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August 2, 2013

Economy. The economic paces that we are dealing with today means lower interest rates for a longer time. Most equities right now are discounting a 3%-3.5% 10 year bond yield, which makes a lot of companies compelling value at these levels. Expects the Fed might push back their tapering to Q4 and possibly to Q1 if we keep getting weak job numbers like we did today.

Economy. The economic paces that we are dealing with today means lower interest rates for a longer time. Most equities right now are discounting a 3%-3.5% 10 year bond yield, which makes a lot of companies compelling value at these levels. Expects the Fed might push back their tapering to Q4 and possibly to Q1 if we keep getting weak job numbers like we did today.

Dennis Mitchell, CFA
Executive Vice-President & Chief Investment Office, Sentry Select Capital Corp
COMMENT
COMMENT
August 2, 2013

US Mortgage REITs. Dividends are not safe. As interest rates rise, hopefully the spread that they can invest in grows and the cash flow hopefully grows. The offsetting impact is that as interest rates rise, the BV of the offsetting assets that they own collapses. That is what has happened with a number of these mortgage REITs. He sold his holdings.

US Mortgage REITs. Dividends are not safe. As interest rates rise, hopefully the spread that they can invest in grows and the cash flow hopefully grows. The offsetting impact is that as interest rates rise, the BV of the offsetting assets that they own collapses. That is what has happened with a number of these mortgage REITs. He sold his holdings.

Dennis Mitchell, CFA
Executive Vice-President & Chief Investment Office, Sentry Select Capital Corp
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August 2, 2013

Relationship between the yield of 10 year Canadian government bonds and current REIT prices? Relationship between REITs and 10 year bond yields is inverse. As the 10 year bond yield goes up, REIT prices generally come down. He thinks the sector as a whole is pricing in 3% 10 year bond yield. The fact that we are at 2.4%-2.5% means that the sector has probably overcorrected.

Relationship between the yield of 10 year Canadian government bonds and current REIT prices? Relationship between REITs and 10 year bond yields is inverse. As the 10 year bond yield goes up, REIT prices generally come down. He thinks the sector as a whole is pricing in 3% 10 year bond yield. The fact that we are at 2.4%-2.5% means that the sector has probably overcorrected.

Dennis Mitchell, CFA
Executive Vice-President & Chief Investment Office, Sentry Select Capital Corp
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August 2, 2013

Canadian Tech Stocks. As a whole, they have broken out of a 6 year pattern. Canadians who have been in smaller cap energy, mining, etc. stocks are now starting to look at technology companies. A lot of tech companies have been bought out over the last few years but a lot of them are free cash flow generators, which is a very positive kind of factor in that they are able to make money, reinvest money and ending up growing profits on a per share basis.

Canadian Tech Stocks. As a whole, they have broken out of a 6 year pattern. Canadians who have been in smaller cap energy, mining, etc. stocks are now starting to look at technology companies. A lot of tech companies have been bought out over the last few years but a lot of them are free cash flow generators, which is a very positive kind of factor in that they are able to make money, reinvest money and ending up growing profits on a per share basis.

Robert McWhirter
President, Selective Asset Management