Investment Q&A

Q: Hi Peter,

Maybe we are wrong but it seems that investment sites are approaching the end of the year and 2022 with caution. The topics of correction and reduce risk are common themes mixed in with inflation and interest rates.

If you were a medium risk - just retired person, which 15 stocks and/or ETF's would you hold right now (no bonds)? How much, if any cash would you sit on to buy dips or on corrections.

Cheers,
Debbie and Jerry

Q: Hi Peter & 5i,

Just a comment. I always find your answers to ROC (Return of Capital) perplexing to me. 5i seems to view ROC as almost a completely negative situation and that you are almost always receiving your own money back. That is just not the case. Today's response to a question from Albert regarding the ROC with regards to CAR.UN and REIT'S highlighted this situation even more. I like a stock (CAR.UN) that has went from $30 in 2016 and is $60 in 2021 and that 63.8% of the distribution during those 5 years has been ROC. Multiple great things to like in a non-registered account from a total return basis and a tax scenario.

The technical details for ROC and REIT's can be highlighted in this response from John Heinzl of the Globe and Mail. It is one of the best answers that I've seen.

Please post as Public if you think it can help with the ROC understanding.

This is the question posed to John Heinzl - I have a question about calculating the yields of real estate investment trusts. Many REITs distribute significant amounts of return of capital. It has never made sense to me to include getting my own money back when calculating my yield. Do posted yields need to be adjusted by deducting the ROC to get a more realistic idea of what one is receiving?

Answer - Return of capital doesn’t necessarily mean you are “getting your own money back.” In general, ROC is defined as the portion of a distribution that does not consist of dividends, interest, realized capital gains or other income. In some cases – for example, a high-yielding mutual fund that distributes so much ROC that its net asset value erodes over time – you are indeed getting paid with a portion of your original capital.

But with REITs, it’s not that simple. ROC typically arises when a REIT’s distributions exceed its taxable income. This isn’t necessarily a problem, however, because income is affected by accounting items, such as depreciation, that don’t reduce cash available for distributions. In other words, when you receive ROC, you are getting cash generated by the business, not some sleight-of-hand trick by the REIT.

For investors, ROC has one big advantage: It is not taxed immediately. Rather, ROC is subtracted from the investor’s adjusted cost base, which gives rise to a larger capital gain – or smaller capital loss – when the units are eventually sold. For REITs that distribute large amounts of ROC, it can significantly reduce the tax burden in non-registered accounts.

Interested in a particular REIT? Most REIT websites provide a detailed annual breakdown of the tax characteristics of their distributions. In addition to distributing ROC, REITs typically pay out capital gains (50 per cent of which is taxable), other income (which is fully taxable) and in some cases, dividends (which benefit from the dividend tax credit).

One final note: When assessing their operating performance, many REITs focus on real estate cash-flow measures, such as funds from operations (FFO) and the more stringent adjusted funds from operations (AFFO). These measures are also useful for determining a REIT’s payout ratio and assessing the sustainability of its distributions.

Q: It's almost mid November, is it possible to name some stocks that will probably have some tax loss selling and because of this may become attractive at the lower price?

thanks,

Paul

Q: Just a question about "Sell on news stocks", I find it quite confusing that so many stocks nosedive with exceptional earnings reports and your response is it looks like investors are selling on news?? Wouldn't it make sense to dump the stock the day before earnings came out after a big run up and buy back in later??? Thanks.

Q: hello:
This is a question about a private company.
About 10 years ago, we invested into a company called "Redev". Over the years we've collected a small amount of dividends. Recently, I've been interested in selling some shares to raise cash but haven't been able to contact the company. I've left voice mails and email messages.
Do you know this company at all? Is there some other way to go about contacting them (eg. a public entity like OSFI or ???). We're very disturbed that there is no communication. Can you help on this one?
thanks
Paul

Q: Where do I find information from Analysts? To quote a recent question: Analysts are estimating ATD.B's 2022 YE results for earnings growth to be flat, 2023 EPS to grow 5%, then EPS to grow at 8.5% for the next 5 subsequent years.

Where does a person find this information about Analyst projections? Is there some kind of website?

Thanks

Q: If the democrats get these two bills passed this week what will it mean for the market.

Q: Hi 5i,
I wonder if the market is (and will continue) reacting quite negatively to the new federal cabinet, out of a belief that economic growth, national self sufficiency and real prosperity for Canadians is not currently high on the list of government priorities. Nothing can hinder economic health like obstructionist government policy and I sure see lots of that in Canada these days. I'm feeling like I should concentrate hard on moving as much as I can into US and international names.
Would you say I'm overreacting to what the next 18 months to 2 years (the usual life span of a minority government) might bring to Canadian business? Are there sectors that are likely to thrive during that period, other than maybe the banks, do you think?
Thanks for any insight you can offer.
Peter

Q: When is is tax like loss selling generally finished? I’m looking to buy a stock that has declined for the better part of this year and has good prospects for next year.

Q: Could you provide the names of some companies that have declared their first dividend over the past several months. Canadian or U.S., any size market cap. Thanks.

Q: Your article today state the the 3 best sectors to benefit from current supply constraints are Raw materials,Industrials & Financials.Please provide a few best names from each of the 3 sectors to invest today.Txs for u usual great services & views

Q: Hi 5i Team - Are there any Canadian companies in the semi-conductor space that would be of interest to you, including start-up companies, suppliers of materials, and any potential companies on the horizon. I sold my shares in Photon Control some time ago and am looking for some kind of replacement on the Canadian side. If the U.S. is the only way to go in this field could you please suggest a couple of top picks. l already have Nvidia. Thanks.

Q: What are your thoughts on the upcoming Q4 IPO and valuation?

Q: Hello Peter & Team,

As per Bob Dylan... "The times they are a changin"

I have some new money to deploy and I am a little confused right now regarding where I should put it and how much cash I should leave out!

With what's going on in China, supply chain issues combined with pent up demand and lots of cash on hand, increasing energy costs, and the shortage of labor, I think everyone can agree we are about to/are in and inflationary period which could last for a few years.

I don't think it's a bad thing. And I don't think the markets are going to be (long term) adversely effected. But I do think there are companies/sectors which will do better than others in an inflationary environment. As an example... financials should do well. Inevitable rate hikes plus their ability to pass along added costs to the customer makes sense for them to be able to continue generating good cash flow.

My questions
1. We have all done very well in tech thanks to your guidance. How do you see this sector performing over the coming 1 - 3 years? It would be a shame for the 5i family to see all the capital gains we've recently enjoyed be depleted.
2. Which sectors and specifically which companies do you think will do well in this environment moving forward?
3. With respect to the 5i portfolios which many of us follow closely, what plans/changes are you considering keeping in mind the increasing cost-of-business landscape?

Thanks for all you do.

gm

Q: I am a Canadian citizen who resides full-time in the U.S.
Just recently, my Canadian bank (CIBC) restricted my Canadian-domiciled RRSP to only sells, rendering it virtually useless.
I am under the impression trading a non-registered account is not illegal.
I understand this is not in your wheelhouse, but do you know of any financial institutions which allow foreign residents to trade their RRSPs?
You can post this on the public portion of the Q&A in the hopes it helps others in my situation.
Thanks, I really hope you can offer some assistance.

Q: Hi Guys
When using the rule of 40 to determine the performance of software companies. Would using 3 yr Rev Growth be acceptable , as some newer companies aren't profitable yet. ? and regarding margins, what are you looking for, Gross Margins, Net Margins, or EBT Margin.
Thanks Gord

Q: Hi!

I'm sitting on some large gains in the energy sector. Given the cyclicality of the sector how should we go about trimming our holdings? Should we just maintain our sector allocation and trim if and when it gets too big? Its taken a long time for energy to come back since 2014 so I don't want to sell too early, but any unforeseen event can hurt prices quickly. Do you think we are still in the early stages of the energy/commodity bull market? I read they tend to run in 5 year cycles.

Thanks,
Jason

Q: Where can I find the Chart attack on 5i website.
Thanks

Q: I need to diversify my portfolio. I am too North America centric. What geographic areas and sectors do you like over 3-5 years? I am 72 years old, have a good pension and have medium risk tolerance.

Thank you.

Mike

Q: Hi,

Are there any recent studies that you would recommend regarding optimal diversification (not CAPM)?

It seems these days that in bad markets everything falls regardless of sector, region, size etc. So I am trying to figure out if it’s worthwhile holding “safe” securities that return a fraction of what higher growth names would-since these safe plays still fall significantly in down markets, albeit much less than the high fliers.
Specifically, I am interested to see if someone (reputable) has proven that in the long run (10+years) it is worth holding ANY slow growth stocks returning say 5% per year and “only” fall 25% in down market versus having an aggressive portfolio of high growth stocks returning 20+% per year but fall 50% in a down market. I would think the compounding of high growth portfolio would more than offset the larger loss in a down market-but looking to see if this has been proven.

thanks!
Brad