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

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.

In mutual funds, what is the difference between the ones banks offer and other options? There is not a big difference in the pricing of the bank products versus the others. He would recommend that instead of a mutual fund, you find a good index fund.

Difference between iShares MSCI EAFE IMI Ind (XEF-T) and iShares MSCI EAFE (Cad Hedged) (XIN-T)? They are both EAFE so both are tracking Europe, Asia and the Far East. XIN is currency hedged and XEF is not. Both are excellent products. (See Top Picks.)

Oil and gas ETF or own the stocks? He generally does not like the oil and gas sector right now so wouldn’t want to recommend any of them. Feels oil has seen better days and we are now range bound at around $90 a barrel. However, he does like energy infrastructure.

Markets. Looking for Short, Sharp and Shallow pullbacks to continue in the US market during 2014. Markets are relatively fairly valued. Competitive asset classes aren’t that compelling. Also, people have seen a Bull Market for the last 5 years so they want opportunities to move in. When they see the market correct back 4%, 5%, 6%, they start to think about entering and that keeps the correction contained. While we are rewarded when markets do well, we have to understand that uncomfortable parts of the market are part of the market. To react in those uncomfortable parts of the market, the worst thing is to think they are not going to occur, which would just set you up to be hurt. As we see the cycle getting a little old, earnings growth is going to be a little more subdued which we are seeing coming into 2014. At the beginning of the quarter, the market was expecting a 4% growth in 1^st quarter earnings over last year. By the time we got into the quarter, it had actually gone negative. Often people guide down and then the market outperforms and surprises on the upside. Expects we will end up with a 2% growth year-over-year of earnings in the 1^st quarter, but there is an opportunity for that to increase as the year goes by, pretty much on the back of revenue growth which seems to be increasing by a little bit more.

Markets. We have seen outperformance in Toronto versus the S&P 500 and he thinks this will continue. The S&P outperformed the TSX for over 2 years up to last summer and we had been outperforming it since then. There has been recovery in the energy sector and the banks, starting in the early part of last year, started to perform a lot better. Also, infrastructure type companies in energy have done very well. Expects this outperformance to continue for the balance of the year. Certainly the decline in the Cdn$ will also give quite a boost to many Canadian companies. We could have a short-term correction this summer, but looking for a strong finish for the end of the year.