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

Peak of earnings season this week - earnings  are tracking higher than consensus (concentrated in large tech names). Geopolitical risk, and interest rates main concern for falling markets last week. Rising cost of money (potentially) is concerning for investors. Without "Mag 7" names - not much earnings growth in markets. Energy companies performing well, but broader markets not as strong. 

Believes market entering into correction territory. Investors should look to old market "highs" to see previous support levels. 4800 price seems to be the previous level which the market was at. Trend lines also important for investors to study in order to determine where S&P 500 may find support. If US Fed decides not to cut interest rates, markets could fall below 4800. Would recommend buying around the 4500-4800 S&P 500 price level. If US Treasury decides to fund debt payments with debt instruments, bank stocks will sell off. A lot of market directions will depend on US Fed actions. Catastrophic fiscal position (large amounts of debt) a major concern. 

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We're just weeks away from Trans Mountain opening and bringing Canadian oil to the BC coast.  This is very important. The difference between WTI oil and other benchmarks has been shrinking and will continue to. There's a lot of free cash flow among Canadian energy stocks, which won't rely on oil prices rising to remain strong. Cash flows and share buybacks will increase in the future. A weak loonie helps Canadian companies, and many of these will hit their debt targets this year. Nat gas: a warm winter means high supplies, but nat gas shares have been climbing on the buildout of the LNG pipeline which will start operating in June/July. Expect volatile gas pricing during the shoulder season, but look at 2024-6 for better days ahead.

Stock market multiples are high, and does not think markets will go higher than current levels. Believes it will be hard for stocks to advance as much as previous quarter with high inflation rates. Not expecting US Fed interest rate cuts until fall 2024 - at the earliest. Markets in Europe are seeing inflation going down faster that North America. Seeing opportunities in individual stocks that have been overlooked by tech focused investors. 

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To offset risk, asset managers have used hedging strategies so the only factor at play that investors need to worry about is the underlying holdings. Hedged ETFs typically involves utilizing forward contracts to mitigate currency fluctuations by locking in an exchange rate. The use of forward contracts or other financial instruments will convert USD returns to CAD at a fixed price, eliminating the currency risk. One other aspect here is that due to the use of forward contracts, hedged ETFs typically charge higher expense ratios to compensate for the higher trading costs.
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No shortage of news to digest. Front and centre recently has been all the inflation data coming out of Canada, US and, this morning, a bit more out of Europe. All that's tempered market expectations a bit for this year. 

People have been forecasting rate cuts with exact timing, and that's pretty difficult. Looks like Canada and Europe are on a slightly different path then US. What makes it unique for Canada and the US is that a rate divergence could create some volatility in the currency.

Always hard to predict where the outperformance will come from. With a portfolio, you're exposed to a variety of different factors. In a diversified portfolio, you do want to be opportunistic and take advantage of opportunities that are presented.

He doesn't think of it so much as Canada vs. the US. His portfolios are constructed to be more global in nature. Canada is a really good market for certain things like income stocks. US is great for a number of other things. Typically, he'd use the US to get things that you can't get at home, such as technology and healthcare.

He doesn't think of them competing. In the end, they each provide different opportunities.

For different types of investors, this could be positive as well. For clients who have a balanced portfolio, prior to the last few years it was really hard to get anything on a bond portfolio. Now, you're able to get something in that 3.5-5% range on fixed income securities.

In terms of the rate cut picture in the US, their economy is a bit less sensitive to rates than Canada is. Their mortgages don't reset; they're able to lock in 30-year mortgages, and the refinancing option rests with the borrower. In Canada, we reprice typically every 5 years, so we're much more rate sensitive. That's where you're seeing our economy more sluggish than in the US, because of that rate pressure.

There definitely seems to be a lot more value on the income side right now rather than on the growth side. Of the names that he uses in portfolios, almost every single income name would be a Buy. Growth is more challenging, as that's where everyone has run to. 

Roughly around 1/3 of the growth names in his portfolios are Buys. For clients who don't own them yet, he'd typically wait. For clients who do own them and got in at a better price, he's willing to let them work. Still, more value in the income names today.

Don't do it. Someone might want to do it for diversification, avoiding single-name risk. But you can get this by holding a few of the bank stocks and being mindful of your weight. This way, you avoid the extra fees.

Yes, but those names are few and far between. BIP.UN would probably have the best growth profile, as it has access to capital across multiple platforms globally. Its counter-cyclicality is attractive. Data exposure is through towers and warehouses. So BIP.UN can win on many fronts, growing in a variety of areas that some of the more localized firms can't.

It will affect US earnings of certain companies. Those with international operations, which have to bring money back into the US, will be hurt by a strong US dollar. Interestingly, many small-cap companies are domestically based and don't have that exposure. The Russell 2000, for example, has been fairly weak as we started the quarter, and that might be a little bit of a wind at its back.

This issue hasn't been on the front burner of discussions. It probably will be talked about more as the quarter develops, if we continue to see the USD strong, and there's a good chance of that.

You have to look at exposure. He owns some healthcare companies among his US large caps, and they tend not to be as exposed to the USD. For example, MCK completely exited its European exposure in the last couple of years. Something to keep an eye on. It may not be a topic today, but may become shortly in your tenure as an owner of these companies.