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

Is gold a good hedge with all the instability going on in the world? He doesn’t have any gold. Only buys it on a tactical basis when price is low and there is some momentum.

What high yield ETF would you recommend? He basically doesn’t recommend high yield. One problem with high yield is the spread compared to investment grade is not that great anymore and he rather own a Royal Bank bond. The other thing is that this space could become highly illiquid. Not an area that he particularly likes because of the credit default risk.

Could you recommend an ETF that focuses in Japan, ideally income oriented? He would look at iShares MSCI Japan ETF (EWJ-N). iShares basically dominates the market of country specific ETFs.

What type of investor would invest on a covered call ETF vs the regular ETF with the same underlying stocks? If you want the growth you go for the dividend only. If you go for the income, you go for the covered call.

Could you recommend an ETF in US dollars where the principal is guaranteed or protected? No, there isn’t. There is no product where there is return and absolutely no risk.

Is there any way to avoid being called away on a covered call well before the expiry day? Not really. What he does is covering everything. Maybe shop around to pay less commissions but he doesn’t like taking chances leaving the position uncovered.

I need to increase my US exposure in a TSX ETF with some income. He likes iShares US High Dividend Covered Call ETF (ZWH-T).

Market. He thinks interest rate increases in the US caused a pullback in utility stocks recently. Overall he sees an increase in defensive equities. There is a rotation towards value stocks and he expects interest rate sensitive sectors such as utilities, real estate, food and tobacco will face headwinds. He thinks the market is stretched and would expect a rotation into value stocks, which for Canada, he thinks, would mean mining stocks. They presently hold 18% cash and expect that to increase towards 25% at month’s end.

Will Provincial marijuana regulation give Canopy a shipping opportunity? A recent article by a market analyst suggested Canopy (WEED-T) has an advantage with multiple provincial locations and about 5.6 million square feet of space including a 700,000 square foot facility in Quebec expected to be in operation by May this year. He guesses their capacity will be 270 million grams per year, which should project $1.1 billion in annual sales beginning in September most likely. They are a monster in this space.

NAFTA auto talks converging between the US and Canada. Positive comments from US Trade representative on NAFTA auto talks progress is seen as good news for companies like Linamar (LNR-T) and Magna (MG-T). Also positive for North American automakers in general, where uncertainty over trade between Mexico, Canada and the US was causing some concern in that sector.

No question, people are aging all around the world. Couple this with advances in medtech, pharmaceuticals and biotech while people grow wealthier, spending disproportionately more on healthcare. Altogether, healthcare looks
robust going forward. Pharma and drug spending are a political lightning rod, though, with the drug companies targeted before, but now the middlemen being targeted. Drug spending amounts to 10% of all healthcare expenses. Medical cannabis still hasn't entered his thesis; he needs to see more stability and history in these stocks, even though cannabis makes up a huge part of Canadian healthcare stocks.

Assessing FDA approval when evaluating healthcare stocks: Smaller companies, but also large, enjoy huge stock moves when they receive FDA approval, like AZN. He follows the trials of the large companies from an options standpoint. Moves can be 10-20%.

We may have more dislocation (volatility) going into April, but after that we will see 20% growth YOY in most U.S. stocks while global stocks remain strong. Altogether this will get us back on track. Also, the U.S. housing market is picking up for the first time in 10 years. Add to that U.S. companies bringing back back capital from overseas is like six Marshall Plans, like Microsoft and Apple, which will create stimulus. Europe and Asia are booming. Everything's good. Interest rates will creep higher. Diversify away from Canada. Global trade is still good. Any interest rate increases will be moderate and won't seriously punish equities. Trump may be loose-lipped though.

Market. He came into the year with a conservative frame of mind and more cash than usual. Valuations were too high at the start of the year but there have been good opportunities as volatility has gone up. In terms of FAANG stocks, he thinks they are hitting a wall in terms of what regulators will ignore. There is downside risk as new regulations are created, but he cannot yet tell how much. When asked which sectors he prefers, he said that his process is bottom-up, focused on individual stocks rather than sectors. However, the opportunities that have been most attractive this year have mainly been utilities and other stocks that people often think of as boring.

Canadian Banks. He doesn’t own any of the Canadian banks. He sees risk because of the level of consumer and mortgage debt. He doesn’t see attractive rates of return in the near future but if investors must hold Canadian banks, he would recommend a higher-quality bank such as the Royal or TD.