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

Educational Segment. Diversification. Who would have known last year that the S&P would have gone up 32%. Emerging markets didn’t do well last year. The US market did really well. High yield bonds had a good year. The total world, according to VT-N ETF was 21%. Canadian REITs were negative. We should consider more emerging market exposure and less US due to multiples in those markets.

Markets. Thinks rates can’t go higher than 3.25% (10 year US) and could even go down a little. The PE going higher on the S&P is not so good because return on the S&P are multiple expansion, rather than increase earnings. He would prefer better earnings and revenue. He is modestly bearish on the Loonie. Canadian economy is weaker than the US right now. We are more dependent on the global economic story.

Expects moderately higher 10 year rates. The majority of the near term rise has occurred. Fixed income is the anchor in your portfolio. It only takes 1 bad event in the middle east, oil shoots up and that hurts the US investor. Use the fixed income portion to protect the rest of the portfolio.

Amount of Fixed Income in Retirement. Typically in retirement you have more fixed income in your portfolio. You should constantly rebalance since your fixed income investments probably don’t have a lot of upside, unlike the equities. 70% fixed to 30% equities is common in retirement. Anything north of 80% would typically be too much.

Preferred Shares in a Financial Institution. They have a role to play. They are not all created equal. Perpetual bonds react badly to rising interest rates. Dividend tax credit enhances their returns so don’t put them in a registered account. Without that tax break, bonds would be better in the registered account.

If in early stages of retirement, for 2014, he would balance money more equally between fixed income and equities. Thinks equities will have a better year.

It is hard to get anything near par in the high yield bond market. Money is still accruing in bond funds. Really good deals get snapped up by institutional investors. You might look at REIT paper or the energy space.

REIT Bonds. Most REITs don’t have convertible bonds.

Residual strip bonds. They are a biproduct of an original bond. Usually created by a Canadian or provincial government bond. It generates no income but you buy it at a big discount and then it matures at par.

Closed End Bond Funds. Typically trades below par right out of the gate just because of the fees. He would own it in the secondary market, rather than the new issue. Tries to buy it at the largest possible discount to NAV. If looking to sell, some of these offer an opportunity to get out once a year at NAV.

River Cree Entertainment bond, 11%, due 1/20/2021. First issue done by aboriginal group in Canada for a for-profit business. Casino that allows smoking, which is known to have higher returns in gaming rooms (3 to 4 times higher). It is a complicated security because it has no assets. Have traded up since he first bought them.

Mattamy Group 6.875% 11/15/2020 Bond. Builder that is mostly in Ontario. Family owned business. Own great land banks going back to pre-2005, land that is now hard to get because of increasing environmental regulations.

Commerzbank AG 8.125% 9/19/2023 Bond. He still thinks it is very attractive at 6.5% yield. It is part of the Tier 2 capital structure. Bank is Basel III compliant.

Markets. Valuations are a lot higher than they were 12 months ago so this has now truly become a stock pickers market because there are certain sectors that no longer offer value. To just buy an ETF or the broad market is probably not going to be a great strategy in 2014. Feels that Europe and Japan will be the outperformers, the US reasonable and Canada still a laggard. With Janet Yellin, taking over from Bernanke, tapering will probably be on the slower side, but clearly more of the same. The market should be happy about this.

ETF with a basket of Japanese stocks? Nothing wrong with this area, but of course, you are going to end up with some of the big uglies like Sony, Panasonic, Toshiba, etc but at least you would get exposure to Japan. This will be one of the better performing markets in 2014. You could look at iShares Japan (EWJ-N) or Wisdom Tree Japan, Hedged Equity (DXJ-N).