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

U.S. healthcare ETF? A long-term supertrend in the U.S. but is that reflected in the current price? He's held XLV-N (S&P 500 Healthcare Sector SPDR) for a long time, but it's no longer the bargain it was a few years ago.

Which global fixed-income ETF to buy? Bond markets in the west are in a bear market. So, you must look abroad. Many investors have gone into dividend equities, but they increase risk in a future bear market. So, he looks for income sources. He holds LEMB-N (iShares JP Morgan Emerging Markets Local Currency Bond ETF) and off-shore Chinese bonds through DSUM-N (PS Yuan Dim Sum Bond ETF) which has been up 7% YTD while bond funds have been decreasing. The Chinese renminbi has been stable.

What South Africa and India ETFs to Buy? He doesn't know of South Africa, but for India, go with iShares MSCI India ETF (INDA:BATS), a classic cap-weighted ETF or the PowerShares India Portfolio ETF PIN-N which weights companies on earnings momentum.

Market. He is of the view that the suppressed volatility in the last 16, 18 months was more the exception than the norm and that the possibility of this correction was expected. It is late in the economic cycle, interest rates are starting to rise, and we are in full capacity in the US and sentiment is very extended. Interest rates are moving higher because the economy is extremely strong. Strong employment creation and retail sales. Retail sales in Canada grew at the best clip since 1997, The economy is extremely strong. Interest rates moving higher shouldn’t crash the spirit of the bull market given that earnings are growing. In the short-term there hasn’t been enough blood spilled, so there could be another sell off. All cycles come to an end.

Where to invest once we are done with the interest rates increases? The heavy lifting in building a portfolio is in asset allocation. They are taking profits and high beta from cyclical parts of the portfolio and redeploying capital to sectors with more stability through the cycle. Very important to think not in the next week or months but three to ten quarters’ from now.

Technical vs Fundamentals. Their approach is hybrid. They use technical, fundamental and quantitative disciplines to come with ideas at the stock specific level.

Interest rates – He thinks the US market is in a secular bull market. 2018 is starting off like 1994, where interest rates are starting to play a role. The 10 year yield is going above 2.75% and he sees this as bullish. For the rest of the year, he believes stocks will have a great year, but if the 10 year rate goes above 3%, we will then see another market sell off. Then good economic news will cause another rally. He sees higher interest rates as bullish. This will be a bear market in fixed income, but good for stock value.

Market. Federal Reserve stimulus impact on the market – He believes fiscal stimulus has been needed over the last 7 years. The new US tax package, along with President’s Trumps Infrastructure plan will relieve the pressure on the Fed Reserve needing to provide support. This will work to normalize interest rates.

Market. We had a nice run for the last 14 months. We are still in a bull market, but the ride is going to be little bumpier. Concerns about higher interest rates inflation. But earnings growth is going to trump all that. Protectionism is an issue. But at the end of the day, President Trump and his team understand how important global trade is.

Market. Recommend a good Canadian dividend paying stock. The Canadian market is small but on the other hand it is big enough that you can do well owning just Canadian Stocks. There are many good names. Restaurant Brands (QSR-T), Magna International (MG-T), the telco space, Manulife (MFC-T), there are probably another 15 or 20 that he could recommend.

Market. Impact on our debt and deficit on what the Trudeau government is doing. The debt to GDP for Canada is pretty low compared to other countries. There is room for more infrastructure spending or lower taxes without affecting the Canadian Dollar.

What relative portfolio weight to assign to Canadian Stocks and what sectors you prefer? Canada is out of favor. He doesn’t like energy. He likes the banks and the insurance a lot. He likes some industrials. He sees a lot of value in Canada despite all the negative sentiment.

Any ETF that you would recommend for rising interest rates? Some pref shares can benefit. There are other ETFs like the Mackenzie Floating rate income ETF (MFT-T) that would benefit. It is tough. You want to keep your duration short. You never know where the future is going to be.

He wasn't worried about the recent minor correction. He's been waiting a long time for a return to volatility, which is good for the market. We're likely to see more of it in the coming months which will be buying opportunities. He doesn't expect a major correction unless there's a geopolitical cause. We could see rising interest rates and a return to inflation. So, investors will want compensation for risk and that will create volatility. During pull-downs, these are opportunities to buy good names. Investors should do well if they have a long-term horizon. If interest rates rise precipitously, then we will see a major global recession which nobody wants.

[What happens to the Canadian dollar if the U.S. dollar plunges?] The value of our dollar would go down, but not as fast as theirs. There is a whole host of factors. Our government would like to see a lower Canadian dollar. Also, our productivity has always lagged America's. We won't see a strong Canadian dollar unless metals, oil, gas and forestry products really pick up which is unlikely. Can't predict if our dollar will reach 75 or 85 cents a year from now, but the days of trading at par are gone for a long time