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

He thinks ETFs won’t work as well as they have in the past because you can’t be defensive – you are getting the entire index. If you are looking at one for 5 to 10 years then get one that is diversified over the TSX and get one that is fairly liquid.

Keystone XL: A republican win in 2016 could be the best possible news for Keystone XL. Other projects are stalled but this one is dead in the water. Most investors do not have this in their numbers.

Markets. He is starting to see the US turn over, which was a very important part of the supply chain that we needed to see start to slow down. Starting to see growth going negative. The only thing that is a question is OPEC increasing their supply. That has really offset the benefits of the US. He is looking for a balance point of $60-$65 US a barrel in 2016. Sees oils improving in the 1^st half of 2016.Has been telling clients who are in oil already, to try to high grade. Take those losses which can be valuable in the future as you create some gains from some new positions, and high grade into companies with the right balance sheets, assets that can continue to generate returns. If you can start layering in positions in October and working your way through January, you’ll start to see some better strength going into the latter half of the 1^st half of 2016.

Markets. The volatility has subsided to a degree, and suspects it may last another few weeks. Normally the middle of October is when things die down and people start looking forward to the rest of the year. He has some measure of optimism although we could test the lows again. Thinks we will end the year higher and perhaps the next 2-3 quarters might well be up. We are in a correction, rather than the start of a bear market. He is more optimistic that Canada will have a more robust short-term recovery than the US. The most hated area by investors is gold, which has been a total disaster and expects that has made a short-term bottom. Thinks the US$ is in for a period of consolidation, if not giving back the huge 20% gain that it has had. Believes oil is in the process of bottoming, whether it is this quarter or next, and that the supply/demand is better than everybody realizes. He is largely out of resource stocks.

Markets. It is always a mixed blessing when you get a correction. It pains him to see all the red numbers on the screen, but there are some bargains emerging. Stocks are selling off in the absence of any hard reason, so obviously there are bargains. He saw an outflow of funds from equities. When you see this kind of volatility, buyers go on strike. This is when you should be looking the hardest. We are three weeks away from the third quarter earnings announcements and we have seen a lot of revisions downwards. He is not seeing a lot of earnings warnings. Now is when we should see them. He takes this to be a good sign. There will be pervasive weakness in energy and commodities. People are worrying about a spillover to the banks. He thinks there is nothing serious going on this quarter. He sees no sign of a recession in the US. He looks at alternatives. Long bonds return negative return after taxes, but high quality equities are paying 3-5% dividends. The dividends should be lower, meaning the stock prices should be higher.

Copper Producer. He would go to the States and get a long term producer. FCX-N, for example, would be better than a Canadian producer. It could be a long trough on the commodity price.

Buying US stocks with the Loonie so low? If you are going to live and retire in Canada, you should not have too much outside of Canada in case the dollar gets strong again and you are stuck with devalued foreign investments.

Markets. Everyone knows that the Fed is going to increase rates at some point. There are going to be some traders reacting to that, but doesn’t think it means an awful lot for regular investors. He looks 3-5 years out for his clients, but these things create some anxiety. They are only raising it up a quarter of a percent, so it is not a big deal. He is being quite cautious at this time and is skewing towards the US. His holdings in straight equity are probably about 15%-20% Canadian and 30%-35% US. Has nothing in emerging markets or China and a small bit in Europe.

An ETF that can be a held for 30 or 40 years? You could look at Vanguard FTSE Cda All Cap (VCN-T) or the iShares S&P 500 (Cad Hedged) (XSP-T) for the US side.

Markets. He looks at the market internals price and volume data as well as a number of different economic indicators. Currently they are mostly out of the US including the leading economic indicators, the ISM, etc. and are still very positive. LEI is another indicator he likes to look at for the 18 moving average, and whenever LEI crosses below that, it has been a very strong positive sign that we are going to see a recession. He is still not seeing anything like that. The ISM is also very strong. Manufacturing isn’t super strong, but the services side is very strong, which is a big part of the US economy. He is defensive and cautious right now. In June, some of the market indicators turned negative, so he started to raise his cash position and is about 30% in cash now. If you are looking at things from a 3 year timeframe, right now you could be picking away.

Big banks or insurance companies for a 3-5 year hold? This is a tough one as both have positive and negative traits, especially over that time frame. In a 3-5 year time frame, you would expect interest rates to be a little bit higher, which will really drive insurance companies. On the flipside, the banks are also going to see nice business. If it were him and his money, he would probably look at the banks, especially over a 5 year time frame.

Markets. With energy being where it is and the mining area still behind, there is just not enough fuel in the tank for it to be interesting to him. Because he is a global manager, and Canada being only 3%, he has much broader options open to him with what he can do with clients’ portfolios. In energy there is a lot of inventory. Technology has totally changed the ball game. There is nothing particularly special about what we have in energy, and there is no scarcity factor.

An ETF that will allow overweighting Frontier Markets? A Frontier Market is usually a low quality emerging-market, so you are really walking out on the risk scale at that point. Emerging markets, and by extension Frontier Markets are a certain part of asset class that doesn’t really lend itself to indexing. There are too many countries, too many cultures, too many laws and too many industries. The ETF side just doesn’t work in this area. They are not homogenized.

Markets. The Fed, by not raising rates and mentioning China as a concern, has really confused the market rather than giving it some certainty and clarity. He was looking for a very slow rate hike increase, which would indicate the Fed was confident growth would continue. He tries to ignore the large economic fundamentals, such as China. He is a stock picker. If he can find good companies that are trading of valuations that are attractive, he is generally going to own them through the cycle. Always tends have a lower proportion of companies exposed to oil and gas. Oil prices will rise over time as the supply correction eventually reasserts itself.

Canadian Banks? They face a bit of a challenge in earnings growth over the next year. Dividend yields are anywhere from 4.5% to almost 5% across all the large tier banks. The dividends are well covered. Having exposure to banks at this time, on a risk/reward basis, is quite attractive.