Investment Q&A

Q: How does a fund unload a large position in a small cap stock to minimize the downside pressure of the sale.

Q: Hello 5i team,
Your article on hedging for a market downturn is quite timely; thank you.
A 5% or 10% correction is not too worrisome as it could be recovered in a relatively short period of time.
I do not foresee a "black swan" event; do you? In my opinion, the current steepness of the yield curve does not signal the eventuality of such an event.
Regards,
Antoine

Q: Comment on this question:
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February 28, 2017 - Asked by Sal

Q: Hello 5i
About a month in and wanted to say great service and looking forward to the future. In looking at the companies you cover it seems like your B and higher ratings have been very successful while protecting and growing capital. Curious to know if you have a report on the total returns based on ratings. For example all B rated reports have returned x%, C x% etc.?For me screening by ratings of B and better will be the starting point of my investment selections to be further investigated

Thanks
Sal

5i Research Answer:
We have not done this screening, and historically it may be difficult because of course some ratings will have changed over time, which would mess up the data set.
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Very interesting idea! It should not really mater if your rating for a stock changed. 'Just' calculate the return from your rating date to when the rating changed (or to now if the rating has not changed). Monthly.

I believe the dataset could be normalized in some fashion (statistician?) to account for the number and age of ratings in each category, etc.

Q: MISC ? of Feb 27/17 Asked by Richard:

The bigcharts.marketwatch.com link provides charts for 10 years or greater if data available. Not aware of market cap charting, as it would necessary to maintain the #shares issued to do the calculations.

Q: Hello 5i
About a month in and wanted to say great service and looking forward to the future. In looking at the companies you cover it seems like your B and higher ratings have been very successful while protecting and growing capital. Curious to know if you have a report on the total returns based on ratings. For example all B rated reports have returned x%, C x% etc.?For me screening by ratings of B and better will be the starting point of my investment selections to be further investigated

Thanks
Sal

Q: Greetings Team:

Greg Bonnel on BNN was wondering if the TSE would show a gain or loss for Monday on the Close and when he turned around the TSE lost about 70 points in a manner of seconds. Looking at my own portfolios I noticed that the banks and insurance companies had all dropped suddenly. Computers to blame, I reckon. Would you please comment on this.

Q: You suggest that a well-diversified portfolio is one that holds investments in the 11 sectors of the TSX. Pat McKeough of TSI, who is also a believer in portfolios that include all sectors, uses more broadly-based criteria. He breaks the TSX down into five components - Mfg and Industry, Resources, Consumer, Finance and Utilities. I don't see this a radically different than 5i's approach other than in the Consumer area where McKeough does not differentiate between discretionary and non-discretionary consumer companies.

I would appreciate your comments on these two approaches and specifically, do the two consumer sectors tend to be uncorrelated?

Appreciate your insight?

Paul F.

Q: I read on the FAQ's of an ETF Website the following question:
"Are an ETF's Assets Under Management and Trading Volume good indicators of liquidity".
The answer they gave was: "No. The most important aspect related to the liquidity of any ETF is that while the liquidity of the ETF itself (the ETF’s own trading volume on the exchange) may be deemed poor or limited, the key gauge of that ETF’s liquidity is the liquidity of its underlying exposure.
With the mechanism of creation and redemption of ETFs, a designated broker (DB) is responsible for ensuring that market prices track the ETFs’ net asset value (NAVs). If the underlying securities can be easily bought and sold, a tight fit between price and NAV is easily maintained.
Hence, an ETF with small AUM and little trading volume can still be highly liquid if its underlying basket of securities is liquid."
Is this essentially correct, and if it is I'm still not sure how this would work? I have avoided many ETF's for what appears to be poor liquidity and trading volume. If I want to sell an ETF and level 2 quotes show a large spread to sell for example 1000 shares, will additional shares in the ETF somehow be created to get a fair market price based on the underlying stocks held in that ETF if I put a Sell order in on what appears to be a low volume ETF? What I am getting at basically is - is there any way of knowing what the price spread will be on the sale if additional ETF units that are created "on the fly" by the DB? I may not be interpreting the answer given above so please try to expand and clarify their explanation.
Thank you.

Q: Good morning Peter and Team,

You have said that you prefer to "sell the losers". What criteria would you suggest to decide what to sell, and when
to sell it? Specifically, in a balanced portfolio, I am frustrated with HLF as it's down 28%. Your recent answer to Lee
in which you expressed disappointment in their earnings release has caused me to question continuing to hold HLF.

In the Consumer Staples sector, we hold ADW.A, ATD.B, ECI, HLF, PBH, and SAP. We also have a small amount of XST for re-balancing as it's a commission-free ETF in our iTrade account. (I happily note that XST is a top-performing ETF in the Canadian Money Saver).

If we were to dump HLF, what would you suggest we add to among our existing holdings in this sector? My feeling is that there are better opportunities elsewhere, but as always, I appreciate your insight and advice.

Q: Where will I find the information on your american etf or individual stock recommendations?

Q: Hi, I bought by mistake the ATB.A (the less liquid shares) instead of the ATD.B (the more liquid shares). Should I spend the $20 or so in transaction fees to switch to the more liquid shares? I am not sure that it is worth it given that I bought just 50 shares, but would like your take on this. Thanks!

Q: What do you think a minimum % position should be for individual equities? I have a very diversified portfolio, but I think some of my positions are to small.
Thanks David

Q: 11:31 AM 2/23/2017
Hi Peter:

I don't quite understand your rationale for owning gold bullion, gold streamers or gold miner shares as insurance. Today you said : "The key for 'insurance' such as gold is to own it when you need it, not after." It seems to me that this implies selling your gold at a crisis time since insurance only pays off if the house burns down.

Does this mean you advise actually selling gold positions if the market plunges? Golds get hammered too in crisis situations so may not be winners either. Holding golds through a crisis is almost pointless since if you don't sell you just ride the price up and back down again and almost all golds have trivial dividends, so no meaningful income from them while holding. I just don't see the point. Much better to own BCE or RY or TRP! Would you agree?

Thank you.... Paul K

Q: The markets have had quite a run and I am considering the manner in which I can protect the bulk of those gains. Although I acknowledge and understand that market timing doesn't work, intuitively given the extent of the market run, the odds of a pullback must be greater and therefor are not some hedging strategies prudent at this juncture? How can I hedge those gains in a self directed account with a mix of registered and taxable accounts, the bulk being in taxables which have in certain securities significant gains? Thx

Q: If I want to have cash for future purchases, what is the best way to raise cash in a portfolio of stocks? e.g. sell losers, trim profits across several stocks?

Q: Hi 5i team. The bulk of our savings is managed professionally and is balanced and diversified (I hope).My spouse and I manage our own TFSA. We would like the TFSAs to have a high growth potential. Currently my porfolio has 15% cash, 8.14% BAD, 5.82% CGX, 4.52% DRT, 4.89% INP, 6.92% GUD, 4.41% MDA, 5.18% NXPI, 17.53% PPL, 7.14% TC and 18.66% BYD
My husband has 24.35% cash, 9.24% ALA, 6.76% CXI, 20.54% CSU, 8.88% GSY, 18.78% KXS and 10.97% WCN.
We would like to have a balanced asset allocation and still keep it high growth.
Please suggest what we should keep, sell and any buy recommendations.
Please deduct as many credits as appropriate.

Also, could you advise how often I should check on my porfolio and rebalance it?

Q: I am cleaning up my portfolio and have to deal with a $35k loss on Terra Energy (TTRHF) .. what is the best way to do this? I was sent a form to sign by my online broker (Letter of Authorization - Direction to Remove and Assign Securities (Delisted)) .. is this a good idea? And what about the case of a stock that is still listed (e.g. Knighthawk - KHA) at 2 cents?
Your advice is much appreciated in dealing with these matters.

Q: Hello,
There was a question this week on "Norbert's Gambit". Can you expand on how this strategy works please, and is it more cost-effective than just converting dollars from CAD to USD?

Q: I am helping my sister with her work RRSP in which she has to choose which funds to invest in and just want to know if you were to increase a fund from 2.5% to 5% (Real Estate) and sell some units in another fund that is 24% (Income Growth)of her total holding would you sell 2.5% all at once or best to sell over a period of time? She has 10 years before retiring.

Thanks
Dolores

Q: Peter; If the Liberals raise the capital gains tax rate to 75 % what would you expect the market reaction to be and would it weaken the CAD? Thanks. Rod