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

How to select REITs? Watch the debt to enterprise value, or debt to total assets. Look at FFO. 12-15 range is fair. Growth is how they are growing FFO over time.

Markets. The economy in the US is still chugging along. It is early in their recovery. Some months, jobs are very encouraging and other months they are not, so don’t make a judgment on one economic number. The 2 year bond yield in the US is starting to edge up, as is the 10 year, which is encouraging to him. Thinks the Fed will move interest rates in the next 6 months. He has 55% of portfolio out of North America. That’s where bargains are. He is looking in Northern Europe and emerging markets. It could take a year or two to pan out for him. Toronto has been one of the best markets this year, but he is worried about oil prices. If the US dollar continues to be strong that does not bode well for commodities and so for Canada.

Financials and how much to allocate. A lot of investors allocate a lot to financials due to weighting in the index. He does not do that. He only owns one Canadian bank (BNS-T). He has 3 US financials.

Markets. The stimulus announcement today was a real surprise. It’s not a huge program, though. There are at least two countries in Europe with bonds having negative yields. You are going to see rate hikes happening over the next 6 to 12 months. This is priced into the market. The long bonds have been outperforming.

ETF? A lot of the European rally has finished. You have to worry about the Euro’s value as it can wipe out your returns. You need currency hedging, but he is not aware of a European Bond ETF that is currency hedged.

Preferred Shares or Bonds? Prefers preferred shares. Five year rate reset are best.

Preferred perpetuals. Fixed dividend rate that never matures, but company can call it. There are very wide credit spreads.

Ville de Quebec. 2.3% bond due Dec 4/18. (Top Pick Nov 22/13, Up 3.5%) It was a short term play.

Time to buy Convertibles? The US market is very different than the Canadian one. In the US they can have 0 coupons and it is just about the option to convert. They can sell off quickly. In Canada one of them is a Top Pick today.

The Big 5 Bank Preferred Shares. Ratings have recently been reduced. The new rules allow shares to count as Tier 1 capital if you have the ability to lose all if the bank goes belly up. The banks have not changed, but the structure of the share has.

Bond Ladder. You should go out 10 years. Longer term yields are higher. Equal weighting per year and 50/50 government / corporate.

Markets. Canada has been hitting all-time highs. We haven’t seen a correction yet and he is still looking for one. He would view a 5%-7% correction as positive for the market. Likes the supply/demand fundamentals for global energy. With the change in technology, such as horizontal drilling and fracing, the companies are able to go explore existing fields that were mature before and find new stuff, which is great. He builds a portfolio based on a 3% inflation rate and tries to get a yield of about 3% and growing, so looks for companies that consistently increase their dividend year in and year out. Currently holds 29 names.

A DRIP program, especially if they entice you with a 5% discount? Typically he won’t do a DRIP in a portfolio, but they make a lot of sense in his own personal portfolio. If you don’t need the income and you like the company, you may as well reinvest in the company. If you can get a discount, that is even better.

Interest rates. If they rise, is it better to buy financials rather than capital intensive dividend stocks? If rates go up quickly, the whole market will get hit temporarily, like we saw happen in 2013. If they go up in a gradual fashion, that is good for financials, both banks and insurance companies.

TSX Venture. This still has room to run. It is up about 25% over the last year since February 2015, and earnings estimates keep rising. The last estimate is for $1,058 for 2015. The strong US economy is helping the Canadian economy turn around. The weak Cdn$ is helping on the export side. Resource sector is getting paid in US$ meaning the top line is growing as the Cdn$ is weakening. Financial sector is pretty solid as well. He would recommend looking for sustainable and growing dividends within companies.