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

There are some good and proper times to panic, and he's not sure that today is one of them. If the tariffs had been less robust than feared, the markets would be on a tear the other way. Right now, he has a reasonable amount of cash (between 20-40%) in portfolios.

If you're adding to your portfolio on a regular basis, either by investing cash that's stored up or by regular contributions, these correction days are actually really helpful. These days provide excellent buying opportunities, even if markets go down further tomorrow. 

For stocks that you'd always wanted to get in on, today's not a half bad day to start. If you have $10k to invest, invest $2k today. It'll be easier to make the next decision tomorrow if you started with a smaller one today. If the market goes down, at least you have $8k left; if the market goes up, thank goodness you started to buy.

Yes. They didn't stop paying dividends even during the 2008 financial crisis. Except for MFC, all financial services companies also kept their dividends. At the best of times, it's a severe, career-interrupting move to cancel a dividend. For a Canadian bank, it would be catastrophic. 

Some are stronger than others. RY is the 800-pound gorilla that all the others are chasing. TD has had its issues in the US; but you'll notice it's up from the time US sanctions were imposed. All are resilient, a fiercely protected species.

If there's one thing the market doesn't like, it's uncertainty. And we've definitely seen that this year, a bit of a rollercoaster. Doesn't know why the market's up right now. Market's looking for some clarity, as she and everyone else are. 

You want to be able to digest the news and then take it from there. Have to assess the repercussions on Canadian, US, and global markets.

Probably, but the US administration has also said that there's room for negotiation. We've already seen it before, where tariffs have been stated, then reneged on, then postponed. We're all tired of trying to figure out what the implications are.

All we can do is our best in trying to formulate a portfolio that's resilient in any kind of tariff situation. Rather than what amount the tariffs are, the more important question is how long they remain in place.

Automotive and transportation for sure. Consumer discretionary. These are all sectors that her firm didn't have much exposure in to start with, and not because of tariffs. Their portfolios have always been more defensive, shying away from cyclicality. 

She likes a consistent dividend stream. As a result, their client portfolios are focused on utilities, pipelines, telcos, and the like. As it turns out, those sectors aren't prone to tariffs. So their portfolios have been performing really well as people make the flight to safety. Her firm has always liked the flight to safety, it's just that it's more popular now than it was last year.

Yes. They recommended this course of action last year when there was the huge risk-on sentiment related to AI. They were buying defensive names at cheaper prices. Now those defensive names are trading a little more expensively, as money has flown out of the risky stocks and into safe havens. As well, money's come out of the US and into areas such as Canada, which is where her firm has always been.

Still, those defensive names have resilience and can outperform in any kind of market environment. Especially as we're going into a period of potential economic weakness and more volatility.

Oligopolies, good businesses for the long term. But a lot of the growth seen over the last 10 years is behind them. There's been lots of consolidation in the space. Economic growth is a bit uncertain in Canada right now, in addition to the impact tariffs. Have to consider how each one manages with cost-cutting to increase margins.

Take a look at RY and TD.

Lots of Canadian names are exposed to the US. That tariffs on energy were initially announced at 10%, and not 25%, goes to show how much the US depends on Canadian oil & gas. Working to export gas to Asian markets, which would alleviate some of the risk.

The move in the CAD since tariffs were announced alleviates the impact of the 10% tariff. She's still confident on the Canadian oil and gas sector, despite the risk of tariffs.

Welcome to the world of dividends! She invests in dividends for clients at any stage of investing, but understands the extra motivation for dividends and stability as a person inches toward retirement. 

Last year, they were earning 4.8% on client funds invested in money market funds. This let them have the patience to ease into the market. Seeing more volatility in markets this year, which is good if you're seeking to deploy some cash. The yield on cash has come down significantly in the past year, especially in Canada with the BOC dropping rates. It's now only ~2.5%, and that's not enough to live on. So you're more attracted to investing in high-dividend-earning stocks.

Could we see more volatility in the market? Absolutely. She'd probably get 1/3 in now, and wait and see. On days when the market's taking a beating, buy more. And do it selectively. The pipeline space, for example, is still giving you about a 6% dividend yield. A name like Telus is also one to consider. Still some good opportunities for yield, without the crazy valuations. Selling some of those high-flying tech names at 30-50x PE and buying a utility at 20x PE, doesn't seem so expensive on a relative basis.

Fund Performance Metrics: Benchmark Holdings

Benchmark Holdings indicates the overlap between the portfolio holdings and the benchmark set for the portfolio. The ‘active’ measure in the third column measures the percentage of the portfolio, as position weight, that differs from the benchmark index. It is a metric quantifying the level of active management within a portfolio. While this metric might not give a whole lot to an investor, investors allocating to investments with a higher portion of ‘active’ holdings typically expect a differentiated return profile relative to a passive or a benchmark-driven portfolio.
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Trump's reciprocal tariffs are meant to level the playing yield with other countries, but many didn't expect them to be this high, more like punitive than reciprocal. He imposed a 10% baseline tariff on many countries, China 34%, EU 20%, He's an equal-opportunity hater, not caring how these countries react because he feels those countries don't buy much American stuff anyway. So, the countries or the people selling those products will eat the tariff. Companies will make less money. Foreign ones subsidized by their companies won't make any. Companies like Nike and Apple who sell in China will be hurt. By hurting China's trading partners to hurt Japan, like Japan, Germany and Korea, of course we are hurting those countries, too. In America, tariffs will result in much higher prices for consumers. Trump doesn't care--he sees bigger issues beyond price hikes. Trump doesn't care about the stock market this time around (vs. 2018), doesn't care if the S&P falls 10%.

A chart of options expirations and the cost of options on these days in the past week. Those on Thursday and Friday this week (post-tariff announcements) are very expensive like 36-28%.  But next week Friday it's 20.79%, a huge drop which means the market expects a lot of volatility the next few days, but will be over by Monday. Another chart: the VIX 9 Day (9 days out) vs. VIX (30 days out) shows the VIX 9 trading much higher than the regular VIX, which is rare. This also shows more volatility in coming days than later. Tomorrow could see a 1.6% swing and Friday a 2.1% move either way, and -3% in the next two days possibly. But after that, we should be in the clear.

Someone who really understands the value of a security can really find a lot of bargains on days like these. You can make a case that the overall market is expensive. But at the same time, some of the individual securities underneath are at panic-level pricing, even high-quality ones.

There's been quite a selloff already. Some stocks are down 20, 30, even 40%. Even if you apply the worst-case scenario on the tariff front, many securities are at very attractive buying levels at this time.

Every day in Canada you hear about tariffs, and the concern is well warranted. Businesses and stocks will be impacted. As well, consumer confidence and business confidence are at all-time lows. 

At the same time, some stocks are not impacted by tariffs at all. The underlying businesses are doing really well and the business prospects are good. Yet they've been caught in the fund-flow dynamics, where nobody wants to invest in Canada. At some point, that will reverse in the opposite direction.

So it's a really good time to buy those securities.

Based on all the geopolitical and economic news, at some point fatigue settles in. Usually takes several months to do that. Eventually, investors will be able to dissect securities based on whether or not they're impacted by tariffs and by how much. 

Even if the news flow changes from the White House on a daily basis, big money managers will have picked their spots to buy Canadian stocks, and the fund flow dynamics will become increasingly positive. He likes to focus on investments that aren't impacted by things outside his control, like tariffs.