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

Market. We are starting to see a bit of roll out. Tech stocks particularly, have had some really strict valuations, and some of the money is being taken out of that sector. There is also a global rate cycle that is going to be moving forward and capital being put to work in that market. There is a sector rotation, and techs are just going to take a pause to see if the earnings are going to come through. For cost conscious investors, this is probably the time to buy. Summer is the better time to buy.

Effect of Trump lowering taxes on US companies situated overseas? A good example of a company in that context would be Waters Corp (WAT-N). A biotech company that has a ton of cash offshore. They didn’t want to bring capital back to the US because of higher taxes, so instead they have been buying back tons and tons of shares. A very inefficient way to run a company. If Trump can get capital back into the US, the companies will spend the capital and in many cases give US healthcare/US tech a buying advantage relative to European competition. It will also allow them to do acquisitions. On the other hand, he is not entirely sure that Trump can manage to do it.

Markets. He was bearish last time about Cannabis. These stocks have been going down 11 weeks in a row. Cannabis will continue to be a business unto itself. He is looking for a bottom on the stocks. See his Top Picks. He likes the infrastructure associated with the business. Some jurisdictions may not allow you to walk down the street smoking up. It Is up to the local municipality as to what they will allow in terms of smoking. 5 or 10 years from now distribution will be key. We have a free market approach to the supply but when we go to sell the stuff, we are going to say where, how much and what the price is. He does not know how this will kick back on us. He does not think mail order will work.

Pharma is facing one of the biggest homeopathic medicines in the world. But they will not buy out a Cannabis company unless they can patent something that is much better. You should wait and see if this business is profitable.

Market. The market has done very, very well. In most cases, it has doubled since the bottom of 2009. There is a sense that a short-term pause or correction at this time might be healthy. It would give you a chance to reload on some value stocks. The global economic growth is picking up speed, so the backdrop is good for the economy, and therefore good for earnings growth. The US Federal Reserve has started to raise interest rates, and so far it hasn’t had any negative impact, but at some point it might cause a bit of tightening. At this stage, your cash allocation should be closer to your maximum because of the uncertainty with high interest rates and delays in some of the reforms that might be coming. Hold onto your core holdings, but maybe take profits selectively and get ready to buy on a downturn.

Market. Global conditions are very favourable for stocks for the next 18 months. Conditions are good because corporate profits are strong. Earnings, especially out of the US, have been good and we should start getting more performance out of Europe and emerging market countries. The emphasis in the US may shift to the Fed selling off their bond portfolio a little faster than had been expected, which would be a good thing for banks, as it would get away from the flat yield curve with the 10 year rates moving up a little faster. He would be underweight Canada as it is just flat and is less interesting than the US or the international markets.

Canadian Bank ETF with a good dividend? All the banks pay good dividends. In Canada there are 2 specialty ETF’s for banks iUnits S&P Financial (XFN-T) and BMO has an equal weighted banks for Canada ETF. He is not really expecting much more out of the Canadian banks. He sees earnings growth slowing in Canada, which means dividend growth will slow. not sure a Canadian bank ETF is going to be worthwhile.

US ETF’s bought in Cdn$. How do you hedge the loss with a rising Cdn$? You can actively manage the currency position of your portfolio by either buying hedged or unhedged ETF’s. In his case, active decisions on currency is a big part of what he does. At the moment, he is not hedged, deciding not to react to what was happening in a rising Cdn$, simply because he thinks the Cdn$ for the balance of the year will stay in a range of $.75 plus or minus $.02. Currently you are at the top end of the range and down at $0.73 at the bottom end of the range. You can either play that spread by trading in and out, choose to ignore it, or if you are more conservative, you can buy currency hedged ETF’s.

Market. We are a week away from the Bank of Canada’s decision. They will probably hike interest rates, but he is not sure there is a particularly good reason for this. To slow down housing markets, it would seem that the housing specific rules are accomplishing that anyway. He would worry about the strengthening of the Cdn$ and the impact of that on exports. He is in a strange spot at the moment in that he is bullish on energy, but bearish on almost everything else. It’ll be interesting to see, if he is right on energy, what happens to the rest of the market. The issue on energy is that a lot of money was raised, a lot of money has been spent and no money has actually been made. You can grow production all you want, but at some point economics has to kick in, which he believes is happening now.

Market. His portfolios have been 2/3 US and 1/3 Canada since 2012. The US provides more diversity and you don’t live and die by what happens to commodities. How do you partition a portfolio for a continued upside we have seen, but at the same time, position portfolios to be able to weather a correction? He starts with a conservative mandate, so all his positions are dividend paying names, and never has more than 5% in any one name. He has about 5% cash, and since February has had about a 5% weighting in gold bullion. Bought that unhedged, which has given him an external layer of return. The 5% cash and 5% gold is his defence, because in this type of market, you have to be very careful. With 5% cash, you can still beat the market with good stock picking. He stays away from China and India, and really focuses on developed markets. When you go into emerging market countries, you take on a few layers of extra risks, such as validity of their accounting standards or regulations.

Market. Financials and energy are poised for a rebound in the 2^nd half of the year. Our banks are net down for the year, which is unusual. Home Capital worry is dissipating and banks have now retreated to an average multiple, so they will now be positive. Energy has overshot a little, and is set up to get into the low $50. We may well outperform the US in the 2^nd half of the year. Dividends will provide the bulk of the returns for the rest of 2017. He sees returns as mid-single digits.

Longevity of Canadian Banks? These have been around for over 100 years. They are innovative and have very good capital positions. They have such good capital and such entrenched positions in the oligopoly of Canadian banking, he doesn’t see a problem. He is completely comfortable owning these for the dividend, with some growth.

Food stocks? He would be reluctant to own something that is just Canadian. Owns nothing in the food group, but does own Alimentation Couche-Tard because it is a Canadian way to get some retail, but it is about 90% non-Canadian.

Something that gives good dividends? There are a number of very good dividend paying ETF’s such as iShares Cdn Div (XDV-T), BMO Canadian Dividend (ZDV-T), etc. that are all paying about 3.5%. You can also take a look at a couple of bond ETF’s.

Using option straddles? A straddle is basically a situation where you can’t decide which direction the stock is going to go. You Buy a Put and you Buy a Call in roughly equal amounts. Your costs on going in on both sides can be fairly substantial. The only time he would do a straddle is when it is event driven. You have depleting time value on both sides, and it’s a good way to lose your shirt.