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

The question was on whether he would use an ETF for small cap investing and would he go with one focusing on growth or on value. He would not use an ETF which he feels hold below average businesses in the small cap area. He looks for small caps with both growth and value and feels he can outperform by holding the individual stocks themselves. If you need to buy an ETF you could go with the Russell IWM.

Believes geopolitical tensions in Middle East & election in Taiwan will result in structural changes in economy, and are not temporary. Not surprised that investors don't believe inflation will abate quickly. Expecting US election to bring a surprise with a re-election of Donald Trump, however doesn't think that is a positive for markets. Unofficial kickoff of earnings last week will be indicative of North American markets. Appears investors and consumers are cautious right now due to fears of recession.

Believes markets are currently over-valued, and heading for a downturn. S&P 500 reaching all time heads indicates weakness going forward. Believes investors should be cautious. Seasonal patterns are setting up for US election year. Generally speaking, first half of year will be flat to down on election year. Recent market rally, not guaranteed for investors going forward. Expecting US Treasury to issue more bonds, and raise interest rates. Will be able to reduce rates in order to stimulate economy which will be politically driven. 

Top ETF Choices - A Few Ideas:

In general, we would prefer to own more shares in fewer ETFs, than owning less shares in many ETFs (10+). Much depends on the quality and liquidity of the individual ETFs, but for broad market-based ETFs, which already have a lot of diversification within them, we feel that less is more.

While each individual investors’ preferences and risk tolerances are unique, we would prefer a portfolio that includes one S&P 500 ETF (VFV), one Nasdaq 100 ETF (HXQ), one TSX 60 ETF (XIU), and if needed, one ‘theme’ ETF that plays on growth (VGRO), balanced (VBAL), or dividends (VDY).
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Believes January is traditionally a good month for stocks, and expects strength to continue in markets. Profit taking at the beginning of New Year will end, and markets will continue to go up. Does not see any reason to sell stocks and will continue investing in select companies. 

Consider Targeting a 'Theme' to Gain Exposure To:

Investors should consider the specific theme or ‘factor’ that they want to gain exposure to. For example, the VBAL ETF is aimed at providing investors with a balanced investment approach between 60% equities and 40% bonds, whereas the VGRO ETF provides a higher growth focus, but still has 80% in equities and 20% in bonds. We might prefer to own just one of the VBAL or VGRO in an individual account, rather than both, as they each have a lot of overlap, but one is designed for a more balanced approach and the other for growth. Picking a ‘side’ can be important in investing.
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Fabulous 9-week rally to end 2023, but we're stumbling out of the gate so far in 2024. We were overbought quite a bit, so some consolidation should not be surprising. Strong US labour data, some uptick in bond yields, and today's inflation print was hotter than expected. Markets are taking that in stride.

Renewed concerns about the trajectory of interest rates and inflation as well. Data since the 1950s shows that Q1 of an election year is typically flattish. So he expects some bumpiness in Q1. Fun fact: since 1950, in 11 observations of a first-term election-year president we've never had a negative return for the calendar year for the S&P 500. In fact, the average return is 12.2%.

Yes. The MSCI World Index is at 73%. Last 3 months has seen the dominance of tech stocks fading a bit, and we're getting broader participation from other sectors such as healthcare, industrials, and financials. That's great for investors who are diversified, because last year it was pretty much all about tech and communications.

Done well, now trading about 200-day MA. On an uptrend, with ascending higher highs and higher lows. Likes the space. Important to have international exposure given the valuation discount relative to the US.

Covered call makes sense if you need the income. 

He'd argue that you'll get a better total return, over time, owning the underlying shares or an ETF of US banks instead of using the covered call strategy. One reason is because many shares get struck out as they move up. Also expense ratios tend to be higher than just owning the underlying basket of securities.

The rate adjustment, from 3.65% in the spring of 2023 to 5% in early October, was a landmark moment in terms of valuations having to adjust to the new normal of higher rates. Rates moved up at the front end, but not at the long end.

We're through that now. Long rates are certainly not going back to the levels of 2020-21, but not even to the levels of the last decade. We're in a new range of 3-5% on the 10-year. These utility and infrastructure companies have more robust business opportunities ahead of them for the next decade, which should offset some of the rate impact.

The actual business impact of higher rates is not as great as the market assigned to it.

That's a short-term move that could reverse itself in 2024. The worry there was not so much rate driven, though rates are a big part of banking. The worry there was on the economy. He's in the camp of there being a harder landing than most are expecting, if rates stay where they are. 

You don't have rate cuts without getting a hard landing. And you can't have a good economy with rates this high. We're between a rock and a hard place.

He has a weighting in 4 of the 5 big banks, but he's quite a bit underweight on financials and on banks specifically.

We're seeing some layoffs, contraction below and at the surface. If he's right on the economy, 2024 might be the year we see it above the surface. The economy last year was stronger than most thought, including himself. We'll see if we can do it two years in a row.

When you're getting paid to wait by sitting in cash, you can afford to wait for many of the companies on your radar.

He likes stocks that just trend steadily upwards over a long period of time. It gives a better psychological balance for his clients to stay invested and continue to fund their lifestyle.

The businesses he chooses aren't that exciting, so it's hard to ramp them up too much. But by the same token, you can't take them down. No stock is completely immune, but he tries to make choices where it happens less.

There are certain stocks that the market will love and leave. It's not a commentary on management, but on how the stock market deals with certain businesses. Retail and tech can act the same way. Volatility is embedded just based on how large pools of capital treat certain investments.