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

High-yield bonds. These have a pretty decent correlation with stocks. When stocks are doing better like today's US market, usually credit spreads are tightening for high-yield bonds. The spread today, in the US, is in excess of 8% so you are getting yields of between 9% and 10% versus less than 1% for a 5 year government bond. Cdn high-yield bonds are very sparse, so in general they trade with US bonds but depends on a bond by bond basis.

Pipelines have been the “go to” names for investors that have been flying to safety. As volatility continues in Europe, questions about Asia and continuing questions about North America pipelines have gone to sky-high valuations. If interest rates go back up and there is a pickup in economic activity, he would expect to see a general softness for the pipelines.

Are REITs cyclical and do they get a pop this time of the year? They are cyclical to the degree, especially when during a downward economic environment a lot more vacancy. With no inflation fears, low mortgage reinvestment rates plus high occupancy levels Canada has pretty well skated through with no cyclical side effects. REITs such as Riocan (REI.UN-T), H&R (HR.UN-T), Canadian REI (REF.UN-T) and Dundee (D.UN-T) are very good value here.

Fees: A Morning Star Employee did Research on fees that has shown that when you look at mutual funds you do better by choosing the cheapest funds blindly. 58% of the time the lower cost funds perform better than the higher cost funds.

Wealth Management Company: Cost matters in both products and fees. When you interview, interview the individual you will be assigned to. You should have someone of like mind. Ask them about their trading philosophy.

At what point do you let a stock go (small caps)? It is case by case. A lot of people sell ‘A’ to buy ‘B’ only have ‘A’ do better the following year. If you liked it when you bought it and nothing has changed, then you should consider holding it even if the price has gone down.

Investing Approach: Be broadly diversified, tax effective, cost effective, and with products you don’t have to trade very much. He is research-based. Rigorous research and academic proof.

REITs: are going to be a lot more volatile that GIC will be but the yield will be higher. With Real Estate there is always the chance of the underlying asset dropping. Some think Real Estate is due for a correction. Would not go totally into REITs. Moving some from GICs into REITs would be defensible.

TFSAs and Tax Loss Selling: It doesn’t apply. You can’t take advantage of a capital loss inside a TFSA, but there is also no tax on gains.

Insured Annuity: is wise. Not a lot of people use them. You buy both an annuity and an insurance policy and the annuity pays the insurance premiums. The insurance proceeds are there for the beneficiary if you pass away.

Wrap ETF: ETF that gets you exposure to Canadian, US, dividends, bonds. Likes it for accounts like a TFSA where you can only put in a small amount of money anyway. Otherwise you are better to use a handful of ETFs.

High Yield Bond ETFs: High Yielding bonds are yielding quite well right now and you don’t worry have to worry too much about credit quality, at least he isn’t. You might get a pickup of 2-3% by moving down the credit ladder as long as your risk tolerance can handle it. It is similar to preferred stocks. Doesn’t like credit quality below triple B.

2012 Prediction. TSX has to go up because bonds are so unattractive at current yields and dividends on the TSX are so compelling at this level that he can see it going to 14,000. Similar story in the US. The US 10 year treasuries are close to 1.5%, which is the lowest since the Great Depression. Europe is not going to be solved. It will be a long, slow struggle because of the tremendous depth of structural problems.

Markets. Going into this year, his perception was that the markets were a little bit ahead of fundamentals. We have now seen the correction but have also seen the problems begin to build, whether they wear the European problems or the political intransigence that we have seen in the US. Those problems are going to continue to follow us through into 2012. This is created a lot of volatility in the market and it has been hard to make money. For a longer term focus, it has been a relatively good time to upgrade the quality of the holdings in your portfolio.

Gold. He tends to invest through producers rather than bullion. Even as a value investor, he feels there is a good place for gold as a bit of a hedge in your portfolio. He would keep 5% to 10% at most. Longer term, there is room for the gold price to move up again.