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

What is an ETF? Like a mutual fund, they are highly diversified. However, unlike a mutual fund, they are very cheap. Mutual fund fees are often 2.5%. You can buy a similar ETF with almost exactly the same number of stocks and the same weightings for 15 basis points. A disadvantage is that if you are someone who is contributing monthly to your portfolio, a discount broker will charge you a commission. For the smaller investor who is contributing on a monthly basis, he would recommend going to your local bank and buy the Canadian Index Fund or US Index Fund. Management fee should be around 90 basis points.

Medical marijuana ETF’s? There is no ETF. The reason is, a lot of these companies are little with no liquidity, and the banks don’t want to hold their money.

Canadian Venture Exchange ETF? There used to be one through iShares, but there isn’t any longer. It is just not feasible to run.

How do Binary Options work? These are inter-day options, but it is just nonsense. This is something that people should not be involved in. The risks are huge and they are very, very short term.

Move to ETF’s from mutual funds? If you have Bank owned mutual funds, there is no problem at all because you can sell them without paying a commission, as well as having lower fees than regular mutual funds. With regular mutual funds, you have the curse of deferred sales charges of about 5%. He tends to look at the overall fees of their whole portfolio. You can take a hit now, or wait for 2 years and end up paying twice that in regular fees. First, call the mutual fund to see what their DSCs are on your portfolio.

Buy options on a gold stock, or use an ETF? He is not a fan of gold, and has been negative on it for years. Gold reacts to the value of the US$. If you have a strong US$, and it looks like interest rates are going to increase slightly, which will increase the value of the US$, why would you want to be in gold? Also, if he is going to take a risk on a commodity, he would rather take the risk and not have it hedged off and have his upside limited.

Market. If you just read the headlines, you would think we are in dire straits. This market is battle weary and has had a lot of big things thrown at it. Quite surprisingly, it has actually been very resilient. Technically he thinks there is something about to resolve itself as the S&P 500 is getting into a wedge where it is either going to go one way or the other. He thinks it is going to burst up. If you follow the market fundamentals, although they are not extremely robust and exciting, they have been moving in the right direction. The recent ISM Manufacturing report was quite phenomenal, one of the best measurements he has seen in a long time. It wasn’t great on the top line “headline” number, but all the sub components, the different sectors of the market, had great readings. Something like 8 out of 9 sub sectors were in a positive mode. The sentiment in the market is very muted, and he is convinced that most people are still afraid of what happened in 2008, so every $1 that is put in the market right now, is done with trepidation, a lot of research and a lot of soul-searching. Doesn’t think anything is going to happen between now and the US elections. He has been at about 15% cash all year.

Market. Indexing or quasi-indexing is just not going to work. In the Canadian market, there are so few stocks to choose from. With everybody in the newspapers, regulators and media pushing everyone towards ETF’s, passive investing or Index investing, this is changing the means to have the efficient market hypothesis. What was perceived as a safer course of action, actually becomes a lot riskier. This applies to any sort of investment strategy; if everybody is doing it, you want to be doing something else.

Forestry sector? The raw materials have so many issues attached to them. He prefers hardwood distributors to any of the softwoods or basic manufacturers of 2X4s. Also, you should have an “added product”, if you want to participate in the growth in the US housing market.

REITs? Real estate has done very, very well. The trick will be going forward. There is only so much land that people want to live in. Interest rates are so low that the return that investors are willing to accept on real estate investments, has pushed lower and lower and lower. This makes it very vulnerable to a rise in interest rates. Every time people think interest rates are going higher, the REIT sector takes a hit.

A winter stock, for a TFSA account gain in the next 6 months? Energy stocks do well at this time of year. If you buy them now, and sell them in the early, early spring, you should historically do well. However, the last 2 winters have been really, really mild, and we have had a very, very hot summer. He would look at some of the bigger ones like an Encana (ECA-T) or a Crescent Point (CPG-T).

Markets. The S&P 500 was stuck in a holding pattern a year long and then broke out. Now it is stuck again. If we break the new support you then you start to look at lower levels of support. As you come into an election it can be quite volatile (Sept and Oct) which are also seasonally low. September did not move lower this year, however. Right now the odds are greater for a market correction than not. Put your cash to work during the fear trade before the election.

Gold. $1250 would be the support level. Old resistance becomes support. If it doesn’t hold $1250 it could go down to $1200. We have to wait and see.

REITs. He sold one of his two holdings to raise cash recently. The new mortgage rules will affect some REITs and not others, depending on whether they hold residential apartments. XRE-T looks a little bearish right now as it is trending down.

When to convert from US$ to CAD$. The US$ is in a tight trading range. It is not going to sell off any time soon, but it is not going to take off. If oil got to $62 it will put upward pressure on the CAD$ but raising interest rates could put upward pressure on the US$. He would keep an eye on oil prices as they will have the biggest impact.