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

Macro is king right now. Macro is in the driver's seat: interest rates, oil prices, bond market. For every stock he can mention, no matter what the metrics are, if the macro doesn't work out, none of the stock picks will either. This is not a stock-picking market. It's a macro market, and we have to figure out the big picture before we drive on.

Uncertainty on commodity producers. He has a little bit of oil in his funds, after huge gains over the last 2.5 years. We need some signal where we're going on the economy, recession, interest rates, currencies. 2.5 years ago, these companies were so cheap. But if you were a portfolio manager and you had Canadian oil & gas, you got fired. They came back with a vengeance, but now they're at a level where he's hesitant. Need more visibility on growth, company investment, exploration. Tough to invest in this space until we get the bigger picture going forward. NTR cutting guidance today is a good example of that.

Market volatility. People talk about investors hating uncertainty, but he can't remember a time when it wasn't uncertain. We're just into a higher degree of uncertainty than we were used to in recent years. Everyone's waiting for the Fed, but he believes they've already priced in 75 bps. Looks like they're pricing in 50 for December, but who knows? The big thing that's hurt the markets this year is that a rising rate environment is like gravity to valuations. As rates go up, valuations come down. As long as this exists, it's going to put pressure on upward mobility of markets. You want to invest in those companies that are going to make it and are more profitable in the short run. Companies with profitability way down the road are going to get hit the hardest in this type of environment. We're probably into an uncertain period for a while due to impact of pandemic, supply chain issues, and the war in Ukraine.

Inflation. Inflation goes up, but it doesn't tend to go down that quickly. Inflation might go down, but prices aren't likely to come down too much, unless you get a recession and demand pulls way down. We could well get a recession, but with all the shortages, he's not sure how much downward pressure that will put on pricing.

Long-term shortages. Next day delivery could be a thing of the past. Talk to anyone who's tried to buy a car in the last year. There may be a wait to get the parts to finish that car. It will take years to reorganize supply chains and set up manufacturing with strategic alliances to ensure you can get commodities, products, or services.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Number of Securities. For many large indices, changes in the holdings are known ahead of time to maintain transparency and easy replication. However, they do come at a cost to the ETF or mutual fund. The higher the number of securities, the higher the trading costs, and the more work it takes to maintain replication (especially if some securities are relatively illiquid). Frequently, ETFs or mutual funds intend to replicate the performance of a select index via sampling, i.e. select a subset of the total index. In that case too, the higher the number of securities, the higher the performance of the investment deviates from the intended index

Investors need to ignore short term market gyrations and "buy when others are fearful". Interest rates likely to rise again, but not expecting major increases. Economy slowing down which creates good buying opportunity for investors. If housing markets cools in the USA, it will impact markets, but not worried about global banking system. Believes recent TSX downtime will not affect credibility of the exchange.

Expecting a .75% interest rate increase this week from U.S. Federal Reserve. Will be difficult to stop inflation without higher interest rates. Believes U.S. Federal reserve is getting close to end of interest rate hikes. Goldman Sachs speculating a 5% maximum interest rate. Upcoming U.S. Fed meeting will be key. Recent U.S. earnings have been better than expected.

Educational Segment. Elections are important for global financial markets because federal policy has large impact on financial markets. Gridlock in the US Federal government will limit large amount of spending to stimulate economy(equity markets). Upcoming US elections will be interesting to watch, as results will impact financial markets. Republican majority in USA congress would be bad for Federal spending, and create lame duck position for Joe Biden. Generally speaking, rising interest rates are bad for broader equity markets.

Jitters in the market fueled by high interest rate numbers. Believes US Federal Reserve wants to see lower employment numbers (less inflation). Market believes a recession is coming and is pricing equities accordingly. FANG stocks will remain healthy, and perhaps this is a good time to buy (expecting rising earnings and cash flow). Long term, believes current market conditions are a blip on the map.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Tracking Errors. In this hectic time that has been 2022, passive investing has increasingly become the new black. Passive investing typically means replicating the performance (or holdings) of a particular benchmark/index or a combination. In this regard, it might raise some confusion when investors see their investment (ETF or mutual fund) perform slightly differently from the index or benchmark the investment is supposed to replicate. This difference is known as tracking error (error tracking the benchmark).

tech The reckoning in growth/tech stocks is not over, because valuations are still high. Growth trades at a 65% premium to value stocks, down from 100% in 2021. The 10-year average is 35%. Growth's outperformance over value from 2019-2021 was only half-driven by better earnings, the other half my expanding multiples and driven by the Fed's easy policy and low rates. We're in an oversold bounce now, but not at a real bottom....yet.

energy Energy is cheap vs. the market. The companies aren't doing big capex. Yes, they've had a great run, but it will remain his second-favourite sector, behind healthcare heading into 2023. Energy is still under-owned and is a fine hedge to geopolitics and inflation.

The Nasdaq is up for the week despite the megatech meltown in earnings. The market wants to rise higher. He's not sure that there's a shift in leadership from tech to value.

Believes economy isn't as bad as media narrative is presenting. Economic numbers not as bad as predicted (Apple earnings etc.). Strong companies will continue to perform, and be robust. Higher interest rates, Ukraine conflict already priced into the market. Good time be buying quality companies in tech. Fears of recession not as bad as people worried about.