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

Markets. Canadian market has been moving up over the last couple of months, better than the US for the 1^st time in 1.5 years. Energy is cheap and all oil needs to do is go sideways or down a little from here and there will be good earnings, which will help our market. In financials, we have seen banks already do well and raise dividends. Materials is the one that drags us down lately. He is quite underweight materials and thinks he will stay there for a while. On interest rates, he expects we will see a mild taper, probably $10 billion as opposed to the $20 billion previously suggested. In certain sectors, we might see a relief rally after next week when we know that it is no worse than we think it is.

Gold. Sees this as weak but would see $1400-1450 in 12 months. A little bit higher from here but not $1600-$1700. As long as the economy is okay, there is not much reason for gold to go way higher.

Markets - US. He made most of his US investments about 2-3 years ago. What surprises him is why money is flying to it for 1% growth. There is some fiscal tapering and the banks are going to recover, but still it is only 1% growth. He finds it quite expensive relative to other opportunities globally. Since he is a value investor, he has to look to areas which the market does not like. Asia is selling off so this is a place where he would probably deploy more capital. Europe is a market that is sort of running up, but when you look at negative growth outlook, fiscal austerity and high unemployment, he is not excited about this. When Latin America bottoms, it might be a good place to look too.

Is the Euro going to gain strength or lose? At 1.20 he thought it was very, very low and needed to move higher. You have a very prosperous $380 million population and he thinks it will move higher. The 1.50 relative to the Cdn$ is a little high. He doesn’t see a drop below the 1.20. Fairly valued right now.

US banks? The macro in the US is recovering. You have job creation and you have businesses starting. He has a good outlook on US banks. Very good place to be.

Markets. Syria is creating a lot of uncertainty in the market and the market does not like uncertainty, so we are seeing a bit of a pull back. This is somewhat masking that we are seeing a bit of a global recovery. If this continues to improve, this will be positive for Canada for energy and our metals.

Markets. There is a lot of focus on emerging markets. He looks at the foreign currency indexes. He is starting to see a bit of stability after a sell off. He is still looking for a modest correction over the next month or so. DXJ-N is an ETF in US$ to play Japan. PEK-N is a proxy for the mainland China market. VWO is a way to play emerging markets also. EWY is a great way to play South Korea, but normally when Japan does well, Korea does not.

Educational Segment. Two weeks ago he launched a Sleep at Night Portfolio. The covered call ETF (ZWB) on the banks did very well but banks are overbought so we could trade it out at this point. Overall, he had a yield of 0.06% and beta of 0.48. So he replaces the banks with preferred stocks. He added PFF-N and GLD-N. By reducing financials and increasing preferreds he reduced beta. Results over last two weeks:

Markets. Non-Financial and Non-Resource N.A. equities are today’s topic. We had a very large run in the US since 2009. A lot has been a lack of alternatives. The Fed squeezed you out of bonds, so money flowed back to equities. After 2008's experience, people may move back to bonds for only 3%. He thinks the money flows into equities are gone and now companies are on their own. He always does bottom up. He is worried that the economy may not be as strong as people think based on fast earnings in big blue chips.

Canadian Dollar. In the short term the Canadian Dollar will not do as well against the US with oil at $110, but he is bearish on oil long term. It won’t go back to par, however.

Mutual Funds. Every year, Standard & Poor’s put out a report that compares actively managed mutual funds against their benchmarks to see how they’ve done over different time frames. Results for year-end of 2012 showed that in the Canadian category 41% beat their benchmark, over 3 years the number is 15.39%, and over 5 years it is 9.84%. In the US, over one year, only 12.31% beat their benchmark, over 3 years, it is 4.22%, and over 5 years, 4.55%. Internationally one year is 14.71%, 3 years is 5% and over 5 years is “no one”. So odds for beating a benchmark for an active manager are low to begin with and then diminish over time. You should be looking for investments that are broadly diversified, cost-effective and tax effective. Either an asset class fund or an index fund, but not an actively managed one. Other than that you could use Exchange Traded Funds (ETF).

On a TFSA, if a person has deposited $25,000 and now has a profit of $5000 and they take out $5000 how much could be contributed next year? Whatever you take out, whether it’s $5000 or $30,000, you have to wait until the following year before you can put that money back, but the following year, January 2014, you’ll get an additional $5500 of room. That is, you can put back what you took out plus $5500 in 2014.

Interest rates. Rates have nowhere to go but up. Has moved almost 85%-90% of his interest rate sensitive products out of bonds, bond funds and bond ETFs and into equity linked GICs. He thinks this summer, around June, we hit the absolute point where rates are not going back up and the 30 year bull market in interest rate sensitive products is over. We are now at a point where short-term rates haven’t moved yet, longer rates are already up and mortgage rates are coming up and have been for the past few months. That is likely to continue for the next 3 years, and maybe 5 years.

Caller has RRSPs and some grandchildren’s RESP’s held in bank held mutual funds with 2%-2.5% MER’s. Is there a mechanism that he can transfer mutual funds to low MER ETFs in a brokerage account? 1^st of all, whenever you transfer one product line fund to another product line in an RRSP or TFSA there are no tax implications whatsoever. However, the funds should not be withdrawn as that will trigger taxable implications, so this should be a straightforward transfer, not a withdrawal.

When mutual funds pay out distributions and highlight them as “return of capital”, what are the tax ramifications? A “return of capital” is tax-free. They are just giving you your own money back.