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

ETF for Canadian Reset Preferreds 5 year laddered?There are 2 available. ZPR-T from Bank of Montréal where they are all rate resets or HPR-T from Horizons that are two thirds resets and one third fixed. Regarding the laddering, he doesn’t think that comes into play. Both have good yields. The one from BMO is going to be a little more volatile depending upon the rates.

Favourite bank for covered calls?One thing he looks at on covered calls is when the stock goes X dividend date, because you want to try and maximize the dividends you get within the 6-month Call period. You have to factor this into your calls. You want to capture as much as you can. He likes Royal (RY-T) and TD (TD-T), because they have a lot of US exposure.

A long-term tech ETF for a grandchild?There are a couple of routes you can go. You could look at the Power Share QQQQ (QQQ-Q) or the BMO NASDAQ 100 Equity Hedged-Cdn$ (ZQQ-T), or you could do a little of both.

Fixed income or bond ETF?There are a lot of them. A couple of things you should look at. Whenever looking at an ETF, forget about what the yield says. Go onto their website and look at “yield to maturity”. That is far more important than the current yield. Look at what their distribution yield has been over the past year. If the current yield is 3% and the yield to maturity is 2.2% and the distribution is 2.4%, that is somewhere what you are going to be getting, not 3%. You should also look at the duration of the portfolio. An ETF he recommended last year was just taken over and was going to put into a bond portfolio. The bond portfolio has a duration of 8.6 years, which is too long. If the duration is between 3 and 6 years, on any increase in interest rates you are going to get beaten up. You could look at BMO Aggregate Bond Index (ZAG-T) and/or something like iShares DEX Short Term Bond (XSB-T), about two thirds government and some corporates. There is also iShares Conservative Short-Term Fixed Income Fund (XSC-T).

Do you agree with no hedging in your ETF’s?He uses a lot of hedging, simply because of concerns about a decline in the US$.

An AI ETF?There is Robo-Global Robotics and Automation (ROBO-Q) and Global X Robotics & AI (BOTZ-Q). This is an area that is going to be increasing in the future, but you also want to make sure that there are some earnings as otherwise it is just speculation.

Deep-in-the-Money Call Options?Option prices are based upon intrinsic value and time value. If you are buying them “out of the money”, they have no intrinsic value, only time value. If you are buying these things “in the money”, you are squeezing out the time value. The price will not be as high as there is not a lot of time value. You have to watch this more closely than what he would want to.

What bank would you write a covered call on?In terms of writing Calls, he likes Toronto Dominion (TD-T) and Royal (RY-T), but this is something you have to decide for yourself. As to “When”, that is a different story. He tends to like writing them out every 6 months and close to the money. That way he gets a bigger bang for the buck. However, institutions write them a little out of the money and every 1 or 2 months, and over time get a better yield.

Market. The first half of the year was pretty soft and people were wondering if they were going to get a second-half recovery. If you add up the 4 quarters of this year, you’ll probably see about a 2% growth. Global growth has surprised him this year. The European economy has made a nice recovery and the Japanese numbers have been pretty good. In China, moderation has slowed down, even though it has all been debt financed. With the Trump thing, there is a lot of bullishness, which we have seen in the stock market. The soft economic data has been exceptionally strong, but the harder data such as retail sales, industrial production, trade data, is not nearly as supportive, so it will be interesting to see how it washes out for the balance of the year.

Market.From a techno analysis perspective, it looks like the Canadian market is doing a rotation from growth stocks towards value, which places us in the camps of both banks and energy, which combined are over half the weight of the TSX. It looks like it is time to shine for the TSX for the next 3-6 months.

Market. For stocks hitting 52-week highs, everybody thinks they should be avoided. But if you look at stocks that hit the 52-week high list, they tend to keep on doing it. If you want to beat the market, you can look at the high list and pick winners. However, you have to do a little research, and understand that it does better for bigger names. Little stocks can hit a 52-week high and low in the same month, so it doesn’t work as well for volatile or illiquid stocks. It works quite well for the bigger names, because the market is the best analyst, and the smartest people are in their the earliest, and are telling you it is a Buy, and it will be a Buy for some time generally. He is about 50% cash because he knows a correction is going to come, and would rather be there ready to pounce on opportunities.

Market.The values aren’t really here for a long-sustained market ride. He would give the market 2%-3% more to go before it runs out of gas. However, it is grinding on, so what are people doing? There is an element saying they are going to buy ETF’s. Then there are other people asking where are the really good values? Banks and financials really stand out as being the cheapest group. The auto stocks have been really ground down in the last year or so, and statistically if their earnings hold where they are, they are actually a reasonable value. He is running about 30% cash.

Marijuana. Doesn’t believe any of the current players will ever make money in the marijuana business. In Canada, we have to heat greenhouses in the winter and cool them in the summer, when compared to someone in a more temperate climate, who doesn’t have any of those costs. In Ontario, they are going to be marketed through an LCBO equivalent which is going to be a high cost structure. Doesn’t think they will be able to put the black-market out of business.

Market.Stocks keep grinding higher day by day, reaching new highs. A couple of things are causing this. We’ve had ultra low interest rates for so long, so the only place to go was the equity market. At the same time, we are getting small-cap stocks starting to move because of a hint of tax cuts in the US. Back in 2009, you could buy $1 of earnings for $6-$10, and now it is 15 to 50 times depending on the size of companies. With the market trading at about 23X earnings, that usually signals a peak. But with momentum investing, this could go on for 2 or 3 years. Investors need to be cautious. With their average purchases of $10,000 for stock, maybe they just want to do $5,000-$6,000, sit on the cash and see what happens next. It is very important for investors to understand what interest rate sensitivity does. When you look at the telecoms, utilities or even the REITs, you are starting to see their bonds equal the yields to what the stocks are right now. By buying the common equity, investors are getting bond returns with equity-like risks, which is the exact opposite of what you want to be when thinking about risk/reward. Also, investors have to realize that it is not yield, it is growth in the dividend.

Market. World markets are at near record highs. The Purchasers Managers Index shows there is synchronized growth globally, such as we have not seen during this century. It has been a tough year for Canadian investors to make money, because they have been hit by the strong Cdn$ which has been going up as well as having one of the worst performing stock markets in the developed world. If you bought the S&P 500 at the very worst possible time, the peak in 2007, you have now doubled your money.