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Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

Q: Peter,

I want to compare performance of various mutual funds on my electronic watchlist. This will involve equity funds as well as balanced funds. I have no interest in bond funds. I will be looking at both small cap & large cap. What companies to you recommend me comparing. I know you like Mawer and have owned various of their funds for a number of years and am very happy with the results.
If specific mutual fund families have a specific successful niche ( ie small cap etc ) please indicate. looking at Canada, USA, non North America as well as Emerging Markets.

Thanks for allowing us to renew at old prices early.


Thank you

Paul
Read Answer Asked by paul on October 31, 2017
Q: Can you please give me your thoughts (or alternative recommendations) on the following Funds for a 64 year old heading into retirement within the next year.

RBC Select Balanced Portfolio - Series A . (RBF460)
EdgePoint Cdn Growth & Income Port Sr A (CAD). - (EDG188)
EdgePoint Global Growth & Inc Port Sr A (CAD). - (EDG180)
PIMCO Monthly Income A (CAD). - (PMO005)

Please deduct as many credits as required.

As always, thank you for your invaluable service.

Micheal
Read Answer Asked by micheal on October 31, 2017
Q: To help out the member who was asking about crytpocurrencies, I may be able to help. I have been trading cryptos since April. There is definitely a learning curve.

There are two kinds of exchanges; fiat-to-crypto, and crypto-to-crypto.

Fiat-to-crypto allow you trade dollars for Bitcoin (or ether). Bitcoin is the reserve currency; you need it (or ether) to get the other cryptos. In Canada, there is QuadrigaCx. It’s based out of Vancouver, and I think it’s okay. I used Kraken, which is based in San Francisco. I seem to get Bitcoin for about $100 less on Kraken than I see quoted on QuadrigaCx. As best I can tell, Kraken has a good reputation, and I think it also has insurance in the event of fraud. I got a Tier 3 clearance, so I can transfer about $30,000 per day, and about $250,000 per month. In order to transfer, I needed to wire it to a bank in Japan (!), so the wire cost me $50, then another $35 was taken by the bank in Japan. My first transfer took about a week, and I was nervous, not really sure if my $20,000 would actually show up. But it did. My last two transfers have been much slower, about 2 weeks, and I am still waiting for my last. I have heard there has been a surge in activity which has slowed things down.

Once you have your Bitcoin, although you can trade a few cryptos with Kraken, the selection is limited. So if you want a broad selection, you need to open an account at a crypto-to-crypto exchange. I use Bittrex. It has a good reputation. Poloniex used to be okay, but I think they have had some problems recently. I also had to open an account with Binance, which is a China-based exchange because I wanted to buy GAS, which at the time was only available on that exchange. (GAS is necessary for NEO, which will likely be the Chinese equivalent of ether, so hopefully good prospects.)

A few important things to be aware of. First, you should not store your cryptos on the exchanges, because crytos stored on exchanges have been stolen. Cryptos they should be stored on a wallet. A wallet is just a program on your computer to store your cryptos. Be careful what wallets you use, because some of them are scams, and they will steal your cryptos. I use Jaxx. It’s okay, but has been slow to update their wallet for Bitcoin Cash. There are different wallets for different coins. Don’t keep a lot of cryptos in wallets on your smartphone, because smartphones are not secure enough. If you have a lot money in cryptos, use a device like a Trezor. Very secure, and off the grid.

Be careful when transferring cryptos. If you accidentally send Bitcoin to a Bitcoin Cash wallet or a wallet for Dash or Monera, it will be gone forever. Also, the abbreviation for cryptos can vary between exchanges. Bitcoin is XBT on Kraken, but BTC on Bittrex. Finally, make sure to enable all the security options, like two-factor authentication, and make sure you write down and store all the passwords, etc, and store them in at least two separate locations, in the event of a fire.

Cryptos took me a while to figure out, but they have been very profitable for me. If someone is thinking of getting into cryptos, now is a good time, because there is tremendous institutional interest. None of the big money, such as mutual funds, has been allowed to get in, because it is new and undefined, but some ETFs should be approved in the near future, which should push the price up. And the hassles and learning curve is preventing a lot of individual investors from getting in.

I firmly believe crytptos are here to stay; the genie can’t be put back in the bottle. The more I have learned about them, I think they will radically transform the world of finance. But be prepared for major volatility. Every week somebody will say they are a bubble, or a fraud, or a pyramid scheme. Despite all this negative publicity, Bitcoin continues to hit new highs.

Finally, if you are going to invest in cryptos besides the big ones, like Bitcoin, ether, etc, you should subscribe to a newsletter like I did. There aren’t many of them, and they are expensive, but worth it.
Read Answer Asked by Donald on October 31, 2017
Q: Since 5i is not averse to the preferred shares of split corps, here are some notes that have been gleaned from the Quadravest website, listing the ticker symbols of several (not all) of their preferred shares and the approximate dividends:

LFE.PR.B - 6% dividend with no suspensions ever since 2006
DFN.PR.A - 5% dividend with no suspensions ever since 2004
XTD.PR.A - 5% dividend with no suspensions ever since 2009
BK.PR.A - 5% dividend with no suspensions ever since 2006

FTU.PR.B and XMF.PR each suspended dividends for nearly a year during 2009-2010.

I believe DFN.PR.A has the longest history of paying dividends and also the most diverse holdings. Its chart since inception is mostly breathtakingly level, though it lost nearly 30% in 2009-2010.
Read Answer Asked by Jerry on October 30, 2017
Q: I am an avid reader on the Q&A daily and find I get most of my thoughts clarified by using the history of the questions. A great service. But I am trying to sort out which investments are best held in an RRSP for my personal situation. I am 67 ,retired with no pension and live on the income from my investments which is sufficient to maintain my lifestyle. I do not believe in owning interest bearing investments because of the low yield/risk relationship and tax treatment. I prefer to buy preferreds from blue chip companies like the banks as my "fixed income" because of the obvious tax treatment. I also like covered call ETFs like ZWB, ZWC etc. for the income and downside risk mitigation. I do not invest in US stocks preferring to diversify into the USA using Canadian companies that benefit from their big US presence(TD etc.). It seems to me that given this situation, holding anything in an RRSP has a tax disadvantage. Any tax on dividends earned in the RRSP is delayed until I take the money out but then I will be taxed at the full rate instead of enjoying the "discounted" tax rate on dividends. ROC is even worse because in a non-registered account I effectively pay capital gains when sold but the ROC would be fully taxable when I take it out.
If my reasoning is correct, it really does not matter much what is kept in a registered vs. a non registered fund. Can you tell me if I am looking at this correctly?

Thanks
Don
Read Answer Asked by Don on October 30, 2017
Q: Hello, iam a retired investor with $190,000 in a tangerine fund.
50,000 in rrsp balanced fund
70,000 in non reg. balanced fund
70,000 in tfsa equity growth fund
I will be transferring the above to a CIBC global monthly income balanced fund,as I will be getting a employee discount on the MER.
My tfsa will be in a equity growth fund at CIBC.
My question is that Tanerine only pays a dividend once a year around Dec. 20th.
Should I wait for the dividend,or because the fund drops in price after the dividend it would not make any difference?
I think I would be better off getting the dividend and then transferring in the new year, any thoughts on this
Thanks Brad.A
Read Answer Asked by Brad on October 30, 2017
Q: A friend of mine has $100K invested in RBC Select Conservative Portfolio Series (RBF461). She is 55, and those are all her assets. Her risk profile is conservative, and she has no investment knowledge. The fund meets her investor profile and risk tolerance, however the Morningstar Quartile ranking has been 3rd in each of the past 5 years and 4th in the 2 years previous to that. MER is 1.84%.

Could you suggest some other mutual fund (even from RBC), or ETF that fits her profile, but has better performance (like a 1st or 2nd Quartile performer from Morningstar).

Read Answer Asked by Paul on October 30, 2017
Q: Can you please further my understanding of enterprise value. I think it is the name that throws me off.

I fully understand how its calculation works, I fully understand how the ratios work but I have difficulty with the term. I feel like things are backwards.

For example: If we have a company that has a Market Cap of $1M, it has an enterprise VALUE of $1M (assuming no debt, no cash,...). If the company has a Market Cap of $1M and $1M in debt, it has an enterprise VALUE of $2M. This company has a VALUE of $2M vs the other company that has a VALUE of $1M. If these were 2 competitors, I would prefer the company with the LOWER VALUE (and that is the way it is but the numbers actually reflect the opposite). If I was buying the business, I would probably want to pay $0 for the company with the debt ($1M market cap - $1m Debt) and $1M for the company with no debt.

If a company has cash, I would want to pay market cap PLUS its cash / cash equivalent but in determining VALUE we deduct the amount. Once again it appears backwards.

I must be missing something here. Personally, per my understanding, I would have deducted debt and added cash to determine the VALUE of the enterprise.

It is the word VALUE that throws me off. Can you please shed some light on this. Thank You.
Read Answer Asked by Walter on October 30, 2017
Q: Question about index returns, and whether individuals can exactly replicate. How does delisting one company and introducing a new company work? For an individual, we would have to sell a loser at presumably a loss, and buy a very small amount of a new company and wait quite a while to recover. But the index is market weighted. So how much of the new company is "bought" on introduction. A lot has been made of the importance of low fees on returns as they compound over decades. Is there a discrepancy here that might amount to 0.5% annual gain that real world investing cannot access?
Read Answer Asked by Gary on October 30, 2017
Q: I have read that the Fed dot plots are showing a 3% Fed Funds Rate within three years. That should imply a 10 year bond rate of 4% to 5% at that time. If so, would that be negative for bond proxies such as utilities, pipelines. telcos and reits? What about high yield corporate bonds? Should we stay away from rate sensitive investments and concentrate of growth stocks? I am a retiree with a need for income.

Thanks
Read Answer Asked by Hans on October 30, 2017
Q: My company has announced an employee share offer plan. I would like your opinion on the pros and cons of employee share offer plans in general, and specifically on the plan being offered to me.

I work for a large European company (20B euro market cap; 65,000 employees in 50 countries), and the stock trades in Europe. This is not a small start-up company.

The key terms of the offer are: (a) 20% discount on the share price, (b) 1 free share for every 4 shares subscribed up to 10 matching shares, (c) account management fees paid by the company, (d) investment locked-in for 5 years (to Dec 2022) (except in the case of early redemption). I really don’t like being locked in for 5 years, but I guess that is the price to pay for a 20% discount.

I have been burned before on an employee share offer program (dot com era), so am always questioning why companies ask employees for help. The employer always promotes how good it is for employees (e.g. 20% discount), but what is in it for the company? If the company needs to raise money why not just go to the stock market? I don’t buy the pride of ownership in the company you work for, blah, blah, at least not with a very large company (I am one of 65,000 employees).

I am skeptical when employers tell employees how great something is for them. Been burned before 15 years ago when they told us how great it is for us to switch from a DB pension plan to a DC pension plan. They neglected to tell us how much better it is for them if we switched from the DBPP to the DCPP.

p.s. Maybe one day you can do a blog on pros and cons of employee share offers, and what an employee should look out for.
Read Answer Asked by Paul on October 27, 2017
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