Larry Berman CFA, CMT, CTA

The shift from active to passive ETFs has been driven by reduce market efficiency and price discovery (i.e. Tesla's inflated PE), increase market concentration and volatility, and growing correlation and systemic risk. Active funds have lagged the benchmark, with 79% of these funds lagging over 3 years in the U.S., or 96% lagging over 10 year in Canada or 91% lagging over 5 years in Europe. Also, the median MER of mutual funds in 0.8% vs. 0.3% for ETFs and nearly 0% for the SPDR ETF. As we see society age and more reach age 65, more will demand fixed income assets away from growth investing. This is a serious shift, one that is potentially more tax-efficient. This shift is mostly driven by demographics. We have hit the bottom in terms of ETF cost.

Central banks will announce their interest rate moves soon. Canada is seeing a weaker economy with significant job losses recently. The BOC will likely cut 0.25%. The U.S. will cut 0.25%  twice this year, is what the market is pricing. This will depend on economic data. Cutting by 0.5% at once is silly and looking like it is bowing to political pressure. A 0.5% total cut this year is unlikely. Those who say the Fed is already behind, then the Fed should cut 1.00-1.5%, because we're going into a recession. The Fed doesn't have enough info to make the 0.5% cut now. The U.S. labour market has slowed dramatic, not mass layoffs, but hiring has slowed a lot. How will Powell answer questions about political interference. Watch for that.

It invests in corporate bonds and pays out all the income from them. Don't expect capital gains. Over the last 15 years, the average gain is over 2%. Remember, these are money market funds so were hardly returns after Covid, though as interest rates have normalized, the returns look compelling now. It's the best money market solution for those looking for a little extra yield with the safety of money markets.

Is triple-A rated, collateralized loan obligations, a way to generate an enhanced yield without taking much interest rate risk. There is a credit risk, though, if credit spreads widen. Generates a nice return in a stable environment. The dividend is 5.36%.

This is bond exposure, so if you're getting income in a taxable account, you don't get the benefit of the CRA tax credit. The floating rate means that if interest rates rise, you get protection; if they fall, you don't benefit. And rates are expected to come down. But if inflation increases, and rates are expected to climb, then you want floating rate exposure.

This uses long bonds with a covered call strategy. If the market goes up, you get called away and get little gain, though you get the income. The chart is down or sideways this year, -16% in share price, though -6% in total return. You get a huge coupon. It's very tax-efficient exposure to US fixed income, but is not a growth story. NAV will erode over time.

ZWE is better in the long run, but don't expect much growth. You're selling calls, but you collect a high dividend. Loves them both. This is hedged to the CAD. ZWE is more suited for the retail investor than the ZWP; don't worry about the currency exposure to the Euro.

ZWE is better in the long run, but don't expect much growth. You're selling calls, but you collect a high dividend. Loves them both. This is hedged to the CAD. ZWE is more suited for the retail investor than the ZWP; don't worry about the currency exposure to the Euro.

Both have money market exposure, but ZMMK is government debt, and ZST is corporate debt. Corporate is slightly riskier, so you get a premium yield. ZST buys quality investment grade, though there is some credit risk. Pretty safe.

Trades at 40s forward PE, extremely overvalued (should be 20x). Avoid.

Given the string of numbers we've seen both north and south of the border, he'd be inclined to want to cut rates. However, the Bank of Canada's already been very aggressive on that front. They don't need to, but it's clear with the job losses we're seeing that the level of nervousness at the BOC is high. 

It could go either way at the next meeting. Right now, the market's giving it an 80% chance they'll cut by 25 bps.

We had a big revision a month ago to the employment situation, which President Trump was very upset about. Then we got Friday's report in the US that confirmed a fourth month of weakening payroll growth in the US. At an average of 75k jobs a month, which comes out to a bit less on a 3-month average, the trend is clear.

The demand for labour in the US is weakening, but we're not yet seeing unemployment and layoffs tick up in the weekly claims. That's the next part of the cycle. If this gets worse, we're going to start to see layoffs at some point. Right now, it's only a pause in the demand for labour.

Now there's the Treasury influence on the Fed. Scott Bessent put out a piece in some of the journals on the weekend about Fed independence. There's a political game going on here. They talk about independence, but the influence is very clear. The Fed will certainly do 25 bps. Could they or should they do 50 bps? Probably not. 

The slower they go, the better it will be in the long run. Don't want long bonds rallying higher on fears of inflation being reignited. If the labour situation is that weak, then they will have to be more aggressive. We won't know until we see more data. Predictions in this area are notoriously imprecise.

Equity markets are extremely overvalued, especially in the US. Better value in other places. You can switch from a growth-oriented ETF to something that gives you a bit more protection. This allows you to keep playing. ETFs are coming out with more innovative products, such as one that gives you 10% upside over the next year, or 10% on the downside if markets go down 10%. A good choice for those who might think there's not much upside left, but don't see a big correction coming. See today's Educational Segment.

It's not about raising cash. It's about trying to stay fully invested. As we know from history, markets that are overvalued can remain overvalued for years. The late 90s was a great example with the tech bubble. This AI-led market expansion has decades to go. Take data centres, for example. We currently have 11k, but we'll need 30k in the next 5 years. That growth is driving a lot of capex, with ancillary benefits for the economy.

Invests only in short-term corporate bonds, and it pays out all that income. With this type of vehicle, there should be no expectation of capital gains. If you look at a total return chart, the average gain over 15 years is just over 2%.

Remember that this is money market in an era where money market yields were very low, and went to 0% in Canada, while corporate bonds were trading sub-1%. Very hard to get a positive return for a couple of years after Covid. As interest rates have normalized, the returns there have gotten very compelling.

Corporate debt -- slightly higher risk, so you get a premium yield. No junk bonds. Best-quality corporate bonds in Canada. Some credit risk, but quality holdings make this minimal. Money-market like, very safe, additional yield. It's still the best money market solution for investors looking for a bit of extra yield.