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

If we get tariffs, US dollar will be stronger. If we don't get tariffs, or they're less aggressive or fewer, USD will be weaker. The USD vs. the euro under Trump might get down to $1.02-1.04, from the current $1.09. Under Harris, who is a bit less hawkish in terms of tariffs, we might see it at $1.12-1.14. This is all in the context of the next 6-12 months.

The dollar will move, and that's one of the trades. We saw a stronger dollar, but it's weakened over the last 48 hours.

Simple answer is whether your account is taxable or not. If in a registered account, then the tax treatment doesn't matter whether the dividends come internationally or not. 
 
Some of the best dividend payers are here in Canada, where you have exposure to banks, lifecos, and energy names. Put those in your non-registered account. He'd argue why are you investing for dividends in a registered account? There, you should invest for growth because of the tax treatment.

Internationally, you have foreign withholding tax without the superior tax treatment given to Canadian dividends. When investing internationally, his preference is to seek dividends in a tax-efficient way, and he likes the covered call overlay strategy. The covered call tax treatment is by way of capital gain, so you get a more efficient income internationally. 

BMO has the biggest suite of covered call strategies around the world. There's ZWP and ZWE as a way to play European markets, and he loves both (though ZWE is the way to play at the current time). For US high-dividend covered-call strategies, ZWS or ZWH are really good (one hedged, one not).

Lots of uncertainty: geopolitical, debt, US election, and on it goes. So, what do you do about it? The answer is to make sure your portfolio is robust. So no matter the outcome or how much uncertainty, your portfolio and retirement savings are geared to long-term goals. Far too many people focus on the noise in the market, taking their eyes off proper portfolio construction.

The debt picture is catastrophic. The fiscal path of US politics has to change, but there's no political will to do it. It won't get better anytime soon, no matter what the party makeup of the White House or Congress. Best outcome for the market is a split, or gridlock, in terms of cost of capital and what that might mean for the deficit. The deficit's really important.

The message for today is to not worry about the noise and uncertainty. Impossible to forecast. 

The CPP really does a great job for Canadians. The CPP portfolio was all government bonds in the late 1990s. As interest rates fell, and they knew they couldn't meet the needs of Canadians, they took action by investing in all other kinds of assets like private equity. All the growth is coming from small companies that aren't listed on any exchange.

The average investor needs to think about structuring portfolios for the long term by looking into private markets and other alternatives, to help smooth the ride. This way, you don't have to be nervous about the outcome of an election or some other uncertainty.

Some have criticized CPP for not investing more in Canada, currently only ~12% of its portfolio is here. But Canada is only about 3% of the world's economy. He'd argue 12% is probably too high given what Canada has to offer for investing. If you're investing for the best possible return, you must think globally and be diversified. Use asset classes geared for the long run, not for the uncertainty of tomorrow.

Should it always be in your portfolio? No. But it's another type of asset class that can help hedge inflation.

Company Highlight: Payfare (PAY.TO)

Payfare (PAY.TO) is a Canadian fintech company that provides earned wage access (EWA) to gig economy workers. A gig economy worker is a contractor, freelancer, or flexible/temporary employee (Ex. food delivery driver and Uber drivers). Through PAY’s digital banking platform, it helps these workers get instant access to their money. Earnings are paid out instantly through a free digital bank account powered by PAY. This was a very strong value add where the traditional direct deposit system would take a few days for money to reach these workers accounts, and for many gig-employees that delay would be troublesome (Ex. Uber drivers needing to pay gas expenses after a day of rides). The business model made plenty of sense and PAY had contracts with blue-chip customers and the biggest employers of gig-workers including Uber, DoorDash, and Lyft.
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Was today's market a dry run for a Harris victory? Doesn't know, but it could be days or weeks before know who wins the election. Yields went down today, instead of up which is expected if the Democrats win. But they went down probably because of a bet in interest rates going lower if Harris wins. Surprising. Neither platform will be good for the deficit, but the consensus is that Trump's will be worse, give his proposed tax cuts and many tariffs.

Believes recent earnings season in the USA is pointing towards a strong economy. 1) Price Stability and 2) Full Employment appears to have come to fruition. Inflation and wage growth does not appear to be a problem. Overall, the markets appear strong, with a firm base for continued economic strength. Upcoming US election will be interesting to watch, but doesn't think it will affect strong companies with durable competitive advantages, and strong economic attributes.  

Insights on Dividend Investing:

1.   Do not just own one name: 
The question of “if you had to own one” is an interesting mental exercise that investors can practice, the idea is to evaluate all the opportunities by taking into account opportunity costs and picking out the best of them. That being said, investors should not own just ONE thing, it is way too risky for most investors to bet heavily on one horse.

2.   Dividend growth rate or dividend yield?
Investors are easily attracted to the high dividend yield. Sometimes, investors make investing decisions based on that fact alone. It is understandable, however, that sometimes the dividend yield is just the tip of the iceberg, and investors need to dig deeper to understand whether the dividend yield is sustainable. The rule of thumb is to own a name with a high dividend growth rate supported by growing fundamentals, not just a high yield alone.

3.   Focus on the micro, not the macro: 
It is a common mistake for investors to position the portfolio based on certain macro expectations such as inflation, election, interest rates, etc. These things are highly unpredictable and short-term in nature. It is rare to find investors who are consistently right on macro factors. We think it is better to concentrate resources on something investors do know and can control, which is companies’ fundamentals.
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The Fed meets on Thursday and needs to cut rates again. Several companies indicate that we have a real economic slowdown.

Finally at the precipice. The Fed and BOC have both cut interest rates. Research shows that from the beginning of the Fed's easing cycle real estate stocks, on average, outperform -- up 20% over 2 years, up 30% over 3 years. Couple that with the publicly traded real estate sector being the most underweighted in history. Though you have to look at each sub-sector, it's a pretty compelling setup on fundamentals for both sides of the border.

On the leasing and operations side, ever since interest rates went higher, there's been a slowdown in decision-making by tenants for office space, industrial warehousing, and the like. CFOs were not keen to put more capital to work when they didn't really know what their cost of capital would be. Today, it's a lot easier to make that decision.

On the other side of the balance sheet, the liability side, rates coming down makes it cheaper to access capital. Availability of credit has improved, and transactions should pick up. Public markets overly discounted what would happen to property prices when rates went higher. There should be a catchup trade, and that's begun.

Clear that people are using their office space differently. Also clear that the office is necessary. His firm is in the office 5 days a week. Some companies have mandated a return, others have been slower. As well, there's been new supply. 

So demand is challenged, yet tenants have more choice than ever. That's the biggest question mark. Some markets favour landlords (such as Manhattan), but Toronto is not one of them.

So far, so good. We'll see once the other of the Big 7 names report. GOOG got things rolling nicely last night. Broadly, 250-260 of the S&P 500 constituents have reported Q3 earnings. We're seeing earnings on average up high single digits, pretty good all things considered. By and large, companies are reporting better than expected results.

Canada is still in early days, with only 10% of TSX constituents having reported. But early results are showing a more difficult earnings comparison. Canadian companies, in aggregate, are lagging US counterparts this season.

Both candidates are running broadly similar campaign platforms from an economic standpoint, very fiscally undisciplined. From a stock market and corporate earnings perspective, that's going to be pro-growth if they run big deficits and stimulate the economy with fiscal policy. Good for growth, albeit at the expense of long-run, fiscal sustainability. A kick-the-can-down-the-road approach. 

Medium term implication probably that inflation will be higher than it was, as well as interest rates. After the election, expects a lot of anxiety to dissipate. There's a lot of speculative positioning in the options market with people putting on hedges.

The election will come and go, hopefully peacefully and quickly. And then we get into a seasonally strong period in December, which should sustain the very strong rally we've had so far in stocks through to the end of the year.