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

Going into the election, he was fortunate not to own any manufacturing companies in Canada, Mexico, or China that ship to the US. It's not that he's taking the tariff bluster at full-face value, because Trump 1.0 showed there's a wide gap between say and do. But the team Trump's appointed is squarely in the pro-tariff camp, and aggressive tariffs are likely. So he's not looking at any names that might be a target.

Hard-pressed to go wrong owning any of the Canadian banks over the long term. Very profitable oligopoly, well-managed most of the time. A "needs" business, not "wants".

Total return algorithm is to take the dividend yield plus the dividend growth target (usually in high single digits), which lands you easily in double-digit returns. It's been that way for decades, and that will continue.

Telecoms are debt laden, so skyrocketing yields hurt. Wicked price war amongst Canadian telcos. He's warming up to the space. Pressure from interest rates is easing, with more to come. Pace of deep discounts is starting to abate.

This or That? Intact Financial Corp (IFC) or Chubb (CB):

Both CB and IFC have shown strong price performance over the years, and while CB is a much larger company than IFC, Intact’s market leading position within the Canadian insurance industry supports its premium valuation relative to CB. We like the margin profile of CB relative to IFC, but we feel this leaves room for margin expansion for IFC as it can grow into international segments or even different markets in the future (specialty lines, life insurance, etc.). CB is a much larger and more globally established names, and so for investors looking for safety and some conservatism, we might prefer CB, but for investors seeking a bit more growth potential and an industry-leader, we like the prospects of IFC.
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If you're in the value camp, you want to make sure there's a catalyst to unlock value. He likes companies that grow organically, as that's a huge tailwind for your investment.

The outcome of the US election has been a true catalyst, by providing clarity on how to allocate capital. The incoming administration has been very clear as to which sectors it will support. It's a very good market for fundamental stock-pickers.

The US administration wants to maintain US superiority on a global scale. So they'll have to invest domestically in critical industries such as manufacturing, defense, infrastructure, and cybersecurity.

Really have to make sure you pick the right spots. Companies that are exposed to the US economy, but not as much on the tariff front, stand to benefit tremendously. So you really have to understand a business's fundamentals, US exposure, and whether it qualifies for the Buy American Act.

There's been a broadening of market participation over the last several months. Overall, if you look at small- and mid-cap equities (his specialty) in North America, for example, there are a lot of mispriced securities. Especially on a risk-adjusted basis, there's more clarity with the Republicans controlling the White House, Senate, and House -- a trifecta effect.

Canadian banks have had a good run. At this point, you have to be a bit more careful investing in them as a group. As well, going back to the US election, we'll have to see how some of the US operations are impacted. We saw the big fine imposed on TD.

As a group, he'd be more cautious.

He's probably less bullish than most. 

Stocks are at all-time highs, so valuation is an issue. Most of the move in the last year has been a valuation increase, rather than an earnings increase. He'd rather see earnings support. He's a bit concerned about earnings growth going forward. Double-digit earnings expectations are built in for next year, seems somewhat aggressive to him. Ex-
technology, earnings growth has probably only been about 2-3% overall.

Another things that people are being presumptive on is interest rates and how much support they'll provide for the market. Expectations for cuts have come down. Policy is maybe not as tight as the market is anticipating. He'd probably say now that the neutral rate is higher at 3.4-3.5%, which means a shorter and slower path for the Fed to get there.

Inflation is really getting sticky. Core is in the 2.5-3% range. And given some of the potential policies we're hearing from the new administration, and massive fiscal spending, inflation is more likely to flatten out or start to increase again.

There's a real bifurcated US economy out there, and you can see that with the retailers. The low-end consumer is having difficulty because inflation, especially food inflation, has been a bigger problem for them. The higher-end consumer has done well -- values of their homes and investments have gone higher, and $$ in the bank is now getting 4%. 

Sentiment is very bullishly high, so that's a problem. What's most important to him is the positioning. The average investor has a standard balanced portfolio of 60/40 -- with 30% Canada, 30% US, and 40% bonds. If you haven't done anything in the past year or two, you're way out of line with that and you should be looking at some selling. He doesn't see that happening.

The average equity holding right now in the US is over 70%. It's gone higher, but people haven't taken their profits, and it would make sense to do so. People should be rebalancing periodically. Now is the time to shift things around.

He's been lightening up in areas like bond proxies. If he's less bullish on interest rates, utilities and some of those that have done well may not do as well going forward. Financials and consumer stocks have done well this year, but for him there's a positive feedback loop feeding this. Consumer's bullish and spending a lot, and banks are doing well, in large part because the stock market's going up. 
 
There are a lot of headwinds, and everyone seems bullish. They're positioned too aggressively, and that's a time to be more cautious. He's been through enough bear markets in his life to say that it's a time to lessen your risk profile. At least rebalance, don't be more aggressive than you typically are.

Concerned about semis in general. SMH ETF is down over 12% since July peak, and hasn't recovered the way the rest of tech has. The cycle's rolling over. Semis are the cyclical portion of technology. They do well when demand is exceeding supply, but then supply catches up and prices crash. Margins then come under pressure and growth slows down, so earnings expectations have to come down.

They go through those cycles, and that will never change. Thinks we're near the end of the cycle where demand exceeds supply, except for maybe a few of the AI infrastructure chips.

Nice thing about the sector is that once you get the capital costs out of the way, the operating costs aren't that significant. Input costs of wind and sun are nothing. There are, of course, maintenance costs. They become very strong cashflow generators, which will come back to shareholders.

You have your high-impact and growth-oriented portion for trading. Other areas where you have good value, but you need to patient as it works out. Some Canadian energy stocks fit the value bill very well right now.

Normally, yes. You get the Santa Clause rally and the late-year seasonals. Typically, they're magnified when you have a substantial amount of weakness in September/October, which we didn't see this year. He expects the performance to be somewhat muted.