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

Yes, he manages the Black Swan Dexteritas Global Tech Hedge Fund. In the first 6 months of the year, the markets just kept trending up. But the past 6 months will be indicative of 2024 because it was more about active management. 

August, September and October were all down, and then it just snapped back. During those down periods, you have to put a bit of a hedge on. Then, with a bit of luck and skill, you take it off when it starts moving back up.

Interest rates. You can also get a feel of the price action through the capital flows coming out of the options market. You can get a sense of when you'll get a change of wind in the markets. The options market is now bigger than the actual stock market.

It's more like an evolution. AI came up with all the new layering of the semiconductors that allowed processing to be a lot quicker, and with bigger data sets.

Now it's all about translating that back to the customers or the enterprise through "natural language processing". A sub-sector of that encompasses the large-language models. Allows data to be processed and generates human-like text or voice. Computers are becoming more human-like. They speak to the user, and processes the information that comes in.

Data sets are expanding every second. A process can actually mature with every bit of data that comes in.

Utilizing Valuation Multiples and Takeaways:

Over and undervaluation is the most common use, as we can identify which side companies lie on by comparing to their industry and peers.

Another key element for P/E and P/S is deciding to look at trailing or forward measures. Trailing looks at how a company is valued based off the previous twelve months, while forward looks at the next twelve months. Forward measures typically have greater significance in stock analysis because investors are more concerned about future growth, but there are still useful insights that can be drawn from analyzing both concurrently.

Valuation multiples are a broad topic. It is always good to consider multiple metrics when valuating an investment decision and additionally compare these to the industry and peers. Doing this ensures an understanding behind the value of what is being paid for and how it stacks up to other opportunities.
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Believes markets are almost too bullish right now. Appears US Fed is pivoting towards dovish economic policy. Stocks are not cheap, but performance has been great for investors. Importance of investing in tech becoming more prevalent with A.I. growth. Generating growth in profits will be important for tech to demonstrate. Geopolitical risk always something to be aware of, but not investing based on speculation of further conflict. 

Believes second half of 2023 was volatile, but overall is bullish on markets heading into 2024. Markets appear to be broadening out in terms of economic performance. The opportunity to add fixed income to portfolios will present itself with US Fed pause on rate hikes. 4-7% dividend income from blue chip stocks, an excellent proposition for investors. Consumers appear to be slowing in spending patterns, which will slow economy, but not as bad as predicted. 

ETFs vs. Mutual Funds: Key Differences

Trading Flexibility

ETFs can be bought and sold throughout the trading day at market prices, offering more flexibility than Mutual Funds, which only transact at the end-of-day NAV.

Management Style

ETFs are typically passively managed and aim to replicate the performance of an index. Mutual Funds, however, are often actively managed, with a fund manager making investment decisions in an attempt to outperform the market.

Fees

ETFs generally have lower expense ratios than Mutual Funds due to their passive management style. However, since ETFs are traded like stocks, investors may incur brokerage commissions.

Minimum Investment

Mutual Funds often have minimum investment requirements, while ETFs do not. Investors can purchase as little as one share of an ETF.

Tax Efficiency

ETFs are often more tax-efficient than Mutual Funds due to the “in-kind” creation and redemption process, which helps limit taxable capital gains distributions.

A Canadian Perspective

In Canada, both ETFs and Mutual Funds are widely available. Canadian investors can access a broad range of ETFs on the Toronto Stock Exchange (TSX), and Mutual Funds through various financial institutions.

One key consideration for Canadian investors is the tax treatment of foreign dividends. Canadian investors holding U.S. or international ETFs in non-registered accounts may be subject to foreign withholding taxes.
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Yes, a big change. In the past, Powell's always been quite hawkish about fighting inflation, getting back to target range. Now all members are focused on when they should start cutting rates. Don't have to wait until inflation actually gets to 2% before they start cutting. If inflation keeps going down, and they keep the Fed funds rate flat, that means the real rate (net inflation) is actually going up and that's quite restrictive for the economy.

After Powell mentioned this shift during the press conference, we saw a very strong, positive reaction in both the bond market and the stock market.

Yes, that's the consensus. Q3 earnings turned positive YOY (it had been negative in prior quarters). In Q4, it's supposed to be up about 4%. TSX is actually negative YOY. 

But if you look into 2024, analysts for both the TSX and S&P expect EPS to increase in the 11-12% range YOY. That tells her that analysts are still calling for earnings growth, which typically doesn't happen when you're in a recession. So it's implying that soft landing scenario where economic growth slows, but we don't get into a prolonged period of negative growth.

Likes them as a group. Lagged general market for two consecutive years. Highly regulated, which protects them for a lot of potential downfall. Must maintain certain capital requirements, provisioning for a slower economy.

What are ETFs and Mutual Funds?

ETFs and Mutual Funds are both types of investment funds, meaning they pool money from many investors to purchase a diversified portfolio of stocks, bonds, or other assets.

Exchange-Traded Funds (ETFs)

ETFs are investment funds traded on stock exchanges, much like individual stocks. They aim to track the performance of a specific index, sector, commodity, or asset class. They offer the flexibility of buying and selling shares at any time during the trading day at market prices.

Mutual Funds

Mutual Funds, on the other hand, are investment vehicles managed by professional money managers. The fund’s net asset value (NAV) is calculated at the end of each trading day, and all buy and sell transactions.
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Wording has been very careful. At the meeting last week, we got the clearest sign yet that the last rate hike is in, and that the next move is down and almost certainly in 2024. Only issue left to debate is whether the cut comes earlier or later in the year than markets are expecting.

AI and big data. Autonomous vehicles. Infrastructure. Green energy. A number of themes have secular tailwinds, which are especially important when facing a macro environment with medium-term growth headwinds. More so in Canada than in the US, where he can envision the fabled "soft landing". 

Be on the lookout for companies that are innovative and "changing everything".

Early days for AI technology. Viewers might have seen the AI-generated commercial for the Toronto Blue Jays. All tech has hiccups and bumps on the way to mass adoption. Nevertheless, it will be disruptive and a game-changer for lots of industries.