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

Healthcare. He is bullish on this sector. People on both sides of the political aisle are scared to death, because healthcare costs are just jumping double digit percentages, and questioning what can be done about that. His analysis is that the downside risk, should they repeal Obamacare and do nothing about it, is probably less then if they repeal it, put a new name on it, prop it back up, and it is business as usual, it would have tremendous upside. Valuations are far more tempting than they were a year ago.

Markets. ‘Closet Indexing’ is when a manager buys an underperforming stock that is a large part of the index, but in a portion less than what it makes up in the market index. A study has found that 37% of the Canadian market is subject to ‘closet indexing’. The study only looked at mutual funds. She thinks closet indexing is designed to underperform. She feels managers should be more selective.

Tweets controlling the market? It creates volatility and buying opportunities in good companies.

Markets. Brexit news is coming tomorrow from Britain. Brexit is part of the shift to the right and it shows that people don’t want globalization any longer. You have to understand what it means for growth and volatility. It is a headwind. It will be good for British exports, but if you invest in the UK, you better buy the hedged version of the ETF. Trump is protectionist. We are just beginning to see what this means on a trade basis. He thinks it will allow not more than 2% growth in the US GDP. The banks have had a big run up and he sees a sell-the-news happening soon. There have been some misses and we have to watch for those. Inauguration of Trump happens this week and you have to look at seasonally patters for the last 60 years, post inauguration day. You don’t have much growth on average for the rest of the year. A lot of news is priced into the market. You have to play defense. A post inauguration correction is expected.

Educational Segment. Smart Beta ETFs. Sustainable yield. High dividend stocks can’t usually sustain the high dividends. Sphere’s strategy aims to offer sustainable dividends. You have to eliminate stocks from an ETF that can’t sustain high dividends. They have a screen for these companies. You lose a little yield, but greatly reduce volatility. SHC-T is a Canadian sustainable high yield ETF. They have US, Europe, Asian etc as well. It is not always about the MERs.

Markets. He is not sure he knows a whole lot about a Donald Trump presidency. You cannot make an investment decision based on tweets. The trends in place prior to the election – reflation, cyclical doing well, and interest sensitives acting poorly, will extend into this year. He is a magna investor and did nothing. You do not know where the rhetoric will turn into policy. You have to stick to trends and themes that have been developing. Stay away from high multiple growth stocks. Stocks hit by a Trump tweet have recovered, but it is not how this guest manages money.

Market. Because Trump won both houses of Congress, and there was a sense he was going to bring down tax rates, get rid of a lot of red tape, temper Dodd-Frank a little, we need to actually see things getting done and what is on the agenda. There will be some volatility in the market, and you want to Buy the volatility. If he can accomplish even half what he has talked about, it would bode well for the stock market. When you have an opportunity like this, if you like a particular stock and the fundamentals and a particular sector, now would be the time to get in. However, you have to feel comfortable with what you are buying.

ETFs. The ETF market is running at about $114 billion in Canada, and well over $2 trillion in the US. 2016 was a record year for growth in both countries. This is coming from all directions at once, institutional clients, retail advisors, etc.

A geographical proportion ETF for an RRSP? You want to put in those kinds of ETF’s that deliver income or dividend that is taxed the most if it were outside the RRSP. That would mostly be bonds, or international equities. The breakout between asset allocation is the heart of the main question of investing. You really need to begin there before picking out your ETF for each asset class. The 5 asset classes would be a 3^rd Canadian equity, a 3^rd US equity, a 3^rd international equity, some fixed income and cash.

Bonds? There are a lot of reasons to question why you should be in the bond market at all. Investors shouldn’t lose sight of the reason bonds are in a portfolio. They are the ultimate cushion in case there is a very steep market drop. A “cash account” exposes you to one issuer, such as the bank where your money is deposited. However, cash may be more tax efficient. It is hard for bonds to compete with a high interest savings account these days.

Market. Feels investors are really looking for clues from Donald Trump for timing, magnitude and details surrounding some of the policies that he has talked about, and we didn’t see a lot of that. Thinks the trend for corporate tax reform, tax cuts, infrastructure spending, deregulation will continue, and will feed into those sectors that are in the cyclicals, and not into the more defensive types of names. Given the massive run up since the election, it is very, very possible there will be a pause or consolidation in the market. If interest rates move too quickly, that could pose some anxiety in the market. We also need to see some very sustainable strong corporate earnings. If there are some policy disappointments or some excessive protectionist measures that is taken by Trump, that could also deflate some of the market moves. Thinks value will outperform growth once again this year, so value is a theme he is holding onto. Financials fall into both the cyclical and value themes after having been beaten up for so many years.

Markets. Earnings are expected to grow at a crisp clip this year. The S&P has not been that cheap for quite some time, but we have gone through an earnings recession ending half way through last year. Now earnings are going to grow into multiples. 17.5 times earnings will not be so high later. Multiples may be able to contract sooner in this year. The Santa Clause Rally that was called the Trump Rally happened when Trump had not addressed details of process regarding his initiatives. Now markets are taking a breather, waiting for this. Growth will translate into dividend growth this year.

Gold. He would not handicap gold to just performing in 2017. It has been in decline for several years, but now you have the opportunity for gold to be in the sweet spot. People might get scared of what markets are going to do, or people may believe there really is inflationary pressure in the system.

Why is oil going up and some oil stocks going down? Sometimes it is the balance sheet of the company that is driving the stock price. The crude market itself may not be enough to drive the company. People may be looking at infrastructure growth and so on. Oil price is only one component for the overall stock price.

Gold – Should it be in the portfolio? Yes. It is an inflation hedge. This was a non-issue for years. Now you are seeing wage inflation and general inflation is getting into the system. Gold can hedge against these pressures. AEM-T has probably one of the best management teams out there. They may have the benefit of the doubt already, but G-T probably has an opportunity to get a return above that from just gold. Gold will peak in about 1.5 year’s time.