A Comment -- General Comments From an Expert (A Commentary)

Real Return Bonds. This is not a good time to buy them. If you buy one that offers you 1% real return, you will get that if you hold to maturity. They’re long duration so are very volatile. Current rates are 1% and should be 2%.

Barbell Strategy. Splitting a fixed income portfolio between 3 month T-Bills and long dated corporate strip bonds. Likes this approach as you have half your money safe in 3 month bills. Wouldn’t choose a long term corporate strip because so many things can happen to a corporation over the long term. You could use long-term provincial strips instead.

Bonds for a deflationary environment? Answer is long-term government bonds. Corporates could find it difficult for them to pay their interest as they are chasing downward spiral in prices. We are a long way from a deflationary environment.

(A Top Pick June 7/10. Up 2.25%.) US Treasuries 30 year 4.375% 5/15/40 and to exit the position in 3 months. Sold these last fall at $112.82. His return would have been close to 10%.

(A Top Pick June 7/10. Up 10.2%.) Brookfield Renewable Power 6.132% bond 11/30/16. Likes this credit and what it is doing.

Canadian bank preferred shares for retirement? The new Basel capital treatment rules are going to change the landscape for preferred shares. Also preferreds that have been issued in the last 3 years have been the reset preferreds are coming due in 2 years for resetting.

Floating rate corporate bonds? Work well in a period of rising interest rates. He expects the Bank of Canada will be raising rates in the next 6 to 12 months by a full 1%. Also available through ETFs.

10-20 year strip bonds at 4.6%? He likes strips. Make sure your basic portfolio consists of other things as well. Strips are ideal for retirement vehicles and RIFs as well. Inflation is the enemy of every bond, so diversify. Wouldn’t recommend having everything in 10-20 year strips.

24-Year Ontario Bonds @4.6%? This is the time in the cycle when it is very dangerous. People are all looking for yield. The most yield is in the longest-term securities. Your principal is at risk.

Natural Gas. Bullish on this commodity. As oil prices continue to run up, there will be more conversion of electricity coming out of natural gas. Prices are cheap. If you can find companies that are paying good dividends and have good cash flow, they will survive through this trough.

Market: Today was another blip in a bad month. He calls it a bear market almost. People are tired of all the big gloomy factors that don’t go away. Lots of data out of China today. Market likes the idea that China is alive and kicking and will provide growth. The market has been selling off for days at a time. He is sitting tight on a lot of commodity-related stocks. Gas is extremely weak so of course one day it is going to be extremely strong.

Market. Underlying fundamentals are not nearly as bad as the market is picturing them but people are being motivated to sell. If China or emerging market starts to break down, this is a great risk for the global economy, but these are long-term growth stories and he is not worried this will happen.

Market: There is a lot of negative sentiment. Sovereign debt issues, US concerns on debt ceiling. Over the last 4-6 weeks the market has started to feed on this. He tries always to have a balance of long and short positions. Defensive sectors are favored – consumer staples and tech. Favours smaller cap stocks. Has a modest position in resources. Likes gold, some energy, short some base metals.

Canadian Banks: He is not long, except for a small position in BMO in one fund. Is starting to look at some US financials for long positions. Doesn’t look outside of North America. Looked at JP Morgan, City and other larger players.

Uranium Industry: Has concerns about the sector. Sector is under a lot of pressure as nations re-evaluate their nuclear programs. Even at current commodity process, the stocks are not cheap. Has not looked at shorting either.