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

What is the risk of holding a bond ETF as opposed to individual corporate bonds if held to maturity? #1. ETFs never mature, if they do , they just rollover into another bond within the the contents of what the ETF stands for.. While individual bonds, you know exactly when and how much you are getting back. #2. ETFs are better diversified, it is harder to diversify with bonds unless you have a bigger portfolio. #3 There is a risk if all ETFs investors decided that they wanted their money out at the same time. If you own an individual bond you are certain of what you are going to get back.

Scotia Bank Bonds. They are high quality, they are A+ bonds, safe investment with a lower yield. Sleep at night bonds with no worries at all. He doesn't favour any bank bonds over another, but they offer different types. You have to examine each issue very carefully.

Caller has a portfolio of 1.5 million and would like a 5 % return. He feels that you have to accept what the market is giving you right now. When people start arguing with the market you usually lose. You can't get 5% for investment grade bonds right now. You can get 2 to 2.5%. He recommends high yield bond funds. BCE common yield is pretty close to 5 %. Also, high quality companies such as the banks, BCE and Power Corps could give you 4%. .

Caller want's to know if Canada 5 year bond has prices baked in, in regards to the oil price erosion. The last cut wasn't a surprise, and the yeilds actually went up since the bank cut it's rate on July 21. Market is still uncertain if the rate will be cut again. In the meantime we will see firming in the US rates which will mitigate anymore decline in 5 year bond yields.

Caller wants to understand Strip Bonds. Zero coupon bond originally was from a Bond with 6 coupons on it, that would be torn off for each payment. They would “strip” them off and sell them separately. These were zero interest bonds, that were sold at a big discount from their face value. Maturing in 10 years. $50 today would have a guaranteed compounded return from now until then. They were government issued triple A, or double A securities. Ideal for RSP. They can also be traded. These days the yields are so low there isn't any demand for strip bonds. If you want a fixed amount in the future, you can buy it today as an investment.

What percent of a portfolio would you allocate to bonds for two people entering retirment and how would you allocate it? There is no one answer. Depends on confort level. With bond yields so low these days it's tempting to focus on the equity portion.

Brookfield Preferred Share Series E. He's confused as to what this share does. Complicated formula for calculating dividends and you can convert it to fixed assets. Doesn't know why they sell these things. He likes Brookfield itself, things won't get any worse for them, so hold them if you have them. Don't buy though.

Markets. This is still a market where growth is hard to come by. The economy continues to muddle along at around 2.3% GDP. Consumer confidence seems to be fairly low, in spite of gasoline prices being down about 25% year-over-year. They’re spending a lot of money on new cars, so a lot of extra free cash is going towards car payments rather than spending at the mall. Costco reported June numbers, and year-over-year is literally unchanged, which is unusual. Retailers are concerned about “back to School” growth as well as a couple of retailers that specialize in teens, who are not flocking to the malls either. Small business loans have grown to a new 10 year high. That is good, because it typically leads GDP growth and CapX growth by about 2 to 5 months. The question is what might get this market to break out of that trading band if it turns out that we see an acceleration of GDP growth in the 2^nd half of the year. As long as inflation doesn’t come roaring back with that, he thinks the markets have the ability to move higher. The market is expecting a slight increase in interest rates at the end of the year, but that is not a cold shower on the market historically. In the last 2 days, the leader in Healthcare seems to have given back what it has gained. High beta stocks across the board have been hit, but longer-term he thinks demographics continue to be quite good for healthcare stocks.

Markets. He generally doesn’t like it when the Bank of Canada lowers rates to get the manufacturing sector going; because you get beaten up in a lot of other areas if you are consumer. There was a huge rise in exports the other day ending a 5-month malaise, but he doesn’t know if that is going to be sustainable. Still not thrilled with the low dollar policy that we have. Let’s wait and see what happens. As we move sideways, he simply sells options on either the index or buys BMO Covered Call Cdn Banks ETF (ZWB-T). This is a strategy that he always likes. The covered call strategy is a way of boosting very minimal meagre returns on fixed income. You can get 5%-6% out of some of the covered calls. He is about 30%-35% US now.

Bonds? He always has bonds in his portfolios. However, you have to remember a few things. If you expect interest rates to rise, you want your bond portfolio to be shorter term, 2-3 years at most. Also, whatever current yield you see, never believe it because current yield can be very misleading. Go into a bond ETF and look at what the yield is to maturity and what is the trailing yield. You will be somewhere in between. He likes iShares DEX Short-Term Bond (XSB-T).

Hedging with an ETF to cover a drop in the Cdn$? The problem is that there isn’t really a currency ETF, and they are not liquid even if you could find them. Your best way to hedge, if you feel that is the direction it is going, is to move some your money into US$’s.

Markets. Technically we have leaders in the bull market and now the leaders are being shot. Most technicians have seen the breadth of the market is topping out. With big names collapsing today, we are losing the leadership. This signals the end of the life of this bull market. He is not saying it will be a deep correction, but we will see a shift where investors go into things that have not worked over the last couple of years. ABX-T is an example. Most of the sector is up. We are moving away from tech and health care and over to commodities. The crude oil stocks have reacted worse than the price of crude has in the last couple of months. Energy is now oversold. We have seen a 50% retracement in gold and it should hold for a couple of weeks, then gold stocks should start to rally. If not, then gold could head to $900.

Markets. The market is fickle. Today the market hated the media stocks. Disney announced that some people were cutting the cable cord. The market threw a fit and over reacted. So CBS, Fox and Via Com were all down big time. He recommends that we assume that these big companies aren't being run by idiots. People sometimes focus on the small picture instead of the big picture. The time to buy is when everyone is selling. He is a value investor. He has been waiting to buy Disney for years and if it goes down 15% he will be all over it.

Biotech. Not able to value Valeant(VRX) because they have so many moving parts, so many acquisitions, and so much complex accounting. They have a ton of debt, stock has gone up so fast, it is uniquely vulnerable to go down.

Markets. It has been 9 years since the Fed raised rates, and the 7^th year of 0%. He thinks they need to get going. Right now the market is discounting nothing until 2016. The US dollar is certainly reflective of people’s view that of all the global economies, this is the one that is closest to raising rates. There are quite a few Canadian companies that can benefit from earning revenue in US dollars with the cost basis in Canadian dollars. US companies often have a headwind as they translate back foreign earnings into the stronger US dollar. Not hugely enthusiastic about the outlook on energy for the near to medium term. There are still some headwinds. Iran is coming back into the marketplace. Doesn’t see oil going down to $30 a barrel, so we are probably near the end of that run. Has a very, very small weight in energy right now and nothing in base metals. Canadian banks are great franchises, but have not yet seen the effects of low energy prices. Given that he thinks oil prices stay low through to the end of the year, he thinks the banks will start to take some hits on that.