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

Markets. Themes have been pretty consistent. Money movements from fixed income to assets with a little more income. He has been moving toward economically sensitive sectors, out of momentum stocks, and looks for long life predictable assets. You want low payout ratios, but increasing dividends. You are going to get profit taking in leadership groups from time to time. But recent softness is more indicative of a pullback in a bull market than a rotation out of the sector. He doesn’t want to go to heavy cyclicals.

Banks. Money flows to where it is treated the best. He owns Royal and Scotia. Financial and energy are the leaders in the market today. Within financials he would choose asset managers and capital markets companies. He likes big US banks like Wells Fargo or BAC-N.

Markets. About every 6 months or so, Standard and Poor release new information that they update semi-annually with regards to the index versus active debate, which is called SPEBA. They recently released the 2013 year-end report which showed that in Canada only 2 out of every 9 actively managed funds beat their benchmark over a five-year period, and in the US and globally, the numbers are more like 1 out of 7. The numbers get worse when you go from one year to 3 years to 5 years. The percentage of funds that beat their benchmark goes down as the time horizon goes up. Therefore, the passive way with broadly diversified, low cost ETFs is the best.

Investing in indexes, would it be wise to wait for a drop? He would not wait, especially if you are the sort of person that puts money in on a regular basis. You don’t know when the market is going to go up, down or sideways.

A conservative balanced portfolio for someone over 65 who has to switch from been RRSP to a RRIF? Age 71 is the age you have to switch. The question is how much risk are you willing to take and how do you define risk. Bonds historically are seen as being the less risky asset, but right now they are paying next to nothing. If we ever have a rate hike, which could be 1 or 2 or 3 years away, you would probably lose money.

Is dollar averaging a way that you build up a portfolio? Different people have different opinions about this. Averaging up will at least minimize your taxes when the time comes to sell in a taxable account. He would try to build a more diversified type of portfolio and look for things that are temporarily down.

In mutual funds, what is the difference between the ones banks offer and other options? There is not a big difference in the pricing of the bank products versus the others. He would recommend that instead of a mutual fund, you find a good index fund.

Difference between iShares MSCI EAFE IMI Ind (XEF-T) and iShares MSCI EAFE (Cad Hedged) (XIN-T)? They are both EAFE so both are tracking Europe, Asia and the Far East. XIN is currency hedged and XEF is not. Both are excellent products. (See Top Picks.)

Oil and gas ETF or own the stocks? He generally does not like the oil and gas sector right now so wouldn’t want to recommend any of them. Feels oil has seen better days and we are now range bound at around $90 a barrel. However, he does like energy infrastructure.

Markets. Looking for Short, Sharp and Shallow pullbacks to continue in the US market during 2014. Markets are relatively fairly valued. Competitive asset classes aren’t that compelling. Also, people have seen a Bull Market for the last 5 years so they want opportunities to move in. When they see the market correct back 4%, 5%, 6%, they start to think about entering and that keeps the correction contained. While we are rewarded when markets do well, we have to understand that uncomfortable parts of the market are part of the market. To react in those uncomfortable parts of the market, the worst thing is to think they are not going to occur, which would just set you up to be hurt. As we see the cycle getting a little old, earnings growth is going to be a little more subdued which we are seeing coming into 2014. At the beginning of the quarter, the market was expecting a 4% growth in 1^st quarter earnings over last year. By the time we got into the quarter, it had actually gone negative. Often people guide down and then the market outperforms and surprises on the upside. Expects we will end up with a 2% growth year-over-year of earnings in the 1^st quarter, but there is an opportunity for that to increase as the year goes by, pretty much on the back of revenue growth which seems to be increasing by a little bit more.

Markets. We have seen outperformance in Toronto versus the S&P 500 and he thinks this will continue. The S&P outperformed the TSX for over 2 years up to last summer and we had been outperforming it since then. There has been recovery in the energy sector and the banks, starting in the early part of last year, started to perform a lot better. Also, infrastructure type companies in energy have done very well. Expects this outperformance to continue for the balance of the year. Certainly the decline in the Cdn$ will also give quite a boost to many Canadian companies. We could have a short-term correction this summer, but looking for a strong finish for the end of the year.

Markets. There will be a little bit of cycling out of the more liquid REITs since we had such a run up this year. There is more value if you go down in the size of REIT, as long as it is good quality. We are not at risk of a major decline. Foreign investors are coming in and buying REITs as well as properties. Canada shines as a place for stable returns.

Markets. Thinks stocks will continue to do well, despite ‘Sell in May and Go Away’, although it will be more volatile. He would look for a pullback and then the market goes back up. Thinks rates will go up a lot slower than people think. The US is in a faster recovery than Canada. People went through a massive recession unlike anyone had seen and they want everything to quickly bounce back like normal. We have slow growth,, but companies are in better shape and you will see top line growth in the next couple of quarters. It will be a bumpy ride over the next little while, but the outlook over the long term is very good. Dividend stocks are important so he favours them and likes consistency in companies also. Some of the dividend stocks are trading at the high end of the range so won’t move up as fast as they have over the last 3 to 4 years.

Markets. CPP – taxes need to go up and benefits have to go down. Around the world, most government retirement plans are grossly underfunded. The vast majority of people are not saving enough for retirement.

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