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

Market. This has been a great 5 years. It is not a cheap market anymore. We’ve gone from very cheap to pretty fairly valued right now. PE multiples on the index are pretty much in line with historical averages, but he feels that the next stage in the market comes from earnings growth, which we are starting to see with some of these fourth-quarter reports that have been coming in.

North American investment strategy? Has not changed his strategy since the election. The concern is that on any given day, the president can do or say something irrational and send markets in a tizzy. There are checks and balances in place that will sort of moderate things, and you can’t start making investment decisions on what might happen. To change your investment strategy over a 3-5 year period, would not be in keeping with your best interests. His portfolios are basically 50-50 between Canada and the US.

Market. He is cautiously optimistic for 2017. There is a high level of uncertainty with respect to Trump being elected in the US, and how that is going to impact the financial markets. The companies he looks at, growth companies with high ROE’s, spent the better part of 2016 lagging the market as money moved from growth stocks back towards financials and energy. Feels it is time for those stocks to regain their leadership positions. He screens for companies that meet certain criteria, but some of the sectors that fall through his screen would be consumer staples such as Ross Stores (ROST-Q), Alimentation Couche-Tard (ATD.B-T) and Dollarama (DOL-T). He feels comfortable owning those types of companies as he feels they can do well in a great economy moving forward, as well as if the economy takes a step back. Also, the healthcare sector is attractive, as is technology companies.

Stop Losses. Using stops in portfolios is a certain kind of style for people who do not understand diversification and are pure momentum players. It is fine. But the vast majority of guests on BNN are portfolio managers and have a long term horizon. Being stopped out can be silly in that case. He is going to do a series on them in his educational segment in the future.

Markets. The first one hundred days of Trump: It remains to be seen, but today we saw some of the rhetoric about trade and breaking NAFTA. This is what people were worried about. You will see markets getting a little nervous. He is looking for markets to go back to levels from around the time of the election in November over the next couple of months. Trump’s talk to CEOs about taxes to companies that moved production outside of boarders should be negative. Trump’s administration does not want to go down the road of a process where they get things done without congress. So far so good in this year’s earnings season, but expectations were high with a rally preceding it. A lot of good news is priced in.

ETF for Demographics. It would be great if they had an ETF for this. There is not one in the market, but he thinks someone is working on it. Maybe in the next couple of quarters one comes out.

ZEB-T & ZWB-T or Buy The Banks Directly? A covered call strategy takes a lot of work to implement so you would not want to do it yourself. He thinks without the covered call, this index will come down. You could buy the six banks yourself if your portfolio was big enough, but the covered call strategy would be a lot to implement yourself.

North American Oil. With Trump turning on the spigots there will be a lot more investment in the oil area. Despite the oversupply, there is still a lot of money to be made in fracking. They are getting more efficient every day. It will be a great growth area. Buy dips in this area.

Educational Segment. Smart Factor ETFs. Research affiliates. He showed a graphic depicting smart factors that look at momentum, volatility, liquidity, profitability, etc. If you calculate excess returns, on average over history about 40 years you average about 2.4% in excess return. The average volatility is mostly less than the index. A second graphic looked at cross correlation of factor returns. If you put two together in a portfolio you get diversification.

Markets. They are having trouble getting access to pipelines. Gas is huge in North America. An exciting part of Western Canada is Gas. But you are having trouble getting your gas taken away. When gas supply came off last year, the price went up. Now Oil and associated gas is going to come on line. Companies are being asked to commit for very long terms for gas transmission and they just can’t commit to the current transmission prices that long (10 years). So companies now just can’t get all their gas to market.

Market. Technically, the market looks good, and thinks we are going to do good on the earnings side. On the right side of the ledger, you have all of these political issues including possible protectionism. Also, the French election and BREXIT are going to be huge issues. He is starting to take advantage and bought some energy today. Doesn’t see energy as being involved in protectionism. Looking at the trade balance between the US and Canada, it is very equal. It’s the trade with Mexico and China that the US wants to go after. Volatility is also going to go up, so you want to be positioned in a few areas for that. Gold is one area you want to have a little bit right now. Also, technology will do well as well as the energy infrastructure space.

Dividends split companies? These will basically have a capital stock that doesn’t pay a dividend, and another piece that pays a dividend. They arrange this by using leverage, and usually invest in underlying entities that pay a dividend or generates cash flow. Depending on what you are invested in and how much leverage there is, and how the market performs, that is really going to determine how the split share does.

Market. The secret on seasonality is that you Buy on the rumour and Sell on the news. Historically, during the first 4 months after a president is elected, the market has a tendency to reach a fairly important short-term peak right around inaugural day. After that, it tends to go sideways for a time. Once you get your executives into power and Congress starts to do things, then the market moves higher. Historically, the Canadian market has done very well from approximately the beginning of December right through until February of each year, and there is good reason to believe that that is going to happen again this year. There is good reason to believe that 4^th quarter earnings by Canadian companies are going to be very strong. In fact, the top 60 companies in Canada are expected to show a gain of 8.3% on a year-over-year basis. By the end of the year, markets will be significantly higher.

Markets. We had a lovely lead up until tomorrow (Inauguration), and the market has said that this is really wonderful. Trump’s tweeting rather changed the rules of the game. Now we are going to find out if and when some of his programs can be put into place. Interest rates are going to wend their way upward. This year will tend to be a value market with high momentum stocks running out of gas. You have to pay attention this year to the values of what you are buying.

Market. He tries to make investments in companies that will do well irrespective of political considerations. Feels people have been paying a lot more attention to news events, than they have been to fundamentals. There has been disparity since the election, where people have been taking Trump at face value that he can solve all the problems in the world, and they’ve jumped on the bandwagon of buying cyclicals, industrials and financials. This has left some pretty good companies behind. He focuses on long-term themes such as information, technology, education, healthcare, etc.