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

(A Top Pick May 28/08. Up 12%.) GMAC (Canada) 5.1% bond maturing Apr 30/09. Now matured.

Real Return Bonds as a hedge against inflation? Terrific tools for this because the principal and interest rate increases or decreases as there are changes in CPI. Drawback is that the market is dominated by large institutions so are somewhat illiquid and technical in nature. As an asset class they are a little bit expensive. Play these in an ETF or an actively managed bond fund. Buy when inflation expectations are high and vice versa.

Rising interest rates effect on bond funds? Doesn’t expect any signs of inflation until 2011 so you are probably fine for the balance of the year. Things are probably going to get better in 2011 so you should then start to think about reducing your maturity (nothing long), de-emphasize governments, have some high quality corporate credit of around 5 years and also favour provincials.

Greater Toronto Airport bonds 6.5% expiring 2029. That’s a long duration, which will have a negative impact on the price. Keep you duration short on corporate bonds.

Oil stock with dividend for a 3 to 5 year hold? Not many with a dividend but Encana (ECA-T) has a 3.1% yield. You could also focus on an income trust such as Crescent Point (CPG-T) or Arc Energy (AET.UN-T). His preference would be Canadian Natural Resources (CNQ-T) but its dividend is only 0.68%

Natural gas. Storage is pretty high and without a hurricane or other disaster it'll probably be Oct/Nov and a cold winter before it starts to move the price.

Small Caps. They will do okay as long as you are careful and stick with quality companies that are debt free. Overall economic backdrop is still a little mixed but investors en masse have decided the worst is over.

Natural gas. Expects it will double over the next 12 months. Once companies have stopped drilling for a period of time, poor prices are self-fulfilling problem that disappears.

Molybdenum. Has been very strong coming off the bottom. It's all about resurgence of steel demand. The big question is, is this received recovery sustainable. If not it will rollover again.

Natural Gas. Outlook is much more favourable. Currently nothing but bad news with potential new supplies from shale and even LNG imports. If economy is going to pick up in 2010-2011 and unless there is an unseasonably warm winter, he is looking for $6.50 to $6.75 of natural gas futures one to two years out.

Crude Oil. Futures curve shows $71 today, $80 a year out and $82 two years out. Thinks $80-$85 is a fair price.

Government bonds. Currently rates vary from just over 1% to a high of 4% in the longest bonds. If you are looking for higher rates, you have to wait for inflation to rise considerably. This is not likely in the next 1 to 2 years.

Real Return Bonds are a different asset class than the normal corporate bonds. Value is determined by inflation and real return. More of an insurance policy. If you are concerned that inflation will rise and are willing to accept a lower return.

MLFA 2002 bond. A pool of Canadian commercial mortgages secures interest and principal. The mortgages are well diversified across Canada. Short maturity of 2 or 3 years. AAA rated. Trading with a yield of 4% or more of a Canada government bond.

Real return bonds. Great way to hedge against inflation. If you think inflation is rising, you should tilt more of their government bond weighting to these.