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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: 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.
Read Answer Asked by Alan on February 27, 2017
Q: I subscribe to StockCharts.com Do you know of any similar type of charting service or website where it is possible to chart Canadian MARKET CAPITALIZATION changes over time?

Thanks for what you are doing in the small cap niche. Interesting too how trading volumes react as various market cap thresholds are achieved.

I know you mentioned on one of your previous webcasts but could you indicate again what market cap value thresholds are significant when it comes to potential formal institutional coverage as well as fund purchase eligibility.
Read Answer Asked by Richard on February 27, 2017
Q: On Friday there was a question to the effect of is EMP.A about to turn around. I live in a Vancouver suburb and the Safeway store anchors a small neighbourhood mall which became a no go zone for many in the community after Empire took over the operations. I sit on a local community board and we were concerned because the usual patrons had given up - shelves not stocked, disorganized displays, poorly trained staff etc etc. However, very recently things have markedly improved. My wife, who had given up on the store, came home yesterday and said it was the first time ever thatthe parking lot was full. I go in occasionally and it is better, in fact it is now a better operation than under Safeway. I would say it is a good time to look at the stock.
Phil
Read Answer Asked by thomas philip on February 27, 2017
Q: MDA has dropped a lot in the last few days due to a takeover that has not been well received by the market. Is it time to sell MDA and move on, or is the drop overblown and time to add to an existing position?

Although much much smaller than MDA, what is your opinion of MAL as an investment in the aero and defence sector.
Read Answer Asked by David on February 27, 2017
Q: Peter, can you kindly suggest five investments that typically pay no dividend or other distribution (tax minimization). This would ideally be for a 5-10 year+ holding. My risk tolerance is medium-to-high (but just short of 'stupid'). If one or two of these suggestions were US companies (other than Alphabet; already owned), that would be fine. Thanks as always!
Read Answer Asked by James on February 27, 2017
Q: This note is for the team member who answered my question about ALA.R:

My good Sir, you have a fan for life. I asked my question in the middle of the night (by my calculation it would have been about 5.30am Eastern) and, after I sent it, I clicked back to the Q&A section - and there was my answer!!!! Speechless hardly describes my admiration for your work ethic.
Again, thank you for everything.
Read Answer Asked by Molly on February 27, 2017
Q: Emotion aside about a stock everyone has loved to hate for over a year, PHM just reported their best positive cash flow results, have an astounding 78% profit margin, substantially reduced their bad debt to a manageable level, increased their cash balance from the previous quarter and reduced their overall debt. They say after 18 months of hard work, they have trimmed unprofitable business which has reduced revenues but are making more money and now seem ready to propel sales upward. It's very unfortunate they are splitting into two separate companies but when the leaders don't get along, it can be toxic. The same personnel have steered this turnaround so there is substantial commitment as each owns millions of shares. Can you see anything remotely positive in this effort? Two big concerns are the number of traders swarming this stock and it seems there may be a lot of shorts considering they have 375M shares and, second, do you foresee one or both new companies being taken private by the large share-positioned CEO's once the split is complete. Any insight would be appreciated. Thanks.
Read Answer Asked by Steven on February 27, 2017
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.
Read Answer Asked by Jerry on February 27, 2017
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