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

REITs or utilities for a buy & hold investor? Both are defensive sectors that have sold off quite significantly since the election. Prefers REITs over utilities, because there is a bit more of a cyclical component relative to regulated utilities. Generally, REITs should benefit from an improvement in economic activity.

Markets. The US revenue growth is about 4% year over year and if you factor in 2% inflation, then back out energy and financials, you get negative growth. The forecast is for double digit earnings growth going forward and he does not see that happening. He is concerned about some of the policies that Trump promised. Closing the borders is negative for growth. Entitlement reform is Medicare. It is estimated to cost $50 Trillion out to 2050. If Trump tacks on these border tariffs, there is still potential for the US$ to strengthen.

ETFs for smaller amounts of cash to invest. You can buy a handful of them and buy a much diversified global portfolio. You need to understand risk management.

Educational Segment. Smart Factor ETFs. Reducing portfolio risk. The trend between actively managed mutual funds compared to what capital is going into ETFs show money is moving that way. You can do asset allocation with ETFs and that is by far the most important consideration. The bigger companies dominate the NASDAQ. Three sectors make up half the index. It is very concentrated and heavily weighted into a few stocks. All smart factor ETFs beat the index. They all have different volatilities. You should use all of the indexing strategies in your portfolio.

Markets. We are about 1/3^rd through the Q4 earnings season with 70% of companies beating estimates. This is what she expects. In the end it looks like we are on track for the end of 2016 to get to zero earnings growth. Earnings growth for next year have remained relatively stable. They have not started to go down as they often do with Q4 reports. Trump’s immigration policy could add volatility, but otherwise things look good for the year. The market is at the top of its range as being expensive in terms of PE. Bad tweets and negative headlines have created some opportunities. We are seeing slowing sales, but housing prices are at all time highs. We are seeing more first time homebuyers. She sees high growth there. There are cheaper valuations there in the broader market.

Steel Sector in light of Trump. She likes US steel and the materials sector in general. This is one area where you need all of it for infrastructure. A lot of their orders are exports so she sees good growth across the board. Infrastructure spending will likely not start until next year.

Market. The market pulled back on Trump’s decision to stop people from 7 countries coming into the US. Doesn’t think it means very much in the big picture. The market has gone up on expectation of policy changes. One of those changes is less regulation and lower taxes, and maybe some fiscal stimulus. Any time we deviate from that message, given that we have had a nice run, the market looks for an opportunity to sell off. There is a little concern that we have gone up too far and fast. Thinks the market will continue to rally, but will be bumpy because we have someone unconventional at the helm in the White House right now. We are going to be range bound in energy. You can make money in energy stocks, but you can’t sit expecting it to be higher in 12 months’ time. You have to look for opportunities and jump in when they present themselves and there is a big selloff.

Trade hard Silver in? He would suggest you trade this in and buy Gold, or better yet US dollars. However, if you want to stay within precious metals, he would move towards gold. Silver typically trades at a lag to gold and is more volatile over long periods of time. Also, it is less likely to hold its value.

Market. Even with the indications from the Republicans that Canada is in the crosshairs for potential terrorists, he is not changing his portfolios, but is watching and listening closely. As a portfolio manager, it is riskier to speculate what a government will or will not do, compared to buying good businesses at the right price, and giving them the time that they need to appreciate and reflect back growth.

Preferred shares? If talking about reset preferreds, the fixed resets, it is based off a five-year Government of Canada bond, and then there is an extra component that can vary anywhere between half a point to anywhere over 2%, which is based on the credit quality of the issuer. The lower the quality, the more of a premium they pay. Preferreds have really recovered over the last 12 months or so. You have to ask yourself what do the reset terms look like. The shorter it is, the more risk you face if anything funny happens with interest rates. His view is that the Canadian economy is struggling, and there is a meaningful probability that interest rates will be cut over the next 12-18 months. If that happened, the reset preferred market would be absolutely decimated. He would sell current holdings and reinvest into something that has a lower gain.

Market. One of the big things for Canada was the US signing of the Keystone XL pipeline. On the other side, we just don’t know what Trump is going to do with regards to revisiting NAFTA. The stock market likes it so far. If things continue, a 20% increase on imported goods is going to increase costs for products consumed in the US, but also on goods that are imported to be remanufactured and sent out to the US. There are going to be opportunities for those who take contrarian views.

Markets. He started to see changes in the economy last summer. The bond yield was going up even before the election. Trump and the republican’s control of the house is the catalyst for them to get control and stop the fed dictating the direction of the markets. He has seen a major change and he was preparing for it well before the election. He knew there had to be a catalyst for some change even if it was not Trump. It has treated him quite well. He is in cyclical companies that will benefit from economic growth. He has been increasing weightings in financials for the last couple of years. A flat yield curve could not go on indefinitely.

Market. The macro political force is very annoying and very distracting, but it will always be a part of the investment climate. A great example of when you really do have to pay attention to what is going on. He thinks there is going to be some interesting trade wars going on around the world, some currency manipulation around the world. Things can change, and the rug can get pulled from underneath your feet by an announcement or an Executive Order, or even a tweet. It looks like Canada is going to be left untouched for the time being, we can’t expect that to always be the case. He is looking at his whole portfolio and every scenario that is possible for every stock he owns, and being prepared. It looks like Trump is trying to show China, with his stiff principles on Mexico right now. Stay invested, but watch your stuff.

Marijuana? Big Pharma is not interested in owning these companies. However, some of the middle cap or smaller cap companies would be absolutely interested in these. What you really need, in order for this to happen, is that regulations need to be homogenized state-by-state, as well as dealing with some of the banking problems.

Market. He looks at a number of different things including economic and market indicators. On the economic indicator he pretty much sees green lights across the board on everything he is looking at. The 2 big ones he looks at are the ISM Manufacturing and ISM Services. They troughed early almost a year ago, and have continually and steadily been moving up. At the same time, you are seeing the leading economic indicators continuing to improve also. Current data continues to be improving and fairly strong. He is confident and constructive on the market. In the shorter term, he still sees a little sentiment that concerns him, but can’t be used for timing on a day-to-day basis, but he would like to see some of that move in favour of a longer-term market.