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

Global Investing Timing. The main considerations are the differences in the currencies. If there is a significant depreciation it hurts your return. If the markets are going to be weak, then the Canadian dollar will fall against other currencies.

Gold. It depends on risk tolerance. Gold stocks are cheap here. Short term vulnerability, but up to two years it is higher than today.

Juniors. Are not his favourite space. You have to know the stories and an insider. He can’t add a lot of value.

Educational Segment. Trends in ETFs. The big buzz is the move into active ETFs. About 4% at present. Active means it is not based on an index. Horizons in Canada (alpha series) is the biggest. An example is one based on seasonality (HAC-T or HAG-T). You have to look at them carefully. You have to know the manager with these types of ETFs. They are expecting more ETFs to shut down than are launched this year because they aren’t successful.

Markets. His new Z-10 has influenced his outlook on the company. He is a bit worried about how to get the magic out of the handheld wars. He thinks Apple has peaked. It is an extraordinary situation with RIM. He is fond of income stocks still. If housing really gets going then banks will find a way to move up mortgage rates and then base rates will get pushed up.

Oil. WTI (West Texas Intermediate) was up $1.30 and natural gas was up but the average Cdn price was down. Interest in the Canadian patch right now is very, very low. Uncertainty surrounding Keystone is extraordinarily high and that is by far the biggest catalyst this year, will there or won’t there be a approval. Expectation now is between June and September, probably more on the September end. He personally thinks it will get approved. US investors have not been in our space, probably for a year. We need US investors to come back. Expects volatility will continue until there is a decision. Fundamentals have improved but stocks have massively underperformed and we have an imminent catalyst coming in the form of Keystone.

Valuating a company. Do you look at proven and probable net present value discounted 10%? 2 schools of thought in evaluating oil/gas companies. Some are Cash Flow and others are Net Asset Value. Prefers the cash flow, where you are concerned about what is the current enterprise value (market cap plus debt) trading at relative to the amount of cash flow. Mid-cap oil producer would be 5.5-6 times. A larger producer that pays a dividend would be around 9 times. On NAV you are looking at not just today’s cash flow value but the value of all production streams for 2013-2017, discounted back 10% usually, under before tax basis. Divide that by the share count, take off debt and you get the NAV. A lot of Canadian companies trading on NAV and a lot of them were too unrealistic on future prices of natural gas.

Markets. Resource sector continues to benefit from the infrastructure build taking place. Oil prices are above $90 a barrel. This bodes well for resource companies. Likes a diversified approach. Canadian energy companies have grossly underperformed the rest of the world. Believes there are opportunities to ship that oil out.

Markets. We could be on the verge of the first global bull market ever. This is the 13^th year of a bear market. The ducks are really lined up well. We were waiting for the bond market to come into play and now we have a significant top and now money will become available for other asset classes. Generally the bond market leads. If the bond market sniffs inflation or trouble it will start to go up and you will get more steepness in the yield curve. Central bankers are keeping short-term rates down.

Markets. The TSX is 15% below its all time high. Thinks there are some good signs in terms of economic growth and the US is in a better position than a year ago. Europe continues along a path and the longer that happens the less chance of a Lehman-style event. TSX performance is below the US the most in 40 years. It depends on commodities. Outlook for oil is decent based on Chinese growth. The oil price spreads are so large that we don’t get the benefit. Thinks the situation will resolve.

Markets. Investors need courage and patience right now. A problem that investors always face is that when an investment is going in their favour, they want to leap out because they are frightened it is going to go back down again. If things continue to unfold as they have been in the last several months, this is the time when you actually make money despite whatever pullbacks, which inevitably will happen.

Bonds. It always concerns him when people ask about bond ETFs, mutual funds, etc is that they always want to believe what the current market yield is but that is not what you are going to end up with. If you have a market yield on a bond ETF or fund at 4%, you really have to look at the yield to maturity. The problem is that outside of the RRSPs you are paying tax on the 4% yield but that yield is based on the bond that the portfolio manager has paid a premium price for. When it matures, you’re not getting a premium price for it but paying a tax. Summary: cheque out the yield to maturity!

Better to buy options with a strike price above or below the current price of the stock? Really depends on how much leverage you want. If you buy an “in the money” option where the option price is below the price of the stock, it is much less risky but you are not getting the leverage. If you want an “out of the money” option and the option price is higher than the stock price, you can get a lot more leverage. (Money is really in the Selling rather than the Buying.)|

Mutual funds or ETFs? A lot of this has to do with fees. If you are buying a Canadian broad-based equity fund, funds are roughly 2.3% to 2.6%. If you are buying a similar ETF, fees are somewhere between .07% and 1.5%. There is a huge difference in costs which has a very, very direct influence on your returns. Also, if you want to get out of a mutual fund, they have deferred sales charges which can go up to 5%.

Best REIT ETFs in US and Canada? The big one in Canada is iShares Cdn REIT (XRE-T) and another is BMO Equal Weight REITs Index (ZRE-T), of which 25% is RioCan. There is also Vanguard REIT (VNQ-N).