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

Educational Segment. Smart Indexing or Smart Beta. New improved ETFs. Alphadex is a proprietary stock screening process. Growth and value factors. They eliminate the bottom quarter of the list and break the rest into quintiles to be weighted differently. They beat their benchmark over 5 years.

Markets. Markets are fairly valued with pockets over and pockets undervalued. He selects those that are undervalued. He would be buying on any type of selloff in the market. He buys 20-25 stocks.

Rotation out of Growth and into Value stocks? He focuses on value plays. He doesn’t think it is changing in the markets.

Banks or Insurance Companies. He is in insurance more than banks. He does own SLF-T. He is also looking at AIG. The banks will be fine long term.

Markets. S&P 500 and Dow made new records today, but it doesn’t feel that good in terms of the market because, if you are in the tech stocks, you would have done really well earlier in the year, but there were some pretty big corrections in the last few weeks. Same thing with health care and energy. This is going to be a market where money is going to be going around chasing the area that hasn’t moved as much. There might have been a difference between the big cap, the mid-cap and small cap as well. Has been pretty aggressive in the market over the last 4 months and started pulling back a little bit ahead of the correction, but perhaps should’ve done more. Feels the market will perform well overall into the year end. What is challenging is that a lot of stocks have run pretty hard and are getting expensive. Transition is difficult and he thinks the market will broaden out into the end of the year.

Markets. He looks at stocks rather than indexes, because an index can mislead you. We’ve had a tremendous run-up in energy and a lot of the TSX is made up of energy stocks which makes the index go up, but that doesn’t mean that every stock is overvalued. There is no sign in the Canadian economy of overheating. If anything, it is quite the contrary. Today there was a jobs report that was frankly depressing. Economists had expected a modest increase, but we had -29,000 in jobs, mostly full-time which erased the gains we had made last month. There are no signs in Canada of inflation or shortage of employees. Instead we hear of companies leaving town. There is no incentive for the Bank of Canada to tighten things up. This recovery has been much slower and much more prolonged than anybody expected. It is only this month that the number of people employed in the US got back to the number that it was in July 2008.

Markets. Congratulations to anyone who took the seasonal approach this year. If you bought the market this year in October and held until now, you realized 9% plus dividends as a return. We are going into a period of volatility. He is now 10% invested in the market. The economically sensitive sectors are giving technical sell signals. Earlier this week mines and metals gave sell signals. Energy sector yesterday had a breakdown on the 20 day moving average. These sectors are most vulnerable to a correction. He is in XLP, consumer staples. This is the time of year that bond prices tend to do well. There are opportunities in the summer time to buy on weakness.

Gold stocks are strong mid-July until beginning of October and end of Feb until mid-May. Gold has been basing out here. It doesn’t look like that second period is going to be a good trade so go with the first.

REITs. Usually do well in the summer time. This year they have been hitting new highs. This is a sector you want to own and to add to going forward. IYR-N is an example in the US and XRE-T in Canada for ETFs.

The Nasdaq is strong October to January and mid-April until mid-July. This year it seems to be bottoming, but relative to the S&P not so good yet good relative to the 20 day moving average. The trend is not that good, so it is iffy as to whether the trade will work this summer.

Pipelines are sensitive to the energy sector which peaks this time of year.

Nat Gas. We had some strange things happen in Nat Gas in the last couple of weeks. It is caught in a range. The best period of seasonal strength is from Oct until Dec as well as around this time of year. It is not a clear picture right now. Trend is up, below 20 day moving average and neutral compared to TSX. You may want to look at it as we get into the fall.

90 day Gov’t of Canada bond. Watch gold and gold equities and after 90 days go with the better of the two, or look at energy or health, utilities or consumer staples. He wants to be prepared.

5 month Gov’t of Canada bond. You want to avoid the volatility until October.

Markets. There is a lot going on in the world like geopolitical risks. Investors are thinking it is time to shift back onto value. It is too early to give up on growth. You want companies that are growing 20 or 30 percent. But when you see a selloff, you should not panic and become emotional. If a company’s growth rate is sustainable, well managed and has a competitive advantage, then it may be okay at a high multiple. There is a peak of M&A activity. Managers are more confident that before. A lot of companies realize they will not get this opportunity for the next 5 years. Disclosure: The guest has no interest in any of the companies he will discuss.