Investment Q&A

Q: The issue of mutual funds holding negative yielding global gov't bonds is an interesting one as the size of negative yielding bonds keeps rising. The lack of cash flow to finance management fees, and pressures on portfolio managers to play the yield curve to list a couple of examples sounds very tricky. Have you explored the subject in your shop?

Q: I have read about the new TSX30 index. Is there an ETF yet that follows it?

Q: I continue to struggle to find the right level of diversification, especially fixed income in my portfolio. One of the strong reasons for my struggle is the recent very strong bond performance and concerns that I am too late.

The standard rule of thumb 60/40 blend is challenged here. I am wondering if you saw this article on the Globe’s website. Could you take a look at the article and share your thoughts on Merrill Lynch’s thesis ? As well as the suggestion of using dividend paying stocks as, at least, a particle substitute.

Thanks.

.... from the Globe and Mail Investor website ( a partial excerpt...)

The 60-per-cent fixed income, 40-per-cent equity portfolio has been an important benchmark for balanced funds and overall asset allocation for decades.

Merrill Lynch analyst Jared Woodard, however, believes the 60/40 portfolio is now far less relevant because of the rising risks in bond markets.

In The End of 60/40, Mr. Woodard cites three reasons that bonds may no longer provide the portfolio stability and consistency they once did.

The first reason is that bond portfolios have not been providing diversification. He writes, “The core premise of every 60/40 portfolio is that bonds can hedge against risks to growth and equities can hedge against inflation; their returns are negatively correlated."

The problem in recent years is that periods of major market weakness have seen both bonds and equities fall.

In the U.S., longer duration government bonds have generated terrible risk-adjusted returns over the past three years - lower than junk bonds and emerging market equities. This means that investors who bought Treasury bonds for steady returns and lower portfolio volatility have seen volatility actually increase.

The data is U.S. based, but the performance of U.S. and Canadian long-term bonds has been virtually identical, as this chart posted to social media underscores.

Mr. Woodard’s final warning about bonds concerns overcrowding. He notes that globally, the fund manager allocation to U.S. Treasury debt is close to a 20 year high. So far in 2019, investors worldwide have sold US$208-billion from equity funds and bought $339-billion worth of bond funds.

With government bonds so popular, the analyst is concerned that “Crowded positioning means that natural swings in bond prices may be exacerbated as active investors rebalance their holdings.”

To the extent that Canadian investors have made the same switch to fixed income – and the 38 per cent increase in the market capitalization of the iShares Core Canadian Universe Bond Index ETF suggests fixed income has been popular domestically - these risks are also present here.

Q: Does your crystal ball predict a recession in the next six to twelve months.

Clayton

Q: BABA & other Chinese Companies got hit from Trump's comment re not listing of Chinese Companies in New York. .Assume this would be for new listings and not effect Companies presently listed. This downward move effects U S Pension Funds and U S Citizens that hold Chinese companies . Not a smart move. China holds $ 1 4 Trillion US Treasuries. All they have to do is start selling these U S treasuries in retaliation to his moves. Your comments please .
RAK

Q: What do you think the impeachment proceedings will mean in the us dollar ? Will this effect the psu.u performance ? I am about to invest a large amount of us dollars in this fund, will it be affected ? Would you give some insight as to how the us dollar performed during previous impeachments please.
Cheers, Doug

Q: Would you please be able to provide me with sector percentage allocations at this time for a retired couple with both having a pension and CPP and not using funds from our registered accounts until time of required withdrawal in approx .6 years ? We are not completely Conservative -we have been Balanced with a Growth bias. Thank you for your assistance. I have appreciated the learning opportunites with my 5i membership over approximately 5 years.

Q: I have read the Fed is continuing to pump 75 billion daily into the banking system to provide liquidity. Is this true and if so does this mean there could be a banking crisis on the horizon, and or,is there problems with the US economy . Is investing in real estate a safer alternative to the stock market at this point in time.

Q: I am going to add Gold to my portfolio and am looking for your advice. I really like the Franco-Nevada model being that they have royalties and do not own mines, but it seems quite expensive? Thoughts on evaluations etc ? Depending on your thoughts I would like to add FNV and an actual gold miner. The ones I have listed have a larger market cap as I am not interested in too small of gold miners.

With all the things going on in the world right now, how concerned are you of a recession in the US that will drag Canada into it? The flags I am concerned about right now are: 10yr bull market, US balance sheet issues, repos, inverted yield curve, Fed policy (decreasing interest rates), trade war, global slowing. A lot of other countries hold US paper........ It makes you wonder how much more debt the US can endure and maintain a strong dollar.

We all know that there is going to be a correction at some point in the future....but something to me feels different about what is coming. Maybe I am just a paranoid investor...I have to quit watching the prepper shows!

Besides gold what is the best way to protect ourselves in the event that the US has a financial crisis that affects their dollar?

Q: I am currently holding the following investments in almost equal amounts (20-25K per):
AQN, BNS, BCE, ZAG, ZEM. BEP.UN. CU. ENB. FTS, NPI, RY, PEGI. PPL. REI.UN. SLF, TRP. T. FN. TD, VXC. VSP plus $8K cash.

Are any of these questionable in your opinion? Are there other areas that would assist allocation? I am 72 , retired and need the additional income,

Q: Can you please recommend a value ETF in Canadian and USA dollars. Which one is your favourite value ETF

Canada
Global
USA

Thanks for your great service
Hector

Q: What sectors are best for stagflation?
What sectors preformed best during the 1970’S?

Q: Do you have any suggestions on where one can invest in the vertical farming business?

Q: Good morning.
It seems like the markets took a sudden wild turn on Thursday. Since then gold, utilities and reits are being booted out the door at a fairly high rate. Can you offer up a suggestion of what the markets might be thinking? Are they simply dumping equities or are they moving into some other sector?

Q: Given the market today - and what (if anything) we can intuit about the future - which sectors would you be inclined to overweight...and which to underweight? Thank you.

Q: Hello,

What is the reason for tech sector getting beaten up today? Thanks.

Shyam

Q: Thank you for answering my past questions so clearly.

All the ETF's below mirror the S&P 500.

BMO S&P 500 INDEX CAD UNT ETF Symbol ZSP (not currency-hedged)

VANGUARD S&P 500 Index ETF, Symbol VSP (currency-hedged)

iShares Core S&P 500 Index ETF, Symbol XSP (currency-hedged)

Over the last decade, as expected, XSP and VSP have appreciated as much as the S&P 500 has -- a little over 100%.

ZSP has appreciated about 180%. Likely, that is a function of the currency hedging/not hedging.

Please explain.

In your opinion, will ZSP continue to outperform?

Thank you.

Q: The direction of Corporate profits is relevant to investment strategy. I am finding an annoying number of contradictory statements on this matter in the financial press. Case in point: in Saturday's G&M Report on Business, the Chief Investment Strategist for BMO Nesbitt Burns says "However, earnings have been continually beating upwardly revised expectations and are now up more than 8 per cent year-over-year in the second quarter." In the same article, the Managing Director of Guardian Capital says "....there are clear signs of the global economy slowing and corporate earnings growth trends continue to decline markedly." Seems to me this is a matter of fact not opinion. Can you tell me if corporate profits are going up or down? Thanks..

Q: Peter,

What do you think of the low volatility ETF's especially in our current environment? Do recommend them as part of a balanced portfolio?
Thanks for your valuable service.

GM

Q: Today, the 10/2 year spread just dipped into the negative territory. What are your thoughts for investors going forward and how do you see this as an impact for the global economy?

Thanks,