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

Gold trying to break through all-time highs. Gold exposure is very good. Precious metal provides more of a safe haven than the stocks themselves. Gold exposure gives you diversification in your portfolio if there's a market calamity. 

Writing calls benefits from a market that's slightly rising, flat, or slightly down-trending. In a strong upward-trending market, you're giving away a bit of your upside to get those premiums. In a tremendously downside market, you're not getting a lot of protection, and you don't recover as much on the rebound.

People entered 2023 a bit skittish. Fixed income raked in new assets every single month through the start of the year, which only started to turn this November.

Yields have been going up since March 2022. Some of the long bonds have been on a steep decline, some 40-50%, from the moment that rates started to increase. Despite that, investors have been piling in every month, hoping to catch that bottom in the bond market.

A huge 50% drawdown is something that equity investors are used to, not US or Canadian long-bond ETF investors. And these are fortress-like, ultra-long-term bonds that you'd expect to be the ballast in your portfolio. Problem was that two years ago, with rates at rock bottom, there was really nowhere else for them to go.

Throughout the year, equity ETFs have been pulling in meager amounts of assets month over month. We did see huge inflows into Canadian equities and US equities. A bit of a risk-on atmosphere took hold in November, even crypto was doing well and some tech stocks. It bodes well for 2024.

An oft-repeated question is "Is the 60/40 portfolio dead?" When he assists advisors, a diversified, multi-asset portfolio is the way to start. There are a lot of ETFs that can be used to set it and forget it. 

Normally, the 40% bond part of a portfolio should be a bit of a cushion, but in 2022 for the first time in 100 years, both bonds and equities declined precipitously. Those ETFs had their worst year on record (there weren't ETFs a century ago, but there were the DJIA and US Treasury markets from which to extract data).

Blockchain technology is very cool. He loves cryptography. He's been watching Bitcoin since the beginning, but he doesn't buy some of the more "out there" narratives. 

If you look at its behaviour and its correlation to other assets and indices, it behaves like a technology high flyer. It's a bet on the future of money, perhaps. But a sequel to Bitcoin could come along that may be superior in some respects, so that's the risk.

Uranium has been doing very well. He wouldn't say it's because of the inflation thesis specifically. There are huge geopolitical concerns, oil markets, and ESG to explain its performance YTD. It is a raw commodity, so a little bit of exposure as an inflation play does make sense.

Long story short, for the very long term it all comes out in the wash whether you hedge or not. It's specific to each individual and depends on how many US dollars you plan to spend.

He and his team are not tax experts, and the answer is very individual-specific. There are some general rules of thumb you can go by. 

Put the more taxable instruments in a sheltered account like an RRSP. But that's not the same as a TFSA. For some investors, US-listed ETFs can be better in an RRSP because foreign income gets more favourable tax treatment. You can check a box on a form, and there's no withholding tax. If it's a Canadian-listed ETF, withholding tax might be completely foregone.

XSP or ZSP are good starting points. One is hedged, one is not. HXS is another option, though it doesn't pay distributions, just accumulates as capital.

Consult your tax advisor.

Bonds would be one of the few asset classes in your portfolio that would zig when the market zags down. You get an anti-correlation benefit. That's what bonds are supposed to do in a portfolio. They just aren't able to deliver that when rates are extremely low, which they were up until 2 years ago.

Oil fundamentals are weaker than usual due to record demand as OPEC+ cut supply, but other sources are supplying too much. 2024 could see soft demand on the margins. Otherwise, collect dividends and enoy the share buybacks.

US financials have had a huge rebound in November after last spring. If interest rates decline, financials will benefit. However, she hesitates, because banks are most vulnerable to loadn defaults, bankruptcies and credit losses. She prefers tech now.

He won't chase the semis. Q3 saw a peak in earnings group, so he expects a decline in Q1 2024, because the wider economy will slow. He expects Q1 to be the weakest quarter in 2024.

After two phenomenal years, energy is consolidating this year, unfortunately. The issue has been supply. In 2024, if the US avoids a recession, then energy can work.

Valuation Basics: Price-to-Earnings (P/E)

The price-to-earnings ratio is typically the first thought that pops into investors’ minds when hearing about valuation multiples. The calculation for P/E is the current price per share divided by its earnings-per-share (EPS).

Essentially what P/E tells an investor is how much they are paying or need to be willing to pay per dollar of the company’s earnings. This means that a higher P/E is typically less attractive than a lower P/E, because as an investor you would typically want to pay a cheaper price when deciding between two options. P/E does have limitations though, if a stock’s EPS is negative, in which case an investor will be unable to get a value.
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