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

Exactly. We're leaving 2024 the same way it's been for most of the year. Canadian economic environment still tepid. The US has a pretty robust economic scenario for 2025 at least.

Canada underperforming the States explains our more aggressive monetary shifting than the Fed. That story will remain in place for at least the first part of 2025. And we're now layering in uncertainty surrounding tariffs and other policies coming out of Washington.

May be a little rich, but he wouldn't go so far as to say that everything is uber-expensive right now. There are pockets of value within the US market. 

Even in the tech sector with stocks like NVDA, most people would say it's extremely expensive given its run in 2024. If you think we're going to have continued growth in 2025, tax cuts and easier regulations, those stocks probably aren't as expensive as people think.

They can. Looking at the performance for 2024, a lot of large-cap names have not done well yet we still see continued strength. If the outlook for energy next year remains solid, the TSX can continue to move higher. If you still think gold has some room to go, that's going to be favourable. If financials can get more coordinated in terms of continued growth, that'll be good.

We can do better, but we're still facing down this uncertainty on tariffs. That could derail a lot of the momentum we have right now.

He's been favouring US stocks all through the year, and he's continuing to move that way heading into 2025. At least for the first year. Beyond 2025, if we see tariffs or US policies that are potentially destabilizing to the US outlook, then he'll rethink that strategy.

But right now, makes sense to tilt your portfolio more to the US and less in Canada.

If the fundamentals look solid going forward, don't worry too much about trying to time the entry.

He's using CDRs more extensively in his portfolio, as he likes the hedged nature of the investment. This aligns with his view that we're trading close to the lows on the CAD, and going forward he wants to protect that currency exposure. They're also liquid, and you can buy them in Toronto.

Remember that you're going to be paid dividends and there will be withholding tax, as they aren't Canadian-company dividends. From an estate perspective, these are counted as US-side assets.

Spinoffs come in all varieties. They can be to private equity companies or public. Or the parent company can still retain ownership. In each situation, you have to reach out to the investor relations department to find out what's going to happen as a shareholder vis-a-vis the spun-off company. Tax treatment is a question to ask about. If you're a shareholder, that department is required to reply to your questions. Also consider consulting with your financial adviser.

All this is over and above whether you think the spinoff is actually going to work to extract value. Are the fundamentals or valuation better than the parent? 

Looking at energy demand right now, it's unfathomable that we're going to meet that demand through solar and wind. You can't flip the switch on coal production to something cleaner without looking at nat gas. You can bring nuclear into the conversation as well. 

But nat gas and LNG is where we're going to see most of the pickup in demand in 2025 and going into 2026.

Hopefully, not too old fashioned. He's a fundamental, bottom-up stock picker. Purposely tries to be different from the main indices in Canada. He has an all-cap strategy -- so small, mid-caps, and large. Very different industry weightings than the TSX. Tends not to invest in oil/gas, mining, or resource sectors. Keeps fairly low weightings in the banks, though he likes them.

All so he and his team can offer something different, which they've been doing for 18 years. They've beat the TSX over that time, with an annual compound rate of return of over 10%. The TSX has been just over 7%.

His other specialty is Canadian corporate bonds in fixed income. Very credit-driven. Has also trounced the bond index, with an annual compound rate of almost 6.5%, compared to the bond index at just over 3%.

AUM are just over $300M, and he has 3 funds.

Declining inflation, which encourages central banks to cut rates. Yet still a growing economy and very strong employment numbers. Putting that all together is like rocket fuel for bonds, and for the stock market. Market breadth has widened beyond the Mag 7 to other sectors.

Very cautious on anything driven by the consumer. Consumer in Canada has really slowed down, unemployment is ticking up. 

Talk of tariffs by Trump is more bark than bite; last time he was elected, not much happened. Trump is certainly going after cheap exports from China. That said, his firm's equity portfolio in Canada is fairly immune to any tariffs -- not much exposure to exporters or resources. Most of the businesses are domestic or have manufacturing within the US, or they sell goods exempt from tariffs (such as FDA-approved products). Lots of his investments are in service companies, such as IT or engineering. 

Cash hoards in money market funds are going to come out, go into stocks and bonds. Corporate bonds still have some very attractive yields, with the average in his fund being 5.4% -- still well above inflation even on an after-tax basis. Preferred shares have also been on a rip the last 2 years.

Money will find its way to Canadian stocks. The loonie is quite washed out. The additional 50 bps rate cut today didn't cause the forex rate to move, so it was already baked in. Loonie's basing here, and US stocks are expensive. Better value in Canada, US stocks have been quite frothy. Every country has been in a funk except the US, so money should move into more reasonably priced markets.

Yes, lower rates do encourage home buying and investments in real estate. So the sector should perk up, but it won't be as liquid as stocks and not for everybody.

He doesn't own any REITs. Many have external management, which he doesn't like. At different times, he has been in and out of CAR.UN and BEI.UN. Sees better value elsewhere, you have to pick your spots, and it's really a question of timing. They can be a great trade, as they got crushed when rates were rising.

The Santa Claus rally is a reliable pattern, but doesn't mean stocks will rally for ALL of December. Last December, the S&P went straight up, but the VIX bottomed on Dec. 12--a sign of rising fear--which led to the S&P selling on Dec. 20 after the VIX climbed. In 2022, the VIX bottomed on Dec. 2 right after the S&P peaked, then the S&P headed down for the rest of the month. For 2024, the VIX has not been sending any warning signals--when the S&P goes up, the VIX goes down. The big exception are the weeks leading up to the election, Oct-Nov, when the S&P went sideways and the VIX remained sideways too. Very unusual. In the past month, the S&P climbed higher while the VIX tanked--a bull market. But the VIX bottomed on Dec. 6 and has since bounced. Sebastian though sees no red flags in the chart (yet), BUT the S&P is sitting beneath its all-time highs while the VIX is up nearly a point since Friday. Today, the S&P erased Monday-Tuesday's losses, but the VIX has not erased its gains, because banks and hedge funds are buying options to protect against volatility--the big boys are getting nervous. If this patterns endure tomorrow, we might be at the start of the VIX and the S&P move in unison, and this usually mean the S&P is headed for a serious sell-off. This could follow Dec. 2023's pattern of roaring a week before Xmas, pulled back hard, then rallied through Xmas and New Year's. Bottom line: the Santa Claus Rally is never guaranteed so don't be complacent.