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

Market. He is not so much into single drug companies that are into single home runs. He likes diversified healthcare companies. Companies have not traded at a discount to the markets since ’08. Companies are chugging forward and improving. We are seeing a pinnacle coming of the $billions in spending of R&D and we will see the benefit for the next couple of years. 3 to 5 years out we are past the patent cliffs of the past. He follows some of the healthcare REIT large caps in the US and few of the smaller in Canada.

Economy. Economic indicators have been streaming fairly strong through the last 18 months or so, and he can see them strengthening here. He likes to watch the City Economic Surprise Index. It tends to move in waves which are probably 6 to 9 months long. We are about 3 months into the up wave, so we have about another 6 months to go to see what happens on the down wave. Has moved to a defence positioning back in March, based on a lot of the market technical indicators. Lately, he started seeing some of the shorter and leading indicators starting to improve. This is probably around sector rotation as well as relative valuation between Canada and the US. He was about 40% cash 6 weeks ago, and is now about 25% cash.

Market. There are some risks in the market right now, but they have been building for some time. We’ve had a long run of good markets without any significant pullback. No one ever knows where or when or why it is going to happen. You watch valuations and things begin to look a little more expensive, and it is harder to find things you are comfortable buying. Over the last 6-8 months, he has been a net seller as opposed to a buyer. Cash positions are building a little. It is probably prudent at this time in the cycle to have some cash on the sidelines in case you do see some sort of significant pullback, whether it is set off by a geopolitical event, an economic event.

An ETF of Canadian large caps with a proven track record and growing dividends for an RESP? With a managed ETF, you are going to get a little more diversification. You could also do this by selecting a couple of sector ETF’s, and putting them together as sort of a complement. He would tend to do this with 2 or 3 different ETF’s, such as some that are exposed to Canadian financials, and then buying one that is partially exposed to some energy, and partially to some industrial.

Market. The Canadian economy roared ahead of 4.5% growth in the 2^nd quarter, the TSX is not participating in the global rally. By the end of the year, Canada should probably flip, and outperform a little against the US and its global peers. Global demand has reached an all-time high for energy demand for oil. We are getting close to 100 million barrels a day which is somewhat positive. The numbers for most banks were stellar despite the low interest rate environment. There is a big sale going on in the utility spaces and energy-like yield spaces, and that has to be revalued. A lot of those types of businesses, which are actually incredibly stable, are sitting at 6%-7% yields, but you have 10-year bond yields at 2%. All boats will probably lift as long as we have synchronization of global growth.

Split $300,000 into 3 diversified dividend holdings with at least 4%+? Utilities are on sale, so you would have to take one third and buy a utility or an energy name such as Inter-pipeline (IPL-T) which gives you a 6%-7% yield. If you literally gave no valuation to the natural gas and liquids business, the payout is very conservative and you get 6%-7% guaranteed. His 2^nd choice would be banks which is giving you a 4% yield. There is a case to be made on REITs because of the ultimate yields, but you are probably not going to get any more capital gains out of it.

Market. There are better markets in the world than Canada right now. His global strategy allocation strategy looks at where he wants to be invested. The oil patch is really struggling and there is a major capital flight out of there. People are saying the GDP is quite strong, so of course we have the Bank of Canada with back to back hikes. He would take the other side of the argument and would support the idea that there is a policy error underway right now. The Bank of Canada has seen a huge rally in the Cdn$, which takes the air out of exports. A 2^nd hike in rates would be a mistake. The stronger Cdn$ makes it a great time to buy foreign assets right now. France and India both look great to him. The US has some good pockets as well.

Market. The global economy is improving. Canada’s 2^nd quarter GDP number has surprised on the upside, 4.5% annualized. In the US, even though growth expectations may have moderated a little post election, the 2^nd quarter has been revised up to 3%, better than the 1.6% we saw last year. We are seeing growth in Japan, and China looks like they are going to meet their 6.5% target growth rate. Global GDP was improving and profit growth is improving. In the background, there is very tame inflation, so many Central Banks including Canada and the US, will start to become less accommodative on raising rates, and will be very cautious. There is no reason to do this quickly, because inflation is so benign right now.

Markets. Hurricane Irma has been downgraded, North Korea did not proliferate into something worse and so markets have rallied. The back to back hurricanes you don’t see every day. The hit to GDP could be greater. 100 Billion to fix things is just 5% of GDP and this is not good growth, although it is growth. Prayers and wishes to those that have suffered through those however. The CAD$ and the sudden shift to a more hawkish tone with the US backing off their rate hike expectations has had a dynamic shift in the currencies. He projects the CAD$ up to 84 cents. He wants US$ exposure. The BOC surprised him as he did not expect increased rates. If the CDU/CSU wins another term in Europe that will probably be good.

Educational Segment. (weekly series) What Investor Personality Are You?: 1. The Accumulator. They have a confidence bias in what they do, but make common mistakes in investing because they believe they can control the outcome of the markets. If you are a growth investor and focused on maximizing returns, you have to be aware you will have challenges. E.g. AMZN-Q. A compounded return of 37.5%. When you look at all the ups and downs, look at the amounts. You have to assume more volatility during corrections. You have to ask if it is appreciate for you as an investor. You have to be willing to sit tight every couple of years with a 30-50% correction. You can’t get in and out repeatedly. You have to understand what your emotional response will be.

Markets. We have a booming economy, but the stock market is still in the red. The rest of the G7 are all in the black. We are expected to have the second strongest growth next year. It is all a play on oil. Italy has the weakest GDP growth. You should not make investments based on GDP expectations. Canadian banks are expensive, but broader opportunities are emerging. There is some value there, but now the energy sector has come up. We have too little of what has been good and too much of what has been bad. GOOGL-Q is expected to cross the $100 Billion level in revenue, but it is still growing in the double digits.

NAFTA and the Auto Sector. The integration of the auto industry between countries means it is unlikely there will be changes in the auto industry due to NAFTA negotiations. MG-T and LNR-T have recovered nicely since the election. Auto sales have peaked in North America so these stocks should remain range bound in this area for now.

Infrastructure companies in light of Hurricanes. He thinks immediately of BAM.A-T. Their business model continues to benefit from institutional asset managers wanting to own something better than fixed income. You get to own toll facilities. As their fees grow, the stock goes up. It is diversified.

Market. A lot of people didn’t think the interest raise in Canada was going to happen last week. They expected it to happen in October. As to relative performance in Canada versus the US, Canada is in the middle of the pack and is definitely not an outperformer, so a lot of people were caught off side. Given the strong Cdn$, that is really going to hurt exporters. The US is near full employment and getting to the point where we will see some wage inflation, and the Canadian economy has quite a bit of slack in it. One of the healthiest places to invest in right now is Korea.

Market. September is the weakest month for stocks globally. The first 5 trading days this month have all been on the downside. On a seasonality basis, the market drops dramatically, and then tends to pull up around the middle of October. Every year, something unusual happens between the middle of June and mid-October, which causes volatility in the markets. Last year it was BREXIT and the previous year was China. 2008 was a world financial crisis. The VIX, at this time of year, from July right through until the middle of October, has a strong period of seasonal volatility. This year there have been several little spikes along the way, but hasn’t shown up strongly this year. What could be the spike this year? It could be North Korea, a couple of hurricanes in the Gulf, problems with Trump getting his agenda through Congress. There are all kinds of things happening in the next few weeks, which could trigger that scenario. Prior to the release of 3^rd quarter results, analysts historically have been overly optimistic with their estimates in the 1^st half. When it gets to September, they rethink and decide to pull the numbers back a little, which causes markets to come under pressure. Right around the middle of October through to the end of the year, the economically sensitive areas get particularly strong. Also, historically the months of January and into early February have been some of the weaker ones for the year.