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

Bond education. He has authored a book called “In Your Best Interests” and “The Ultimate Guide To the Canadian Bond Market” is the trailer. This is available at any Odlum Brown branch or at Amazon. You can also ask him questions on his website www.inyourbestinterest.ca where you can ask him questions.

Videotron 2020 corporate bonds maturing in 2020 at a coupon rate of 7.125%? This is an attractive coupon and he likes the credit. If you sell them, you are not going to be able to replace the income.

Markets. Usually it’s recessions that cause an end to a bull market and she doesn’t see that, particularly in the US. There are very strong employment growth numbers, housing is picking up, consumer spending is picking up and the sentiment is improving. All of these things point to an expanding economy. The recovery is actually accelerating. US GDP has gone up 3.6%, and had been under 3% for the last 9 years. She thinks the US has a good chance of carrying the rest of the world, and actually may boost the rest of the world. The collapse in crude oil prices is benefiting the US consumer, as well as a lot of other countries. For this market to continue going up, it is all about corporate profit growth going forward. Earnings season is underway right now and she thinks it can grow in the mid-single digits. Despite the headwinds of currency, she still sees lower interest rates.

Investing Style. He likes to look for names where there are zero, 1 or 2 analysts on the name when he initiates a position. Doesn’t like being the 5^th, 6^th or the 20^th person to look at a stock. Being early and looking at under-owned and under-researched names allows him to unearth some interesting opportunities, particularly in the mid-cap space. There are only about 450-500 names in this category in the Canadian market, so he typically invests in a maximum of 40 names, which means he is looking for less than 10% of them. Has a library of names that he knows, that he built up over the last 7 years, and he tends to stick with his knitting in those names. Has 4 components to his portfolios, but pair trading is the bulk of it. Two thirds of his portfolio is in pairs trading. This means going Long in one position and typically going Short a stock in the same industry. That helps you to take out market specific risks, but also industry specific risks. A great example of that would be Canadian National (CNR-T) versus Canadian Pacific (CP-T). As the market moves up or down, it is how they move together. Because they are in similar industries, you can offset the impact of rising or falling diesel prices, or weather, or currency impacts, so you can really isolate the alpha in those 2 trades. What people miss on pairs trading is that it is not in absolute terms what happens to the stock, it is how they react relatively. For example, in a falling market, both of them can fall in value, but as long as the Short position falls more than the Long position, you actually earn money. This means you can make money in any market condition.

Markets. Greece is talking tough on austerity. Greenspan said the Euro does not work for all countries. Berman feels the Euro will eventually fall apart and this is just the next iteration of the debate. The markets will have some anxiety about it. China has some growth issues they have to manage. They will soon be the largest economy in the world, so when their trade numbers slow down, it is significant. Growth rates could fall to low levels over a number of years. We can see strong numbers in the markets without Chinese growth, however. We are in the very early phases of banging out a bottom in the price of oil, but it could take a year. We should be accumulating a position in the crude space. Don’t invest in ETFs that hold the commodity because of losses from the rolling over of futures contracts.

Having just one oil stock and one gold stock is not diversified. Use an ETF. Don’t try to choose between oil and gold. You might want to be more weighted in oil than gold.

What happens if the manager of your ETF runs into trouble? The assets become custodied in segregation and there is no issue and you get your money back, unless there is fraud. It is relatively insignificant in the grand scheme of things.

Safe ETF for one to two year hold. The more diversified you are, the lower the volatility. In two years, Greece could blow up, or the US and China could lift the world. ZMI-T is corporate bonds, preferreds and a lot of everything, Canada focused. There is no global balanced ETF that gives you that exposure.

Education Segment. Comments by a TV Personality on ETFs. He was shocked that this host of a popular money show does not ‘get’ ETFs, saying they were only for short term trading and you should go to mutual funds. The corner stone of investing is diversification. You need 30 to 40 individual stocks to diversify a market and it is hard to manage that many, and that’s why ETFs are great. Comparing CPG-T and RY-T to ETFs containing them, you got more return for less volatility using the ETF recently. The point is that you have to be diversified.

Markets. When visiting Europe he found the mood was better than expected. German is positive and is benefiting from the weak Euro. The Swiss are nervous because of what the S&P did and the appreciation of the Swiss Franc and the Spanish much more optimistic than they have been for a long time. Greece concerns him. He does not know the unintended consequences of Greece defaulting on the debt. If you stick with the quality companies you should do okay. India was the exciting country last year to invest in. If you look longer term, that is probably still going to be true, but there should be a pullback short term. China is the real wild card. There could be spillover effects into other parts of Asia. He looks for companies with strong balance sheets that can finance their growth internally and that have quality management.

India ETF or Mutual Fund. Long term he thinks India is turning the corner. They have a reform oriented government and good growth. Oil prices being lower benefit India as an oil importer. We may hit a few road bumps, so he would scale into it. Start now and buy over the next year or so for a 3-5 year hold.

Emerging Markets Infrastructure. Some of these plays look very attractive. Some of the airports look very attractive. He goes for growth, but these are mostly yield.

Lanexess (LXS-AG) (Top Pick Oct 18/13, Down 9.60%) Had a pretty good recovery. New management are very strong. Since the new year the pop is management coming out with better forecasts, the weaker Euro and the lower oil price. Europe requires labeling on tires so you know where the tire ranks in many categories. The synthetic rubber is much more effective in many of those categories. There was a supply issue, but they are working through that.

Markets. The market is trying to move to the pro-cyclical camp. Financials, energy and materials did pretty well last week. Bonds, the whole defensive play, came off. The Fed was doing some more asset purchases. They took off about $240 billion from August through until about October. Then in November-December, $190 billion gets tacked on. Because of this, he is not sure if the Fed knows some stuff that he doesn’t, and they are still worried about inflation, or is the market just kind of front running that news story. He thinks investors are probably somewhat confused as to where to go. Expects we will see the Chinese central bank and the reserve Bank of India kind of get in on the action a little. Those markets have some real tailwinds behind them.

How does the price of oil relate to the price of gasoline? Gasoline is a separate commodity from oil. Although it is based on oil, the inputs for gasoline are based on oil, but in addition, what are the refineries’ capacity like. There haven’t been many refineries built in North America for 30 years. You tend not to see the relationship be as quick as we want it to be. You can even have different prices in cities that are just 10 minutes from each other.