Investment Q&A

Q: Hi 5i,
Can you please recommend some good dividend paying Canadian stocks that behave well during recessions. Can you also generalize and comment on the type of stocks that behave well and poorly during recessions.
thanks

Q: I know you are not a fan of market timing. However, with all the action coming from the Mueller investigation of Trump I can't help but digest and interpret the news as a tightening of the noose around Trumps neck. I've gone to 20% cash and might not be done yet. I've committed to sitting here until Mueller resolves one way or the other.

My question is how have markets reacted during previous impeachments (eg. Nixon, Clinton)? Obviously negatively, but to what degree and for how long? Would international equities be less effected?

Best.

Q: I've noticed very divergent opinions on the future of the Canadian dollar versus other currencies. My own opinion is it's headed down but, as you know, these things are difficult to predict especially when unknown political decisions can suddenly change things. Do you have opinions in this area? How do you anticipate the Canadian dollar will perform versus the US dollar, the Euro, the Pound, etc? Do you make recommendations regarding the amount of foreign exposure in investment portfolios based on forex implications. If so, where (US, European, emerging markets, etc.) and what percentage?
Feel free to choose your own time periods if you feel able to answer this.

Q: Recently the Globe & Mail has an article discussing the merits of using a one-Balanced ETF strategy and recommended the following three ETFs: VBAL, CBD and HRA. What would you consider to be the best one? Also, when I reviewed the information on their respective websites, I can only find Management Fee info as opposed to MER info. Is it because they are all ETFs that are composed of various ETFs. So the ultimate MER of these balanced ETFs would be the sum of the quotes Management Fee plus the MER of the underlying ETFs?
Please deduct as many credits as you see fit.

Q: If Kinder Morgan Pipeline does not get built and our Canadian Cabinet does not step in to have it built what effect will this have on foreign investment coming to Canada. On BNN today it stated that Canadian Stock Market ranks 77th in the World performance. This is due to lack of interest in our Stock Market. Are we getting to a point where we are Closed for Business and we should be 100 % invested outside of Canada in USA, Europe and Emerging Markets until we regain our senses. RAK

Q: My weighting in the financial sector is 12% and I am wondering if it is time to increase it to 15%. I already own BNS,RY and SLF. I was wondering if ECN and FCR would be good choices to add to the mix or if you have any better suggestions.

Q: Hello 5i team,
Do you give any credence to Z scores? My take is that the values may depend on the sector. For instance in the utilities; AGN, BIP, BEP, EMA all have scores below 1 ranging from .45 to .82 and thus doomed to failure! KWH, SPB ,and VNR ave from 2.02 to 3.53. Thus the sector is all over the place. In what context would these scores be used, if at all?
Thank you
Stanley

Q: I was wondering what your thoughts are on using Put Options to protect a portfolio in the event of a market crash?
Thanks, Bill

Q: Good day 5i team
I would like to know why and when to change a companies sector (TSX) to one I feel is more appropriate in my portfolio. It is something that skews a balanced portfolio as stocks will move with their sectors? I am using the examples from your balanced portfolio that have different sectors listed from the TSX. Or does it matter at all as all these companies are touching on both allocations?
Thank You J

Q: Good Morning, Are there any Canadian companies that may benefit from the tariffs China has placed on the US. i.e. Could tariffs make Corby's more competitive in China vs. US distillers? Could CAE and BBD benefit from tariffs on Boeing?
Thanks

Q: Dennis Gartman has boldly declared a new bear market. What do you make of this opinion?

Assuming the market might decline for a good while, would you still recommend owning growth stocks like SIS, PHO, KXS, etc? How would you suggest positioning a portfolio to preserve capital during a bear market, but also take advantage of any opportunities? Thanks.

Q: Dow up 700... Tsx flat..the world has stopped investing in Canada leaving it up to us to finance our companies..
Do we not have any profitable companies or assets worth investing in from a global prospective?. Even our own investors seem to be shunning any new investment in the stock market...When was the last time the countries stock exchanges were diverging as they are currently and what do you see are the fundamental problems?

Q: Financial stocks of every type are getting hammered again today, as they were yesterday. Everything from banks to insurance companies to credit cards and payment processors in both the US and Canada are down between 5-10% in the last two days. Can you draw a line for me on how the possibility of trade disruption between the US and China could account for this? Is Bank of America really worth 9% less today than Wednesday because of Trump's trade tariffs or this just mindless "sell everything!" panic?

Q: I have a general concern that I would appreciate your assessment regarding both the US and world economies. We have a US stock market that has been rising consistently for some time now. Bond yields are on the rise with increasing concerns about inflation. Now there is a threat of a major trade war as Trump considers placing significant tariffs on Chinese imports. This has been tried in the past (ie 1930) with dire consequences. Sure, US imports of tariffed goods decreased but so did exports as other companies struck back with their own tariffs. And if China, for example, sells less goods to the USA it will buy less raw materials from other countries affecting their economies.. So the risk is a major slow down in world economies. I would expect prices for many products in the US to rise substantially, due to Trump's insular view of how things work with increased pressure on inflation and bond rates. My concern is that all of this could result in a major recession next year. How do you view this situation? I would appreciate your thoughts and analysis. Thanks.

Q: Hi 5 i team, it seems that price movement is not related to quarterly earning as compared to previous but is affected by result as compared to estimate. Is there any way of guessing whether earning will beat or less than estimate prior to announcement ?

Q: 1:10 PM 3/19/2018
Hello Peter
I would appreciate it if Peter could answer this question as he has years of experience as a fund manager and I would respect his considered opinion....

We have a large Blue Chip dividend-growth income portfolio of Canadian stocks. It currently has unrealized gains of about 25% and has a dividend yield of 4.6%. We run this equity portfolio like a private pension fund for ourselves.

We are quite aware that a major market "correction" or crash will come sometime in the next year or so and would like to position the equity part of our portfolio for that event. There are really only three options that we can see.

OPTION 1. Sell all our stocks and go to Treasury bills and 2 to 5 year Government Bonds, for a yield of about 2 to 2.5% in interest income. We would be giving up a 4.6% dividend income stream in exchange for a 2.5% interest income and lose the advantage of the dividend tax credit. Additionally we would be hit with a massive taxable capital gain pushing us well into the topmost tax bracket.

OPTION 2. Do Nothing. If during the crash our stocks dropped 50% in price it wouldn't matter as we would plan to neither sell nor buy any more shares up until and during the crash. If as a worst case scenario, dividends were cut by 50% on all our shares [most unlikely] then our dividend income yield would still be 2.3%, and with the Dividend tax credit would still beat the 2.5% interest income we would be getting if we had sold all our stocks and switched to short-term bonds and bills as in Option 1.

So if we choose Option 2 and ride out the market crash fully invested, then we are no worse off for income than choosing Option 1 and selling out and going to "cash", and we don't get hit with a massive capital gain tax bill.

OPTION 3. As in Option 2, sell no stocks in our Cash accounts but sell everything in our 2 RRIFs, and 2 TGIFs which together amount to about 10% of the overall portfolio. We could sell all the shares in them easily at any time at virtually no cost in our discount brokerage, park the money in GICs and no capital gains taxes would be payable at all. The proceeds would be ready for buying blue chip dividend-growth yielders when the time seemed right.

In simplest terms the object is to preserve capital as much as possible while at the same time allowing withdrawal of a reasonable predictable income.

What did Dividend Aristocrat type portfolio fund managers, or Pension Fund Managers Like Peter do in anticipation of the market correction in 2007 - stay invested, change asset allocations, become more defensive [how?], do sector rotation, adjusting allocations among the 11 TSX sectors - out of what and into what? Anything else?

If you, Peter were responsible as a portfolio fund manager for running our equity portfolio which is essentially a Canadian "Dividend Aristocrat" portfolio, how would you handle it in the years ahead considering the high probability of a major market correction/crash? Would you choose one of these options or would you have a different strategy?

Thank you.............Paul K

Q: what type of stocks would be less impacted by trade negotiations I would guess gaming stocks and gold? i would appreciate your input thanks

Q: Hello 5i
I find myself gravitating(buying) more and more to US stocks in search of above average growth. I believe you have said non Cdn allocation is personal choice but I could fill my entire portfolio with US stocks. What do you see as the biggest negative to this?
Thanks
Dave

Q: Good morning 5i

I have benefited quite well from the ten year market performance. Not as well as if I had bought the US Market on March 9 2009 and added new capital all the way. In some individual stock positions I have experienced losses during this longest bull market run.

Additionally, over the past couple years, 5i has add positively to net asset value and this investor's awareness level.

The question here is about seeing through an inevitable correction or bear market event.
The minor correction event of 2018 offered a view to how it will feel when prices decline.
In the wake of that event, how does an investor continue to deploy and redeploy capital while staring at the high potential for a market decline.
The difficulty being experienced is, as I cleanup and balance individual weighting, it is now difficult to make a go-forward redeployment decision......add to equity exposure.
Additionally, the amount of time being waisted watching daily price movements has increased.
Some days it feels like going to cash would solve all my concerns. It would not however since asset growth is a necessary target.

From your experience would you please offer some Thoughts and guidance on what is written above?

Thanks
Dave

Q: Given the recent volatility in the US I am wondering about portfolio insurance in the short term. While holding cash is one way to mitigate a drop, I don't really want to hold much more than I currently do so I'm wondering if HIU would be a good way or if there is some other strategy you might suggest. I hear many comments about more significant declines, with the trade issues that are currently occupying a lot of political talk, raising rates, and, if the Dow gets back up to the 26,000 level that could be a double top, all of which make me nervous.

So, since I am a long term investor, rather that take profits and raise more cash, what would you do for some short term downside portfolio insurance? Thanks