Investment Q&A

Q: Hi Guys
What is your opinion with respect to the possibility of a recession in the near term and how severe would the stock market impact be in your view. I have had money sitting on the sideline for months expecting the worst and other than December not much has happened. Your comments please.
Many thxs.

Q: Your comments please, on the following article in Reuters today with respect to a forthcoming recession once the yield curve inverts? Personally equities in general appear to be fully valued today and i'm reluctant to add cash to this market.

NEW YORK (Reuters) - The spread between three-month Treasury bills and 10-year note yields inverted on Friday for the first time since 2007 after U.S. manufacturing data missed estimates.

The three-month 10-year yield spread, the Federal Reserve’s preferred measure of the yield curve, narrowed to minus 0.56 basis points. An inverted yield curve is widely understood to be a leading indicator of recession.

The Market Purchasing Managers’ Index report, which tracks activity in the U.S. manufacturing sector, on Friday disappointed investors, with the headline index down 0.5 percent to 52.5 versus the expected 53.6. Earlier, Germany reported that domestic manufacturing contracted further in March, driving the benchmark 10-year U.S. government bond below zero and adding to fears of a global slowdown in growth.

The soft data exacerbated a trend that began on Wednesday after the Fed issued a statement showing policymakers foresaw no further rate hikes for 2019 given the slowdown in the American economy.

“The reality is the market is now expecting lower rates on average over the next 10 years than we have currently. And it’s a combination both of a dovish Fed and also ongoing global growth concerns,” said Jon Hill, U.S. rates strategist at BMO Capital Markets.

Q: I am close to retirement and have about 2/3 of my total portfolio in a corporate taxable account. All are equities with 53% Can, 39% US, 2.5% EM and 6% cash.
What could you suggest to recession proof and at the same time be tax friendly to help mitigate my risk given the aggressive 94 % equity holdings?
The other personal 1/3, of which 20% is in a non registered account, comprised of RRSP/LIRA/TFSA has about 33% fixed income.
Thanks
Jeff

Q: It seems to me that there are straws in the wind of a coming recession (inverting yield curve, global growth warnings, trade wars, Brexit hits, etc.). Would you agree with this hypothesis? What assets would you recommend for building a more recession proof portfolio? Should we leave stocks almost entirely and go to bonds? I have no real recession plan yet feel I need one. Any help is, as always, appreciated.

Q: Lots more discussion this weekend over an inverted yield curve. I have two questions:
1) Is this something to be worried of, and do you think investors should be more conservative in the next 12 months?
2) Didn't the 3 and 5 year yield curve invert in December 2018? If so, I'm assuming the 10 and the 2 inverting isn't a huge surprise, although markets have done really well in the past 3 months.

Q: Hi All at 5i! Now that it has been several years since the great market decline in 2008, who faired better overall?The US , that tried to spend its way out through quantative easing,or Europe , who decided on more austere measures? Thanks, Tamara

Q: Should we be concerned about market downturn regarding Brexit
Gail

Q: Could you recommend three recession proof sectors and three stocks in each of those sectors in both the US and Canada. Thanks

Q: If the US were to suddenly decide to revert to a gold-backed currency, what do you think the effect on gold stocks would be?

Q: I don't think the most important reasons to hold bonds in a portfolio have been touched on yet, so here's my take. Dave, of the March 5 question to 5i on bonds, is probably a guy of working age. I, as a retired person, have a different perspective on holding bonds other than enhancing a portfolio's returns, but this is occasionally possible in a low to negative market return year if fully invested in stocks.

I am quite content to receive a 50% bonus to the inflation rate on my fixed
income part as it means I am holding my own after tax when it comes to the
spending power with inflation on that part of the portfolio and it is indeed
about asset allocation as I try to cover all asset classes in my portfolio
strategy including stocks, prefs, gold, cash and fixed income. (No crypto yet). For me, stocks provide the main boost in the overall return, long term. The dividend tax credit's a big help.

What I like about buying individual bonds which I usually hold to maturity is
controlling the issuer's credit quality (for me always investment grade), the
maturity date, and the guaranteed capital gain if buying discount. I've tried
bond ETFs for trading and better liquidity but since I have no control on
maturity or quality, I always seem to end up claiming a loss on the sale, and
any return is fully taxed as interest. I'll buy GICs also for a better interest
rate. The 3 reasons 5i gave for not liking bonds are, for me, minor reasons for having bonds, at my stage of life, if properly balanced in the portfolio.

As far as investment gurus like Buffet being fully invested in equities, this isn't quite accurate.The core of his Berkshire portfolio is insurance stocks which in and of themselves can be considered pension or bond-like. When they receive premium income, what do they buy - bonds because they need to be certain of future obligations and be liquid at the same time. Let's not forget the bond market is 40 times the size of the stock market, which is why Buffet laments there's nothing of size for him to buy and he ends up with holdings like Kraft Heinz. I'll wager the bond holders at KHC are sitting pretty while the stockholders cry in their soup.

If you've read this far, you're probably wondering how deep I'm into bonds and bond equivalents:
It's 29% compared to 14% cash 11% prefs 42% stocks & 4% gold currently, but this does change.

Q: Hi there, it seems like more and more commentary is stating we are in late cycle. Assuming this means that we will soon see a recession in the next 12-18 months, would it make sense to hide out in a low volatility ETF for the time being? It seemed to have held up pretty well in the 2018 Q4 drop. What are your thoughts regarding this strategy and between ZLU and ZLB which would be preferred to be in, or would you split your portfolio 50/50 for diversity? Thanks!

Q: Does your crystal ball predict a market downturn in next six to twelve months.
Clayton

Q: Into which sector(s) or product types(s) besides cash, might you look to add weight if the economy moves negative? Bonds, utilities, staples, preferreds, etc? Don’t always feel like the old guidelines apply anymore.

Q: 5iResearch is a great service and I really appreciate all the advice subscribers get on individual stocks. Having said that, can I get 5i's opinion on whether it is really possible to outperform the market in the longterm. Most of the literature I have read indicates that buying the S&P500 (ie. a market ETF) is the most time-tested way to be a successful in the markets.

Q: ..given growing expectations of a Canadian recession, i'm thinking of moving away from utilities into fixed income. how do you expect XBB, XSB and HFR to perform in comparison to ZWU if a recession occurs. thanks, great service.

Q: Peter we always enjoy your work , and glad we stayed in the market for this bump.
But being a senior now , and looking for safety in utilities and pipelines , am interested in your take on what do you expect for interest rates for the next year or two
many thanks
dave pescod

Q: With a lot of talk of a possible recession in the coming year, which of the following category of stocks would be most negatively affected.: telecom, utility, technology, financial,materials,energy, consumer, metals including gold. Thanks.

Q: I have what I think is sort of a 'big' question. I am looking at various ways to help my performance through an eventual recession. I know that timing it is virtually impossible and even calling it (as we saw this fall) is extremely difficult also. So my research now turns to what are the characteristics of a company that will do well (in all likelihood) after a recession, or indeed right around the middle when equities seem to turn higher given that the big losses usually start just ahead of the actual recession and the buying often starts while the recession is still in full bloom. I look at GUD as one company that holds cash and is deal oriented (or is supposed to be) as a kind of exemplar for this type of idea. Any others? Or is this just a mug's game? Thank-you and please deduct whatever credits you deem necessary. Thankyou.

Q: I'm curious how you would adjust your strategy, if at all, in terms of opportunities, signals, cautions or things to watch for, as we head into a 6 month period leading up to the federal election.

Q: Veronica on BNN mentioned that Market is going to test lows again Also a reputable
money management is telling client to cash out and wait for pullback,my wordings Are not exact but simple language they mean market is over bought and don't buy now,
I have more weight on 5i opinion,please advice of your thought