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

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.

No, they're not. And what we've seen is that the expectation for rate cuts from the street, not so much from the Fed and BOC, has gone from 6 down to 2-3. He's always been in the camp that rates would be higher for longer. The Fed and BOC will have great resolve in bringing inflation back to the 2% level.

Finally, normal isn't 0% interest rates. Normal is more about where we are. Reducing rates should only be used as a monetary tool when the economy demands it.

Must distinguish between patience and stubbornness. He's patient, but an investor has to recognize that they won't always be right. Have to be ready to move forward. Remember that professional investors are right only about 55% of the time, and that would be a pretty good return. 

Many investors get tired of holding a stock for 2-3 years that's flatlined and they sell. Then, lo and behold, the stock catches a bid and moves up 20-40%.

He looked into it. Message: don't let politics enter your investment decision. He examined research from Bespoke Investment in New York, which investors can read for themselves under Insights at goodreid.com. 

Looks for companies that have pricing power, like semis (i.e. Nvidia), software, insurance and private equity, but avoid commodities including oil which has pulled back and he doesn't see an improving supply/demand balance.

Buy the 2-year treasury at a 5% yield.

What is a hedged (Canadian) ETF?

To understand the mechanics of hedged ETFs we have to first understand the purpose behind hedging. If a Canadian investor wants to invest in a US or foreign ETF, for example a 100% US based basket of equities, the individual investments will have to be made in USD or the given foreign currency. What this typically looks like is if an ETF trades in CAD but the underlying holdings are all in USD. When the investor purchases the ETF, the brokerage who is executing the transaction will convert the CAD to USD at the exchange rate. The holdings are held in USD and assets are not converted to CAD unless the investor sells their shares. When shares are sold, the brokerage converts the USD proceeds back to CAD at the new prevailing exchange rate. Dividends also factor in with the same mechanism for conversion being used since the payments will likely be in USD.
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Markets have done well in Canada and the US. The Canadian 10-year bond yield vs. TSX over the past year: when the Bank of Canada pivoted last October into a QE-easing stance, bond yields immediately began declining, but lifted to start the year when it looked like we'd have to push rates out further. Interesting that the stock market continued to rally. There's more of focus on the economy staying strong and less on when rates will be cut. He expects a cut in June and maybe end of July, and Canada to cut before the US given our huge exposure to housing (our mortgages roll over after 5 years).

It used to be 60/40 stocks/bond split in a portfolio, but bonds aren't as stable as they used to be, given more volatility. The ratio depends on your age and risk tolerance. Younger people own only stocks. He owns some bonds, but you don't always need to hold bond.