Investment Q&A

Q: I read on the FAQ's of an ETF Website the following question:
"Are an ETF's Assets Under Management and Trading Volume good indicators of liquidity".
The answer they gave was: "No. The most important aspect related to the liquidity of any ETF is that while the liquidity of the ETF itself (the ETF’s own trading volume on the exchange) may be deemed poor or limited, the key gauge of that ETF’s liquidity is the liquidity of its underlying exposure.
With the mechanism of creation and redemption of ETFs, a designated broker (DB) is responsible for ensuring that market prices track the ETFs’ net asset value (NAVs). If the underlying securities can be easily bought and sold, a tight fit between price and NAV is easily maintained.
Hence, an ETF with small AUM and little trading volume can still be highly liquid if its underlying basket of securities is liquid."
Is this essentially correct, and if it is I'm still not sure how this would work? I have avoided many ETF's for what appears to be poor liquidity and trading volume. If I want to sell an ETF and level 2 quotes show a large spread to sell for example 1000 shares, will additional shares in the ETF somehow be created to get a fair market price based on the underlying stocks held in that ETF if I put a Sell order in on what appears to be a low volume ETF? What I am getting at basically is - is there any way of knowing what the price spread will be on the sale if additional ETF units that are created "on the fly" by the DB? I may not be interpreting the answer given above so please try to expand and clarify their explanation.
Thank you.

Q: Good morning Peter and Team,

You have said that you prefer to "sell the losers". What criteria would you suggest to decide what to sell, and when
to sell it? Specifically, in a balanced portfolio, I am frustrated with HLF as it's down 28%. Your recent answer to Lee
in which you expressed disappointment in their earnings release has caused me to question continuing to hold HLF.

In the Consumer Staples sector, we hold ADW.A, ATD.B, ECI, HLF, PBH, and SAP. We also have a small amount of XST for re-balancing as it's a commission-free ETF in our iTrade account. (I happily note that XST is a top-performing ETF in the Canadian Money Saver).

If we were to dump HLF, what would you suggest we add to among our existing holdings in this sector? My feeling is that there are better opportunities elsewhere, but as always, I appreciate your insight and advice.

Q: Where will I find the information on your american etf or individual stock recommendations?

Q: Hi, I bought by mistake the ATB.A (the less liquid shares) instead of the ATD.B (the more liquid shares). Should I spend the $20 or so in transaction fees to switch to the more liquid shares? I am not sure that it is worth it given that I bought just 50 shares, but would like your take on this. Thanks!

Q: What do you think a minimum % position should be for individual equities? I have a very diversified portfolio, but I think some of my positions are to small.
Thanks David

Q: 11:31 AM 2/23/2017
Hi Peter:

I don't quite understand your rationale for owning gold bullion, gold streamers or gold miner shares as insurance. Today you said : "The key for 'insurance' such as gold is to own it when you need it, not after." It seems to me that this implies selling your gold at a crisis time since insurance only pays off if the house burns down.

Does this mean you advise actually selling gold positions if the market plunges? Golds get hammered too in crisis situations so may not be winners either. Holding golds through a crisis is almost pointless since if you don't sell you just ride the price up and back down again and almost all golds have trivial dividends, so no meaningful income from them while holding. I just don't see the point. Much better to own BCE or RY or TRP! Would you agree?

Thank you.... Paul K

Q: The markets have had quite a run and I am considering the manner in which I can protect the bulk of those gains. Although I acknowledge and understand that market timing doesn't work, intuitively given the extent of the market run, the odds of a pullback must be greater and therefor are not some hedging strategies prudent at this juncture? How can I hedge those gains in a self directed account with a mix of registered and taxable accounts, the bulk being in taxables which have in certain securities significant gains? Thx

Q: If I want to have cash for future purchases, what is the best way to raise cash in a portfolio of stocks? e.g. sell losers, trim profits across several stocks?

Q: Hi 5i team. The bulk of our savings is managed professionally and is balanced and diversified (I hope).My spouse and I manage our own TFSA. We would like the TFSAs to have a high growth potential. Currently my porfolio has 15% cash, 8.14% BAD, 5.82% CGX, 4.52% DRT, 4.89% INP, 6.92% GUD, 4.41% MDA, 5.18% NXPI, 17.53% PPL, 7.14% TC and 18.66% BYD
My husband has 24.35% cash, 9.24% ALA, 6.76% CXI, 20.54% CSU, 8.88% GSY, 18.78% KXS and 10.97% WCN.
We would like to have a balanced asset allocation and still keep it high growth.
Please suggest what we should keep, sell and any buy recommendations.
Please deduct as many credits as appropriate.

Also, could you advise how often I should check on my porfolio and rebalance it?

Q: I am cleaning up my portfolio and have to deal with a $35k loss on Terra Energy (TTRHF) .. what is the best way to do this? I was sent a form to sign by my online broker (Letter of Authorization - Direction to Remove and Assign Securities (Delisted)) .. is this a good idea? And what about the case of a stock that is still listed (e.g. Knighthawk - KHA) at 2 cents?
Your advice is much appreciated in dealing with these matters.

Q: Hello,
There was a question this week on "Norbert's Gambit". Can you expand on how this strategy works please, and is it more cost-effective than just converting dollars from CAD to USD?

Q: I am helping my sister with her work RRSP in which she has to choose which funds to invest in and just want to know if you were to increase a fund from 2.5% to 5% (Real Estate) and sell some units in another fund that is 24% (Income Growth)of her total holding would you sell 2.5% all at once or best to sell over a period of time? She has 10 years before retiring.

Thanks
Dolores

Q: Peter; If the Liberals raise the capital gains tax rate to 75 % what would you expect the market reaction to be and would it weaken the CAD? Thanks. Rod

Q: Hi i5
My wife and I are 59 years old and semiretired
Are pension income is enough to fund are day to day life , we have some investment
Income that is used for travel and any extras that come up.
In that investment we have about 25 % in bond funds (pmmo005) 20 % cash
And the balance in Canadian and American equities .
On Bnn market call many analysts are saying bonds are not the best investment in
today's market of raising interest rates . Would you recommend selling or reducing the bond portion of portfolio .
Thanks for the help
Sam
Market

Q: I'm not sure if this has been previously asked.I have 4 accounts with Scotia itrade. In their acct. summaries they don't have a field for current allocation percentages. I'd like to set up a similar format to your Balanced,Income and Growth portfolios reports.I assume your program is propitiatory.Are you aware of other similar programs available to avoid doing it manually?.

Q: this is a general question on options but could pertain to my holding of a fair number of $20 mar 17 call options on DH corp. So what happens when a companies shares are halted and remain halted thru an option expiry date? I assume there would also be no trading in the options either. what options would an option holder have in say a case like this with my holding of dh calls well into the money. In this case I would assume it would be halted due to an offer but also in a different case it could be a bad situation which could cause the stock to drop. would the option expiry date be moved forward to date when the halt was removed?
thanks Tom your article on ala was timely as I was just about to buy it and bought the ala.r instead, thank you.

Q: Hello 5i Team, I would like your views on averaging up on stocks. I was reading in your blog the article about Averaging up on a stock. Yet I hear many professional say to take some off the table when you have some winners. Why not keep your winners and avg up instead? I like to wait for a 10% gain from my last purchase price and see some momentum before I avg up. Can I get your criteria or trigger point before you avg up on stock. Is your criteria different for a blue chip such as a bank than a growth stock such as a tech company?
Thanks for your service

Q: Could you please tell me the protocol for answering questions? Does Peter review all questions and answers??

Q: Hello 5i,
I am glad to see that you are still answering questions about bonds and bond funds. I sent in a question the other day about BND, an American bond fund and was told that you don't deal with bonds. These questions are important to us, however.

Regarding the answer you gave to Fred on Feb 15, regarding this bond fund. You said that with distribution for this year, the fund is still under water, only slightly, though.

I continue to buy bonds but with trepidation these days. With such a question and such an answer, for instance, I am asking myself why I would buy a bond fund if I was going to lose even a bit of money? Wouldn't I be better in a high interest savings account?
thanks for the great service

Q: Hi Gang.. For a swing or position trader in a winning trade and where the stock is now rising parabolically what’s the best way to exit the trade to optimize one’s gain ? Is it scaling out or selling all at once ? If scaling out then what is the best scaling method and if selling all then what’s the best method for determining the exit point ?

Thank You
Anthony