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

Basic Material Sector: Gold, potash and forestry, then base metals. Thinks the outlook is not good for the next couple of years. Wait until gold goes below $1200 to buy this sector.

Educational Segment. As we age, to deter dementia, learning and physical exercise are what we can do to delay that. His research is suggesting that being ‘primed’ or upbeat and positive, emotionally, before making trades improves results.

Markets. He is not taking calls on Resource stocks. He is having trouble finding value stocks right now. Market is becoming expensive and is quite frothy. You have to dig a lot deeper to find long term opportunities. This applies to all markets across the world in developed countries. He is being more prudent and sitting on more cash. He prefers taking his time to find new opportunities. Markets will still go higher if interest rates stay low. China has cracks in their financial system and manufacturing is slowing down. Things could surprise us and cause the market to correct.

Markets. Both US and Canadian economies are growing. Analysts and strategists are readjusting their growth metrics upwards from beyond 2 to maybe 3. Feels weather had hampered a lot of statistics and the US is growing very quickly and we are starting to see a lot of really big numbers. There has been employment growth in the US and he thinks this is going to be the trend because we finally have some visibility on the economy. There is no government shutdown in the US; no European debt crisis; no 2008-2009 crisis. We are finally exhaling completely and the bond market rates are adjusted for that as well. Growth is going to be very good in the next quarter to a year. Believes interest rates are going to creep up from here. It is going to become a “stock pickers” market as opposed to an equity market. You have to be in those right type of mispriced companies and maybe you’ll get a little bit of pop. However, valuations are neither cheap nor expensive so he expects the equity market to move sideways, but will probably trend upwards over the next 6 months.

Non-Canadian bank fixed reset preferreds? It has not been a great environment for fixed resets because everyone piled into them when the market thought rates were going higher when Corporations have the ability to call them. These do very well on rate increases, but do the opposite when rates stay the same or drop. Rates have come down it is not surprising. It is just a matter of when, not if, rates go up.

Markets. He is seeing a rotation out of growth stocks and into value stocks. Growth would be something like Facebook (FB-Q) or Twitter (TWTR-N) where you have lots of revenue growth, but not much earnings and valuations were getting ahead of themselves. Later in cycles, you would see energy, financials and technology being the groups to go to. People are starting to move some, but now we are getting into stock by stock. For example in energy some stocks have moved and have done fairly well and may be getting close to a pull back, but there are still others relatively cheap. Thinks we will go higher for the balance of the year, just not to the same extent.

Natural Gas. We are now in the midst of and the beginning of a multiyear trend with the big build out for liquefied natural gas. LNG being shipped to Asia will take a while to happen, possibly 2018, but there is a build out, so pipelines, infrastructure and gas producers benefit. Natural gas storage is still so low that you will probably have higher prices. A lot of stocks, on a basis of $4.50 MCF, look cheap.

Banks. As a whole, banks have not been doing much for a month and have underperformed the Canadian market by a fairly wide margin year to date, so are now playing catch up a little. They are obviously a source of funds when the market pulls back. You could wait for a further pullback, but if you are a long-term investor, you could go into them now. Rates having retreated back the other way, in theory will squeeze margins a little bit, probably next quarter. But that would argue that the real estate market is still healthy. Thinks there is 5% earnings growth and with a 3.5%-4% yield your total return will be in the high single digits.

Markets. Unemployment is at a recent new low. It is because less people are looking for work, so it is not so good. Part of it is demographics – baby boomers are aging and retiring. This is not going to go away. He was encouraged, though, that more companies are hiring. Weaker Canadian dollar is helping resource companies because commodities are priced in US dollars. Exporters benefit. Companies that have lots of capital buy most machinery from out of the country so it is a negative aspect of a lower Canadian dollar. Consumers find it a negative because so much of what they buy is imported. He continues to expect a market correction.

Markets. Themes have been pretty consistent. Money movements from fixed income to assets with a little more income. He has been moving toward economically sensitive sectors, out of momentum stocks, and looks for long life predictable assets. You want low payout ratios, but increasing dividends. You are going to get profit taking in leadership groups from time to time. But recent softness is more indicative of a pullback in a bull market than a rotation out of the sector. He doesn’t want to go to heavy cyclicals.

Banks. Money flows to where it is treated the best. He owns Royal and Scotia. Financial and energy are the leaders in the market today. Within financials he would choose asset managers and capital markets companies. He likes big US banks like Wells Fargo or BAC-N.

Markets. About every 6 months or so, Standard and Poor release new information that they update semi-annually with regards to the index versus active debate, which is called SPEBA. They recently released the 2013 year-end report which showed that in Canada only 2 out of every 9 actively managed funds beat their benchmark over a five-year period, and in the US and globally, the numbers are more like 1 out of 7. The numbers get worse when you go from one year to 3 years to 5 years. The percentage of funds that beat their benchmark goes down as the time horizon goes up. Therefore, the passive way with broadly diversified, low cost ETFs is the best.

Investing in indexes, would it be wise to wait for a drop? He would not wait, especially if you are the sort of person that puts money in on a regular basis. You don’t know when the market is going to go up, down or sideways.

A conservative balanced portfolio for someone over 65 who has to switch from been RRSP to a RRIF? Age 71 is the age you have to switch. The question is how much risk are you willing to take and how do you define risk. Bonds historically are seen as being the less risky asset, but right now they are paying next to nothing. If we ever have a rate hike, which could be 1 or 2 or 3 years away, you would probably lose money.

Is dollar averaging a way that you build up a portfolio? Different people have different opinions about this. Averaging up will at least minimize your taxes when the time comes to sell in a taxable account. He would try to build a more diversified type of portfolio and look for things that are temporarily down.