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

Her firm is a conservative shop on a good day, let alone on a day when valuations are this high. You have to balance this with collecting dividends, and they're all about dividend investing. If you're not invested, then you're not collecting that dividend.

They try not to trade, buy low sell high, or time the market. It's all about getting invested, collecting dividends, and compounding them over time.

That said, for new $$ coming into the firm, they're having a hard time deploying it right now.

Canadian valuations are trading at half of what they are in the US, so there's relative value in Canada. In particular, likes infrastructure stocks -- things that are going to support the backbone of the Canadian economy. Things like utilities, pipelines, telcos, energy infrastructure.

Along with collecting dividends, one of their main theses is that increasing power demand is a secular trend. It will continue to increase over the next 20, 30, 40 years. Despite where we are in the economy right now (going into economic weakness and possible recession), power demand is not only defensive but also a growth story that could supersede any short-term economic weakness.

No secret that for months the economic data has been trending negative. GDP numbers in the US were positive last week, but it's backward-looking data. Job numbers have been coming in weak. And with the US government shutdown, we won't be getting as much economic data. 

The economy was saved in the first 2 quarters because a lot of demand and buying were pulled forward. We're now starting to see the impact of tariffs, and inflation risk is increasing.

But the market is not wavering, just continues to go higher and higher.

Sees inflation as more of a risk in the US than in Canada. If we are headed into a recession, then Canada is a bit more ahead than the US on that front. Our GDP numbers are lower, and our employment numbers have been worse than the US for longer. Consumers in Canada are more strapped, with spending that's been slower for longer.
 
Canada's mortgage rules are different, so we have our 5-year resets. Canadians are going to be paying more for mortgages that were locked in at historically low pandemic rates. In the US that's not an issue. US consumer is stronger for now.

He's not, as he realizes the speculative nature of what's going on right now. For him, his style is more of value, GARP, not growth at any price. We're now in a growth-at-any-price market environment. It doesn't scare him, as he's seen it before, but you have to understand what it means.

It means it can keep going and for far longer than people expect. When it ends, it can end abruptly and dramatically.

When you have forward-based earnings not going up, but the market multiple is, that's an environment when you have to ask what's the market moving on? You want the market to move on fundamentals.

If forward-based earnings were ramping, and the economic outlook was robust, then he'd say game on. But when you don't have that, it's a troubling sign.

It's not a big deal. We've seen this many, many times. It lasts for days or even weeks, but doesn't matter for earnings. Ultimately, the people who aren't getting paid now will get all caught up. To the degree that the administration can lay people off in any significant way, it doesn't really move the needle enough to matter from a macro-economic perspective. 

It's disruptive for people. We can't see economic data we're expecting. We did get employment data from the private sector last week on ADP, and it showed job losses. Would've been nice to see on Friday whether that was confirmed in the official government data.

Those things start to creep into the decision making. We have a Fed meeting at the end of the month, and it's a virtual certainty that they're going to cut rates. Yes, even if they don't get new data. Without seeing new inflation data, that is a risk. So they're going to go slowly, no need to be aggressive. Then we should start getting data again in a few weeks.

Couple of things to consider. If you're a trader, the spreads are a little bit wider, so you're paying more on your ins and outs (compared to buying the US one directly). If you're a long-term investor and want to do it in a CAD account, and you don't want to convert the currency, then they're efficient vehicles.

So it really depends on what you're using it for. They're perfect replications of the US versions, though the fees are a bit more.

This area is very broad. Many products are excellent, but do have high fees. They typically deliver a defined outcome for you. The benefit is sleep-at-night, as the downside's limited only to a certain type of loss and you have the upside potential if the strategy works out.

For example, one could be linked to the Toronto Stock Exchange. They'll give you 2 or 3 times the upside potential, with some sort of cap on it. They use options strategies to define those outcomes. Typically for a 5-year period. It's a note (a promise to pay) issued by the underlying bank, which is sort of a risk but not when it's one of the Canadian banks. It's an obligation by the bank. They use your money and deliver on a promise based on a certain outcome. Lots of fees. Pretty popular right now given where interest rates are.

ETFs at this Market Stage

He looks at earnings and earnings expectations to help him choose ETFs for the times.

In April, markets started to come unglued. Earnings expectations for Q2, which we already had, came down. And the market surprised to the upside. Q3 and Q4 expectations (ie, for this quarter and the next) haven't really recovered. So expectations are beaten down. But the market multiple's gone up.

Let's look at forward PEs for the next year (25x PE) and two years (22x PE). Going back a decade, you can see that we're pretty expensive relative to history. So markets are not cheap right here.

Now let's look at a chart for the equal weight US market. So the S&P 500, but each company at an equal weight (not 40% in the top 7 tech names). When you draw lines across the chart for the next 2 years, you find that the average stock is not crazy-expensive relative to the last decade. So the vast majority of the market advance has been in a handful of stocks. And he doesn't know when that's going to be over.

Bottom line is that the average stock, based on history, is not particularly expensive right now.

So how do you choose those ETFs? His style is GARP, and he was doing some research into timely ETFs. Lo and behold, he came across an ETF with the ticker GARP. It's far outperformed the S&P 500 and the entire US market. Don't buy it here, as it's rich. But on a dip? Absolutely.

What would he buy now? Buy what's lagged, and that's the equal weight S&P 500. When markets correct, it'll probably go down, but by a lot less than the market-cap-weighted indexes.

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It's always hard to predict when you'll have a pullback. Historically the weakest month is September, with October being the second weakest. But we went through September with relatively good results. If there were a small pullback, he wouldn't be surprised but he'd take advantage of it.

At times there's a two-tier market, where some of the higher-valuation stocks get lots of love and attention, while other stocks are neglected. Many investors in Canada don't realize that over the last 12 months more than 30 companies have been subject to actual, or pending, takeovers. Our market is cheaper than the US, and it's a call for Canadians to invest in their home market.

Yes. One research report shows that if you take out the performance of gold and silver, and that's about 12%, the TSX is up ~12.7-12.8%. If you're underweight gold and silver as a portfolio manager, your performance hasn't been the greatest. This doesn't always happen in the Canadian market.

He and his team are fundamental investors. The TSX is trading at a cheaper valuation, with a higher dividend yield, and other metrics are good. Over the next couple of years you want to be in hard assets, and Canada has a lot of those. 

He's a North American manager, but for new $$ coming in about 75% will go to Canada and 25% to the US. That's how he sees the world.

He's investing in companies that have good hard assets, grow cashflow, and pay dividends. PPL is one example. Its pipelines will benefit from LNG and LNG expansion. Others includes JWEL and KEY. Two of his three top picks are Canadian. Great companies in Canada; you don't always have to head to the US for good value.

Time to take a look. On valuation, much cheaper than overall market. Money is starting to flow in from other, overvalued sectors.

He owns JNJ. Two years ago, spun off consumer division. So now it's just drugs and medical devices. Trading ~14-15x PE. Spending billions to build new facilities in US, so that gets them on the right side of the Trump administration.