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

Volatility seems to be with us to stay. Down the road you can see all kinds of things that are going to add to it. You can still make money if you pick the right stocks and look for dividend instead of capital gains. The banks seem to be just as volatile as ever. He always has some fixed income content. 10-15% cash or liquid securities. Also a significant gold content, which has been a drag.

When you think of al the stimulus that has been thrown at the market over the last couple of years, the economy is hitting a stumbling block. It’s tough for investors because markets are giving signals one way and the politicians the other. You have to pick your spots. Money is getting deployed in yield-oriented investments. That’s where the money is going. Corporations have cash but are not making acquisitions but they are raising dividends.

Markets. The global macro picture with what is happening in Europe is clearly what the drag on the market is. There recently has been a bounce off the oversold levels. There are also issues with seemingly slowing economic growth in the US as well is in China. Favours the US market over Canada as it is much more defensive than the TSX. The TSX is highly geared towards finances and resources.

REITs. Is it a good time to get in now? With interest rates at all-time lows and 10 year treasuries at 1.6% or so and 10 year government of Canada at 1.7% or so, REITs give you that excellent yield potential. They should continue to do well as long as interest rates remain flat or even go lower. The S&P/TSX Capped REIT (XRE-T) is a good way of getting into it as well as the Equal Weight REITs Index (ZRE-T).

Markets. She generally runs with transactional cash and is currently higher than she normally would be at between 5% and 6%. Selective in putting money to work the fields investors should be patient here.

Markets. We are in the middle “of the year doldrums” in addition to all the global problems. His clients are remaining in yield plays with good dividends and possibly take advantage of very low prices, rather than selling.

Stocks are cheap and N.A. markets are way oversold. He has been doing some buying. European markets will muddle through. Lots of high quality companies that are relatively free of impact from the European situation. Seeing lower growth and demand from Asian China India and Europe.

Constructing RRSPs solely using ETFs? Absolutely yes. This is a good strategy. Use multiple asset classes and don't overweight one.

Small caps future? He believes there is a small cap premium and that over long time horizon, 10 years or more, will have a return premium of 1%, 2%, 3% above large caps. You do need to be patient.

ETF wrap products and costs versus holding ETF's individually? A wrap is where you buy a bundle of 4, 5, 6 ETF's in one ticket. He likes this one for 2 specific situations, TFSA or an RESP, things that you can only put in $2500 or $5000 a year and you want a diversified portfolio.

Markets. His quant model continues to push up stocks that are reasonably valued but the macro overview indicates that at the moment we are in a risk-off market but people don't care. Market is oversold, but not enough yet and there is more washout to come and then it will be time to look at some of the bargains. Golds are typically the leaders coming out in market rebounds and this is already starting to happen.

Yields. The 10 year bond yield, both Canada and US, is artificially low. This is a product of fear, concerns around deflation with the D leveraging of households in the US, potential or existing inflation in Europe and the slowdown in China. Clearly this is gone further than what normal fundamentals would take you to. The question is, how will it unwind itself. Well it snap back to a normalized rate immediately or will it gradually back up? He thinks economic growth globally will be muted for some time. In this kind of environment, REITs should do very well in terms of total returns and in terms of valuations.

The issue with the US is that the US recovery is occurring at a slower pace. Asia is just going to be slower but continue to grow. Commodities. Some are falling substantially and is a falling knife situation until it stops. It will not be like 2008. Sell in May and go away and we are in that time frame. He is 12-14% in cash. Actively look at some companies for as long as a couple of years. Last year he deployed a lot of capital in September.

After a day like this he is not doing anything special. A 250-point drop. At a recent ETF conference he saw no fear or panic. The fear and panic today was orderly. It was expected, since there was no rally at the end of the day. He is waiting to see what transpires over the next few trading days. He hedges risk with asset allocation. 40% bonds, 60% equities. We should not be totally per-occupied with what is happening in Europe.

Warrants are a kind of long-term option. Used with junior resource companies to sweeten the deal.