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

Benefit of ETFs. Important to diversify your portfolio. All the big ETF providers have full suite of non-Canadian stocks and bonds, hedged and non-hedged. He encourages people to move outside of Canada.

Covered call ETFs. Covered call ETFs attract attention because of the big yield. Over a longer period of time, a regular ETF will do better than covered call. What you get in income, you give up in performance. They’re very expensive, by at least 0.25%. Looks like it’ll work, but it doesn’t.

Fixed income ETFs. Protect against capital losses in rising rate environment? If looking for some sort of FI vehicle, and don’t want any capital loss at all, your only option is to buy GICs. A fixed income ETF will still have price movement. When rates are rising, you want short-term, low duration (2 years or less) ETFs. XSB and ZST are good examples. ETF is much less sensitive to rising rates, and when rates start to rise you can go over to cash.

Rate-reset preferreds. Preferred share market in Canada has become complicated with all these resets. He uses HPR, which is actively managed. Would work pretty well in rising rate environment.

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.