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

Strategy to buy Large Caps with dividends 4+% instead of bonds. The bond market surprised everyone this year and performed shockingly well. Utilities and REITs have become expensive. If you have a long time horizon it makes sense to buy the large caps for dividends. Corporate bonds give you a much higher coupon and you can get a much shorter coupon than government bonds.

How long can this party continue? Day by day. Word "recession" is being thrown around. Third rate cut from the Fed this year. The US 10 year, which real estate tracks, is down over 90 bps this year. Real estate in US is up 27% this year. Lots of investors are rotating into defensive with yield, which is exactly what real estate gives you.

What does Fed rate cut mean for the Bank of Canada? Most analysts are saying it's only a matter of time before it has to cut. We're getting to that point, but not sure if it will be the next meeting or the one after. But it's hard not to cut when everyone else is. It still has a bit of room.

Are there any black clouds over the particular space of real estate? In North America, REITs look fairly valued. But looking out further, returns will be driven by earnings growth, and less multiple expansion. You're looking at a low double digit return, but still positive. Headwind is rising rates, and investors rotating from real estate into cyclicals. But that's a buying opportunity.

Continuum REIT IPO. This IPO should close in the middle of November. Really interesting opportunity. Most GTA-focused REIT. If you think the Toronto rental scene is hot, this is the best way to play it. Yield will be around 2%. Quality assets, good management.

What does Encana's being re-domiciled to the States mean for investors? It's concerning. Encana's explanation is more of a valuation call, so don't read too much into it. But oil stocks have been horrible, and people aren't stepping in because of our government. Still, Canada is one of the safest places to invest your money.

Market Outlook The Bank of Canada has left some room for further interest rate increases, despite keeping rates flat today. Western resources are hurting and they will have to deal with that eventually. If the US cuts rates, Canada will have higher rates than the US -- helping the Canadian dollar. This will hurt some Canadian company earnings, but we have come to live with currency in these ranges. Q3 earnings were pessimistic, but revenues have surprised along with earnings. 70% of reporting companies have beat their estimates thus far.

Canadian banks? It is not a bad time to buy. They have lagged, especially in Q3, but seem to be finding their stride. They have stable profits and good earnings trading at cheap PE ratios. TD has lagged, because of their Ameritrade share trade, when brokerages in the US went to zero commissions. He would still favour buying TD.

Cannabis? He is fortunate that they have not participated in the cannabis space over the past year. It is just too difficult to determine who will be the winners in this space just yet. A lot of companies will short on cash. ACB has a $200 million debenture coming due in March 2020, which will have to be refinanced as the strike price is well above current prices. Stay away from ACB. He would not buy anything in the space.

A big day today. Nobody expected Canada to cut rates, and everyone expected the U.S. to cut rates (but will pause). Both happened. And the markets lifted. Now, if the US and China don't get a trade deal and Brexit fails to happen, then the Fed could get negative like Japan and Germany are. As for the Canadian interest rate, he expects that we will close the gap between us and the U.S. given the Canadian economy.

2020 outlook It looks like we will avert the worst--a full-blown trade war between US and China. Neither wants to go into 2020 with very bad trade news. Trump has a lot to lose, because he wants to get re-elected in 2020. China doesn't want to roll the dice and face a Democratic president who may be tougher on trade.

The U.S. is doing better than we are, because Canada has a resource--and now, a gold--drag. Gold has pulled back recently like yesterday. Some TSX sectors are cheap. Financials are fine, for instance; Canadian banks do well in recessions as they manage risk well. So, you will do well with banks, long term though they haven't done well in the past 18 months due to flat rates and mortgage worries.

The street expects a 50-point cut tomorrow from the US Fed though a 25-point is more likely. An accommodative bank help assets. But abroad, things are less rosy, such as Germany where PMI (manufacturing) is contracting. The overall investing picture is confusing. A lot of investors, given their age, know only low or lowering interest rates. He believes U.S. rates will go lower as growth slows and companies become more profitable. If we see a growth shock, there will be lower PEs and big bear markets. Yes, stock prices are reaching all-time highs, but earnings are not. Be careful of over-confidence. Utilities and growth stocks make up a big portion of markets, like the S&P. Think about bonds. He's buying bonds. The returns may be low, like 3%, but they avoid drops on stock prices.

Preferred stock ETFs as interest rates decline Preferred stocks are like Jekyll and Hyde: they're rosy when markets are calm, but act like stocks, not fixed income, when markets go sideways. They're not a bad idea, but be careful with a preferred ETF. Many Canadian preferreds are rate-reset preferreds, so when rates go lower, their yields are reset lower. It's a tricky asset class. Be careful here. Not for the faint of heart. He prefers preferred that are perpetual, not rate-reset.

How do you decide which ETFs to buy? He likes ETFs because they grant access to markets you could not 20 years ago. What areas of the world are underexposed in most portfolios? And do you want a deep value ETF or something that tracks closely to an index like S&P? Market cap ETFs are the lowest cost. Low-vol ETFs are low risk, but higher-vol pays potentially better returns. How solid is the provider? Is the ETF active or passive?