Investment Q&A

Q: Hi Peter and team

I am concerned about the possible default of the U.S. Should we take some defensive measures to protect our portfolio?

Hope you are enjoying your well-deserved vacation.

Joanne

Q: 5i Team,

I hope all is having a great 'workation'.

I have a market strategy question relating to portfolio balancing. For most investors, maintaining a balance portfolio is the best way to hedge market risk / volatility (for the purpose of this question, lets ignore the quality and size of companies being purchased, obviously that is extremely important in any scenario). Theoretically, take 11 sectors and try to maintain relative equal weighting (recognizing that it’s impossible to do so perfectly given daily market fluctuations), hence, a ‘perfectly balance’ portfolio would look like:

Utilities – 9.1%
Consumers Staples – 9.1%
Capital Goods / Industrials – 9.1%
Energy – 9.1%
Financials – 9.1%
Health Care – 9.1%
Consumer Cyclical – 9.1%
Transportation – 9.1%
IT – 9.1%
Materials – 9.1%
Telco – 9.1%

Questions:

1. For a client who is willing to go up on the risk curve, are you ok positioning a portfolio overweight / underweight in sectors that you think will outperform / underperform?

2. Given today’s macro economic backdrop, what sectors do you think will be outperforming / underperforming over the next 1-3 years?

3. Finally, I am a 30 year old investor maintaining a small, relatively balance, six figure portfolio. I will be transferring over additional cash to deploy within the coming weeks equal to about 50% of my current portfolio size and am trying to determine how best to position myself in the 11 sectors. I have time on my side, and future cash to invest in coming years, so I’m not overly worried about taking on more risk if I think it can lead to higher returns, but don’t want to be stupid either. As such, assuming I maintain a relative balance of small cap and large cap companies, what weightings do you think I should aim for? How would you position a portfolio TODAY within the 11 sectors for a more ‘risk on’ investor?

Utilities – ?
Consumers Staples – ?
Capital Goods / Industrials – ?
Energy – ?
Financials – ?
Health Care – ?
Consumer Cyclical – ?
Transportation – ?
IT – ?
Materials – ?
Telco – ?

Sorry for the long question.

Q: I'm not to sure how it all works. But on oct. 17th. The US National Dept. might come into play. A friend of mine told me maybe we should be selling ALL of our stocks. Ever since we've been listening to you guys were boyh up. Him about 25% & me about 35% we really don't want to lose our profits. So do you think we should be selling or holding on. We really appreciate all the help we've received from you. We'll be waiting for your advice. Thank You Very Much. Andy

Q: Yesterday Carl Icahn said that he if "fully hedged" right now due to the stupid political games etc being played out in DC and the resulting market uncertainty.

1. What would "fully hedged" mean in the context of a Carl Icahn?
2. How can the rest of us non Carl Icahns hedge our portfolios?

Thanks.

Q: I own BPO shares and am trying to figure out what my options are with the proposed takeover announced this morning. Can you help put this in plain English ?

Q: Hi;

Thanks for the great site. If a person was only going to have
"A" companies in 5iresearch opinions would this style of portfolio
be high or low beta?

Q: hi guys, thanku for all the good advice. i'am making money in canadian stocks and a few american stocks, but am anxious for american stocks to start moving. my question is what is your best guess on american stocks to start moving. thank dale.

Q: What do you think of the iShares US Fundamental Index (TSX: CLU)?

In general, what do you think of Fundamental Indicies?

Q: can you tell me what is the lag period between when an insider buys or sells a stock and when it will show up on an INK insider report. Thanks.

Q: Hi, can you share the asset allocation for your model portfolio (e.g. financials, energy, consumer staples, etc.). I could not find it on your website. Thank you.

Q: RE: Jeff's question of Sep 22 "They (PPNs) can be replicated....but.....using a combination of an ETF and a bond could still result in a decline of total principal at the wrong time."

It is not my intention to be disagreeable at all and I stand ready to be corrected if I have misconceptions about Hank C's idea but here is a real life example of Hank's Gambit:

On June 21, 2009 I purchased a $24000 Government of Canada Strip Bond maturing December 1, 2015 in my wife's RRSP for $20051 (includes commission estimated at $200) with an annual yield just over 3% which is being held to maturity. About the same time in her cash account I purchased $3600 worth of COW units plus a $10 commission. Although we have since moved around the $878 profit from the sale of COW, I believe her principal of $20050 is still not subject to any kind of decline (present value $23281) so long as the Canadian Govt continues to print banknotes AND I sheltered her interest in a tax sheltered account AND capital gains and dividends in her cash account have been tax preferred AND I knew roughly what fees were paid to set this up AND funds have not been locked in. I believe this approach is superior and safer than any structured product available in Canada including Index Linked GICs and PPNs.

It is my understanding that PPNs are 1) Not covered by CDIC and therefore guaranteed by the institution only, which is an inferior guarantee to Cdn Govt, and 2) any gains made on maturity are fully taxable as interest, so even if you have stock market gains which are capped in the contract, you will pay tax at the highest rate and 3) the capped gains are tied to the performance of the TSX 60 or other benchmark so if you have a loss or are flat all you will see is their very low "guaranteed"rate or worse, just your principal after years of investment and hope and 4) you will never see the true hidden fees disclosed in the contract and 5) funds are probably locked in till maturity or there is a high fee to escape. I have never purchased one of these PPNs though when the Bank puts on an ad campaign for them they look tempting to be sure, so my assumptions could be all hogwash. There is a 10 year old CMS article by Jim Yih which estimates undisclosed fees on PPNs to run from 2% to 12%, seems to me a case of buyer beware!

Please let me know where my ideas might have gone wrong as my wife will surely have my scalp if I lose anything of hers!

Also I have never met Hank Cunningham though I did see him speak once at the Canadian Moneyshow.

Thanks, J.

Q: From the response to Paul's Sep.21 question: "There are some principal-guaranteed products offered by several brokerages also available."

The problem with Principal Protected Notes (PPNs) as so well pointed out by Hank Cunningham in his excellent book "In Your Best Interest" is they are a "product designed solely with fees in mind and not the well-being of the individual investor."

He goes on to illustrate how you can create your own low cost PPN "using a strip or regular bond" plus an "ETF or commodity of your choice."

I hope this helps the discussion of a very problematic area for all on fixed incomes, J.

Q: Peter and Team,

As a retired Boomer, how does one invest 40-50% of one's portfolio (non-registered) in Fixed Income products in this economic environment with the goal of producing income with no risk of capital loss? Bond ETF's have been dropping like a stone, GIC's pay a pittance, and even Preferred Share ETF's are trading near 52-week lows. I realize the income generated from Fixed Income is usually considered "interest" and therefore fully taxable in a non-registered account, but I want safety for half my holdings over preferential tax treatment. I would appreciate your advice. Thanks!

Q: Last night I received an email from Peyto Energy advising that they are the subject of a legal action by some shareholders of their most recent acquisition. I have owned Peyto for a number of years and have been more impressed with management with each passing year. I am sure their due dillegence was better than most but I am always reminded of Lowen Group when it comes to these things. Have you any thoughts or insights on this kind of situation generally, or this one in particular?
Thanks
Mike

Q: Hi Peter, if Q3 is going to be scaled back increasing interest rates and making debt harder and more costly to maintain, what sectors / industries will be hardest hit? How should I invest to profit from this decline? Short equities which will be hardest hit by this? or buy companies which will benefit from this decline?

Appreciate your thoughts as always and thanks. Ken

Q: Peter and Company,
Regarding the halting of trading yesterday... DirectCash DCI-T
You may choose not to post this . ... to ignore my comments.... or simply delete them.
Either way I feel I must vent my frustrations.

I am tired of companies such as ‘Veritis Investment Research’ that have the power to release statements and targets for a stock, but unless you are a “client” of theirs, there is no access to this breaking news or the material evidence to substantiate their claims. The claims and reports that are made by these Investment Researchers can carry so much impact it should be compulsory to make these available to the public and let the share holders decide what to do.

When the panic orders are submitted, after news, and in turn the stop loss orders are set in motion, all this can result in a very unrealistic price for a stock. The same can happen in reverse for a tid-bit of positive news as well, be it true or unfounded.

Question: When The Investment Industry Regulatory Organization of Canada places a ‘halt trading’ on a security is the company that made the ‘claim / report’ that caused the repercussion to halt trading “investigated” ?
It would very be interesting to know if that company or ‘any’ members or staff of that company may have had any ulterior motive, such as shorting a stock in question for their own gains.

I love 5i Research where members can get Totally Unbiased Informative answers to questions. Thank You. Dennis

Disclosure: yes, I do own a small holding of DCI-T

Q: I tried to find Veritas on the net and could not find who or what they do.? could you enlighten me on this name. You used it in conjunction with a question about DCI(Direct Cash)

Q: Peter; I own FEZ for Euorpean coverage. With the German election Sunday should I sell it now and wait for results ? Thanks. Rod

Q: Question regarding FIXED INCOME component of a portfolio, other than the obvious like HISAs and bonds, what else belongs in this category? Prefs,REITs,MICs?

Thanks
Ron

Q: Hi 5i people. This is a follow up question to one asked by Ray regarding QE. No one seems to be worried about the consequences of QE. It's a party, let keep going! The FED's balance sheet is now above 3 trillion (with a T). Could we please pause for a moment and ask what happens when they unwind that or how are they going to do it? Are we not at least robbing Peter (tomorrow) to pay Paul (to-day)? Henry