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

A DRIP program, especially if they entice you with a 5% discount? Typically he won’t do a DRIP in a portfolio, but they make a lot of sense in his own personal portfolio. If you don’t need the income and you like the company, you may as well reinvest in the company. If you can get a discount, that is even better.

Interest rates. If they rise, is it better to buy financials rather than capital intensive dividend stocks? If rates go up quickly, the whole market will get hit temporarily, like we saw happen in 2013. If they go up in a gradual fashion, that is good for financials, both banks and insurance companies.

TSX Venture. This still has room to run. It is up about 25% over the last year since February 2015, and earnings estimates keep rising. The last estimate is for $1,058 for 2015. The strong US economy is helping the Canadian economy turn around. The weak Cdn$ is helping on the export side. Resource sector is getting paid in US$ meaning the top line is growing as the Cdn$ is weakening. Financial sector is pretty solid as well. He would recommend looking for sustainable and growing dividends within companies.

Gold. There are 2 catalysts for gold. Either a crisis or inflation. As we saw, the Russian and Middle East situations did not move gold very much. Inflation was going up at the beginning of the year, but is now going away. Right now we are range bound other than the seasonal rally somewhat linked to the Indian wedding season. Wouldn’t be surprised if gold tested lower over the next couple of months, maybe the $1200 level. Lower prices may force gold companies to be more efficient and cut costs a bit further. (See Top Picks.)

Markets. The reality is that equity markets are still predicated on what central bankers globally are doing. So far so good. There was a bit of a correction in August and looking a little dicey with geopolitical tensions in Iraq and Ukraine. However, the market came right back and continued low interest rates in the US and ECB will still be in place. Seasonally September and October are the weaker months. It doesn’t happen every year, but given how strong August was in both the US and Canada, he would not be surprised to see a little bit of correction. After that he expects we will have a good finish to the year.

China. Seeing stabilization, but a lot of that is brought about by government minimal stimulus. However, this does not get them fundamentally out of the slow growth period, so you will see some relapse. Growth will still be relatively steady, rather than accelerated.

US Markets. Has been bullish on the US market for 4-5 years. Although he is still very strong on the US market, he decided to take about 15% off the table and wait. Historically, September is the worst month and October is not much better, and often there is a rise in late October. This has something to do with his decision to reduce his holdings. However the main driver was because of very, very large gains and rebalancing his portfolios. Has very little exposure to emerging markets. He is US #1, Canada #2 and a small amount in Europe.

Selling Puts on banks. How many months would you go out? When selling Naked Puts, the risk/reward is the same as buying the stock and selling the options. When he does covered calls, he prefers going out 6 months as he gets a better premium. If you are willing to do more active trading on a 1-2 month contract, you’re going to do a little bit better provided you are on the right side. The only issue he has with naked put writing is that most people that do it are leveraging. They are not just doing the cash substitution, they are probably leveraging it 2 or 3 times, and if they are wrong they can get hit pretty good.

Naked puts. A Put gives you the right to sell something. If you buy a Put for $50, and the stock goes down to $45, and you have paid $2 for that Put, that Put is now intrinsically worth $5, because of the difference between $45 and $50. People use this as a way of acquiring a stock at a lower price. A good strategy.

If I believe interest rates will stay low for the long haul, what is an option strategy I could use as an insurance policy in case rates spike up? A very interesting question. There are options on government bonds that trade on Montreal except there is no volume and no open interest except on short-term months. There is nothing directly that you can do.

What ETF would you recommend for buying Puts on a Utility index? There is nothing for this.

Markets. To him, Canada has done as well as, if not better, than any other developed market globally. However, going forward he feels you are still a little better off getting money out of Canada. He began rebalancing portfolios at the beginning of the quarter, early July, and the rebalancing will be done at the end of the quarter.

Broad-based ETF’s such as VDU-T, VCN-T and VUN-T. Strategy of holding these versus ETF’s based on indexes tracking smaller baskets? He likes the more broadly based ETF’s as you are diversifying away from risk and getting more small companies. Diversification lowers risk and adding small-cap names historically increases returns.

An emerging market ETF that excludes Russia? There are many emerging market ETF’s, but they all have exposure to Russia. There are a lot that have minimal exposure.

Minimizing taxes when creating a will? To do this, you have to do lots of gifting while you are alive. Whatever you have in your estate will be part of your terminal tax return. If you have a spouse, you can name them as your beneficiary of your RRSP or RIFF, which will create a spousal rollover with no taxes. For regular ordinary investments in a taxable account, try not to have them in a taxable account when you die, just give it away before that happens. Legally you are allowed to give about $10,000 per person, per family member, per year. However, if you are giving away a marketable security, there may be a taxable capital gain/capital loss. If you give securities to charity without selling them, they will give you the receipt for the value on the day they receive it.