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

Given that Mexico had progress on NAFTA negotiations, what is the effect on Mexican Stocks? They bought iShares MSCI Mexico ETF (EWW-N) last quarter in advance of the macro misinformation was there before the election. He thinks it is a little overbought now and wouldn’t buy it now.

Is there a good ETF for the electric car sector? Difficult to get a pure play. There is an automobile innovation First Trust Global Auto index ETF (CARZ-O). There is an upside potential. ETF are double edge sword in some regards because they offer the diversification but for sectors like this it is better to be a stock picker.

Do ETF have an influence on the market when they buy large blocks? They are not very large in relation to other securities. They basically trade on the secondary market. ETFs offer transcended liquidity according to a friend of him. When the underlying went no bid, the ETF continued to trade providing price discovery. Don’t trade at the end of the trading session, don’t use market order, a few simple rules could help you overcome the criticism found in popular media.

Is there a and ETF that covers venture capital? There are Hedge Fund replication strategies such as IQ Hedge Multi-Strategy Tracker ETF (QAI-O). They don’t track a basket of hedge funds but rather track a basket of popular long/short trades that hedge funds place. His company would never invest in something like this.

Is there an ETF for an 18 years old to max out her TFSA? She has a very long-term horizon. If you are a passive investor and want to invest in the fortunes of our country you might look into Horizons S&P/TSX 60 ETF (HXT.T). If you have a higher risk tolerance and want a more globalized portfolio Horizons Managed Global Opp ETF E (HGM.T) is an option (he runs it).

Is there an ETF in US funds that you would buy now? Yes. A classic one would be iShares Core S&P 500 ETF (IVV-N). Cheap, low cost, liquid. He would be careful with the low vol or low dividend. He prefers the pure beta.

Market. These next two months can be tough on the market historically. He thinks the market will continue to consolidate with an upward bias into the fall. The S&P500 has gone basically sideways for most of the year. There has actually been a net cash outflow out of the market for most of the year, yet the market has stayed flat – he thinks this is a bullish sign for the future. If it doesn’t want to go down, it probably will go up. The longer the consolidation the more aggressive the upside will become.

Volatility over trade and foreigh currencies: He likes the opportunities that volatility brings. Lack of it breeds complacency. Valuations in tech are getting pretty high and he suspects there will be a rotation out of tech. He's moving into energy where there are bargains. (He has a 12-24-month outlook.) This has been a momentum market, but focus on the future, not tomorrow morning. Oil is down today, but the oil chart over the past year is bullish overall. In two or three years there could be c.2007 discussions of there being not enough oil. In Canada, these stocks have come off a lot since the TransMountain court ruling, but the new Enbridge line 3 should be operating by end-2019. In addition, Keystone or TransMountain will go through (he's confident that TM will under Trudeau).

Market. Kicking us out of NAFTA would hurt so many US consumers that he believes something will be worked out in NAFTA. Donald Trump is a tough negotiator but it would not be possible for the auto industry to go forward without NAFTA. Regarding the growth of Amazon, this company is doing remarkably well and is extremely well managed. He sees it as priced for perfection and, despite is continuing growth, he would wait for a pullback. Generally, he sees the market as highly valued. With rising interest rates, the deceleration of growth in China and the tariff issues affecting China, he sees some dark clouds on the horizon that should not be ignored. Investors should be prudent and should hold some cash.

Comment on Dividend-Paying Stocks. The caller asked how to compare the value of companies that pay dividends, versus those that do not. Consider two companies that have identical cash flow and other comparable characteristics. The one that does NOT pay a dividend MIGHT be worth more, if it does a good job of reinvesting the money that it is not paying out in dividends. However, if the company is not investing the money well, paying dividends provides more value to the investors than sinking that money into ventures that don’t cause the company to grow its value quickly enough. In general, he likes to get dividends from companies that pay them out of their free cash flow. He does not like it when a company borrows money to pay dividends or buy back shares. Borrowing for dividends or buybacks has been commonplace recently but it is not sustainable.

Comment on currency risk. He does not recommend hedging for currency risk because so many of the companies that Canadians invest in are already doing their own hedging for currency. It is easy, and expensive, to overhedge. And even if one does hedge, that does not take away the currency risk in the stock because so many businesses are global--their currency issues impact their earnings whether an investor hedges or not. He recommends looking for good earnings growth over time. Currency fluctuations will balance out over time and no one accurately predicts the relative values of currencies over time.

Comment on bond funds. The struggle for bond investors is that Canada bonds yield only 2% and high-rated corporates yield only 2.2%. There is not much yield to be picked up if someone want to keep really safe. He recommends that a retired investor put some money into a laddered portfolio of 1-to-5 years of high-quality bonds. For people who can withstand higher volatility, a high-yield bond fund could be a better alternative. He is a bit cautious on bond ETFs and prefers ladders of individual bonds.

Which oil company can evolve into renewable? For example, BP has moved in this direction in fits and starts. A lot of oil companies engage in mere lip service, like Exxon Mobil. Total (TOT-N) however is the standout--they've created a VC arm to do M&A in green.

Stay patient. The political pendulum has swung away from "green" because of Trump, Ford et al. who want short-term, cheap energy, but ignore climate change. The Liberals' gambit with the TransMountain pipeline has angered all parties. He looks at the long-term and believes the pendulum will swing back to green. Keep an eye on the U.S. midterms. Also, India is now investing more in renewables than coal and gas. China is also moving into renewables, leaving the West behind. Technology can revolution an economy and he believes green tech will have this very effect.

What happens when PPA's (Power Purchase Agreements) expire? These are contracts that power producers sign with the utilities at a set cost at set number of years. Whoever owns the asset decides what to do next.