, you have the same percentage in each holding.

Market-cap gets us into the situation where 40% of the S&P 500 is represented by only 5-6 stocks. That concentrates your portfolio. 

VEE is emerging markets. He'd look to diversify. You need to consider inflation, growth, and the shocks that come from those 2 areas.

If you don't want bonds then he'd suggest having a gold or precious metals ETF. Perhaps add a sliver of bitcoin ETF. Instead of bonds, look for some managed futures strategies (such as DBMF) to provide ballast and non-correlation.

Pros. Especially for smaller investors, you can buy everything the world has to offer and pay only a few basis points. Incredibly inexpensive. Instant diversification. Transparency. Liquidity. Some tax efficiencies.

Cons. Trading costs. The spreads can be wider. Products can be complex, with investors not always totally understanding what they're buying. Tracking errors. Construction matters. Over-concentration. Watch the fees you're paying.

Good question to consider. With the funds available, you need to be able to diversify. Your bonds also need to be diversified. You want an inflation hedge. Hard to do with individual securities and takes a lot of time.

ETFs are a tool you can use to build your portfolio. Definitely good for seniors.

The closer calls are to being at, or in, the money, the larger the premium and the more the upside is cut off. You want to look for ETFs that do dynamic covered writing, where they manage the calls as prices change.

And, yes, you can buy it back right away. But if you sold the call at, say, $10 instead of $12, the monetary benefit is different.

The spin we hear from the politicians is making its way into the markets, and markets are spinning. It'll be hard to say what the major direction will be for the next 6 months. Yesterday he was feeling optimistic when he made his notes for the show, and now things have taken a turn for the worse.

There are some green shoots. His dividend recommendations from a year ago underperformed, but are now doing well. Right now, investors should focus on dividend payers rather than on stocks like NVDA.

Some of the consumer staples. Things that are steady and have solid fundamentals. Names like COST, or even some auto manufacturers.

A big divergence happened in October. The last time this occurred was back in March 2000, which is ominous.

He has 2 streams. One is more of a growth portfolio with a tech focus, while the other has some growth along with some predictable, dividend-paying, income-focused stocks. The first portfolio is down, while the second is up.

Given the way the S&P is concentrated in technology, that could be a driver of a down cycle in the S&P 500. Doesn't mean you can't make money, it just means you shouldn't invest in what's pulling the market down.