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

For a small cap ETF, IWM or OUSM or IJR? Granddaddy is IWM, which has already had a pretty good year. For small cap in the US, go with this because it has liquidity. You can use the options market if you want something fancier. Be careful, as this are subject to US estate taxes. In Canada, use an active manager in this space. Canadian small-cap needs an active manager, rather than an ETF.

Tech ETFs right now? Too late for this. Had a fantastic run. The S&P 500 is the harbinger of all equities, at 60% of the market. Driven by tech stocks, which are mainly US. Everything good about tech is already there. If anything goes wrong, they’ll be hit. Look to 2001-02 for the tech wreck, though now it’s a much more solid market.

Emerging market small-cap? This is a specialty. Go to an active manager like Mawer for global small-cap, non-Canadian.

US banking deregulation. US banks will get into stock manipulation, which will make the stocks do better. ZUB and ZBK track this, and he expects good performance in the back half of this year.

Investing in Russia? All these countries have an intersection of capitalism and communism or a dictatorship. Cautious because of the dominance of energy, which duplicates energy risk that you’d already have in Canada, plus adding political risk.

Market. He cannot talk about Hydro One and there is a process in place and it is best if he does not talk about it. There is a whole process that takes place to replace the board. In the markets it is a real mixed bag out there. There are a lot of one off opportunities. Energy is interesting. In general the valuations are not as compelling as they were a couple of months ago except for a couple of high quality players. The market is more stretched in the US. He is a bottom up stock picker. Brazil is pretty inexpensive and there are parts of Europe that are cheap too.

Market. The stock market has had a terrific run since the Financial Crisis of 2009. Things seem to be pretty good right now. The economy is doing well. Market continue to have momentum. On the other side there are some risks particularly the Fed taking out liquidity. But fundamentals are good now. Maybe it is time to look at stocks that have been out of favor and islands of defensiveness. He likes the Energy sector now. On the FAANG stocks is dangerous to say the run is over. He has been wrong in the past. He thinks the banks are going to do OK. He thinks the TSX is to the point that could break out.

Ontario Premier Ford fulfilled a campaign promise to get rid of Hydro One's CEO and did so today by getting rid of the board--then the CEO retired. He doesn't know how this will effect tomorrow's stock price or on markets in general, but points out that the Ontario government owns 50% of Hydro One. Good revenues and yield, but the question is what wil the severence packages be? It could cost $10 million. He thinks this is a good step in the right direction to bring down executive compensation. Ontario must reduce its debt. US-China trade tensions today: the surprise are tariffs will hit consumers in their bedrooms and bathrooms, but also China doesn't have enough imports to retaliate against the U.S. What may happen is it will make it really hard for American companies to do business in China.

Do you prefer Canadian or American banks, and which Canadian bank? Disclosure: he works for Scotiabank. Banks on both sides of the border are a little undervalued. Canadian banks aren't benefitting from rising interest rates over concerns over the flat yield curve. He thinks it's more complex. There used to be a negative on Canadian banks because of housing fears. Now, he prefers American banks. Regulations and tax cuts give them more of a tailwind. He likes BNS and RY here.

As a Canadian investor, stayed hedged to the Canadian dollar so you're not unpleasantly surprised. He would buy unhedged when the CAD rises above 78 cents, and buys hedged below 78.

Market. He thinks there is risk of a trade war market correction upcoming. China’s response thus far to US tariffs had been a diplomatic one, but now it appears that it is becoming tit-for-tat. This takes away certainty and productivity within business planning and thus a less bullish outlook for the economy overall.

Any advantage to buying US equities versus only Canadian? On a Canadian dollar basis, the NASDAQ is up 16%, while the TSE is up 1%. He would strongly advocate a diversified approach. For an individual investor, he would suggest working with an expert advisor to achieve the diversification. Constraints on RRSPs now allow much broader global holdings. He thinks Canada is too focused and too small to provide all the same market coverage.

Trump is preparing a new list of tariffs against China: Not the best news, obviously. Market reaction is muted. Meanwhile, corporate profits are starting to report strong Q2. Both the Canadian and U.S. economies are strong. He looks at the long-term, but in the short term anything can happen, sparked by the unknown. But you can't invest based on a looming trade war. TSX hit new highs today with oil as part of the catalyst. But over the past 10 years, the TSX has paid 3% compounded average returns, which is poor compared to the States. FAANG stocks continue to gush profits, drive the U.S. markets, but valuations are still reasonable.

Market. Consensus forcecast for quarter’s earning season indicates about 20% earnings growth among S&P 500 companies, with top lines forecast to grow over 8%. With the strong employment growth and limited wage growth, the market should have surpassed the January highs but trade concerns are keeping it down. The economic data still indicate strong growth or expansion. They point to a second-quarter rebound in GDP growth compared to a softer Q1. Q1’s growth was about 2.2% partially because of weather. Forecasts for Q2 are in the range of 4 to 5%. Small business optimism is still near historical highs. It will be important to monitor earnings calls/reports for the impacts of tariffs on their business. High-growth companies have now grown to the point that their valuations are not attractive. However, companies that pulled back because of interest rate concerns are now looking better. The tariffs on raw materials will impact mnufacturing companies. Some companies are raising prices, others are holding prices for now, accepting lower margins. If that continues, there will be a permanent impact on earnings growth.

Comment on Interest Rates. She commented on a previous show that it will affect dividend stock prices when US Treasury 10-year bonds offer 4% interest rates. She expects them to rise to this level within the next year and a half, as the economy improves. For dividend stocks, it is important to choose an attractive yield and a record of increasing their dividends.