Investment Q&A

Q: In my balanced portfolio, I think I am underweight in the following sectors: Energy 2% [ENB], Healthcare 3% [GUD], Telecom 7% [T, VOX], and perhaps overweight in Materials 10% [AEM,CCL.B, SJ, MX] and Tech 18% [CSU, DSG, ENGH, SHOP, PHO]. What is your opinion, and what should I buy or sell to rectify this? I have cash available. Many thanks, as always.
Ellen

Q: Hi. I have been investing in small/micro cap value stocks(CAD) for several years because I had a small portfolio size. Now with a larger port I am adding names from the Balanced portfolio but still have a large portion in the small/micro cap value. My small cap value have been fairly flat since a large gain in 2013. I also notice your growth portfolio has been flat so I think this 4 years of poor performance has to do with a market cycle and not a long term change. With your experience in the market is this normal or is the small/micro cap valve out of favor due to the market becoming more efficient. I am willing to stick with my portfolio but I don't want to wait years when I should have made a change. Let me know if this in normal and how long usually do these cycles last. Thank you again.

Derek

Q: Hi Peter, Ryan and Team,
Since I do not have access to a computer or smart phone at work, I do all my buy or sell transactions in the evening from home after the market has closed through TD Direct Investment.
So on Thursday Jan 25, 2018 I decided to buy Intuitive Surgical Inc. symbol ISRG in the U.S. because of its recent momentum. The closing price was 449.81 and the high price for the day was 452.00. Since I was dipping my feet in with a very small position of only 2 shares I placed my order with a limit price of $454.57 i.e. $2.57 per share higher than the high price of the day. I have found that this eliminates missing out if the stock opens higher the next day.
The next morning i.e Friday Jan 26, 2018 on my first break at work approximately 10 am I saw that I had a missed call at 8. 20 AM from TD but there was no voice mail message. So I called them and a TD agent told me that my order for 2 shares was cancelled by TD before the market opened because “ my limit price was too aggressive since ISRG was going to open lower at 437.37 ”
My understanding was that in such a situation my limit order would have changed to a market order at market open at 9.30 AM and should have been filled at the lower price. Because there is no way for most investors to predict that a stock is going to open much lower the next day.
The TD agent was unable to tell me what the threshold is to constitute “a too aggressive bid price”. Since I still wanted to buy the shares he manually put in the order for me and charged me $43.00 for the trade instead of my regular online rate of $9.99.
I would appreciate if you would advise me the reasons for and the ways to avoid such a situation in future without calling in to TD each time I place a buy order. Thank you in advance.
Frank

Q: You replied to Michael today: "trim the areas that have done really well and add to the laggards". I can perhaps understand trimming back a position that one has done well but what is the logic of adding to laggards? Isn't this advice really suggesting you pull out the good stuff and add more weeds?

Q: Hello 5i.
I would like to ask about Portfolio Management as an Individual Investor.
This year I was going to implement an action plan that would engage selling at the point of stock chart breakdown......to help avoid 40% losses like Cineplex handed me in 2017/2018.

The Portfolio has been set up to be well diversified with 5i holdings and a host of other Canadian investments through all sectors.
It feels quite silly to just sit and watch individual names break up trends, breach 50 day and 100 day moving averages and continue to decline in price........taking down the Portfolio value each day.

Some of the names have been spoken about as lifetime holds but seem to be getting hit quite hard as some group of investors have decided to exit their positions.

With the cost of only 9.95 to enable a small investor to get out of the way, what is it about investing that sees recommendations implying Hold these names for the longterm?
(BAM.A, BIP.UN, FTS, PPL, IPL, ENB, BCE, PSK)
Watching 2017 gains slip away hardly makes sense to me.

What is 5i perspective on dealing with markets that seem to be taking away gains thru declining stock prices? How and When does an investor decide getting out is the right action (before I get to the point of maximum pain and then sell)?

I have had a few stocks go to zero. Clearly I can not determine the difference between a short term blip and a developing permanent loss.

Thanks for you insights
Dave

Q: I am noticing that alot of investors are very worried about a market correction. It is a fact that the market will drop at one point but are we overdoing it at this point and time. If the market is to have a correction in the next 12 to 16 months isnt it still time to be invested in the stronger sectors and maby pull back on the weaker ones

Q: Hi there, thanks for the January update. Reading between the lines and with the current strength in the market so far this month, would you suggest holding a larger cash position at this time? I am currently almost 100% invested at the moment. What would be an appropriate amount for a cash position in the current market climate? Thanks!

Q: In light of the accelerating run up in global equity valuations over the past several months, what percentage of one's investment portfolio would you suggest be kept in cash? Gold equities? I'm an investor with a long term time horizon.

Q: Hello 5i team,

Your January update (like everything else that you do) was much appreciated.

Over the past decade, whereas I would have been satisfied with a 7% compound annual return in order to meet my income needs, my RRIF portfolio registered a growth rate of 15% compound p.a. That’s great! However, in the last 3 years while I kept expecting a lower return, the actual returns kept confirming the long term trend.
Once again, if the estimated returns for the next 15 years (age 90) were to be 7% annually, I would be very happy.
This scenario would be my “base case”

However, we should expect a recession during this span of time; it is not a matter of “if” but “when”.
In the past recessions, most of the following indicators (yield curve, inflation trends, labour market, credit/liquidity situation, ISM index, earnings quality and housing market) painted a recessionary picture. The average market drop of the last 4 recessions was around 40%, the average duration around 1 year and the average recovery period around 2 years.
At present, and for now; all of these indicators are in an expansionary mode.

What should I do to prepare for or react to the upcoming recession hits?

1. I could ride the recession (stay invested); in this scenario, my annual income would be 21% lower than in the base case.

2. I could exit after the start of the recession (while closely observing the leading indicators). Incur a 20% drop in the value of my portfolio (vs 40%), partially miss the first part of the recovery and obtain 15% (vs assumed 33%) and on to the second leg 25% recovery. In this scenario, my annual income would be 4% lower than in the base case. This outcome would be quite acceptable; it’s just like a rounding error.

3. I could also try to be “cute” and exit just before the start of the recession. This scenario would be a “non-starter” because it implies “timing the market”. Imagine if I exited the market in early 2019 and the recession did not hit until 2 years later……

I’m therefore leaning towards scenario 2. What do you think? What do you suggest?

Thanks, as always,

Antoine

Q: I am heavily overweight with big profits in the above stocks.
Which should I hold onto or sell?
Which will be affected by a NAFTA collapse?
Thanks for great advice.
Alex

Q: Greetings.

I am planning on early retiring next year at 55. I am looking to transition my portfolio form balanced/growth to income. It would seem that although timing the market is not a predictable strategy, it would seem to me that this is probably the perfect time to transition my portfolio given the weaknesses in the utilities, telecom, pipes etc.

I have cash saved for my first 2 years of retirement to avoid being forced to withdraw funds at a 'inopportune time'. However, i also know my portfolio may need to last a number of years prior to being able to claim cpp, oas and social security (spouse of american citizen collecting social security). Would you recommend transitioning now or do i risk too much growth in the next while? Your thoughts/recommendations are always appreciated.
Cheers

Q: Am I correct in being a bit nervous about the tech sector getting ahead of itself? I own the above stocks in tech. I have trimmed SHOP from about 12% down to 7%, and I own about 6% in the others, (all with good gains). So - still about 25% tech. I've thought of selling all tech and sitting on the sidelines for a few months, or, just making a trim to reflect a balance. How would you suggest I proceed to further? Thanks, as always.

Q: A. With the expected further increases in interest rates in 2018.
Should I anticipate pullback from certain sectors? your opinion please.
if so which sectors, DOES 5i recommend adjusting asset allocation in response to interest rates?

B. I have been a student of the DIY investing for the last 10 years but have no experience with a potential era of interest rate rise and don't know what to expect.

I struggle with this, probably too much media coverage, I would prefer to be a buy and hold, all of my equities are blue chip dividend companies. (but it is hard to see portfolio drop on no news other than interest rate rise.) I believe I am looking for reassurance in this last comment:)

Ernie

Q: This is probably a tough one to call but what do you think about the Canadian $ versus the US$. Is it going up or down and what you you buy VFV or VSP or a combination of both? With thanks, Bill

Q: Good day...I am in the process of moving money to the u.s as currency seems to be at the proper spot and also I have all of the balanced and income portfolio now, so my question is would I be better using etfs - MXI - SOXX - XLV and IYF or using ICHR - NVDA - ISRG - HD - JPM - V - HD AND DIS...my thoughts are this will give me diversification that I cannot achieve with 5i stocks...your direction has made a huge difference to my portfolio but I feel I need some geographic diversification ....I look forward to your answer and thanks...gene

Q: Dear Team:
I have been retired for 5 years now and have been self investing with a return of 13.58% on average. I have reached 60 years and feel that I should have more fixed income as of right now; I have about 12% of fixed income. My portfolio size is over $1M. I have 2 questions for you:
1) Do you think I need more fixed income?
2) If I was to increase my fixed income, I am thinking of an ETF for either Re-set Preferred Shares or Short Term Corp Bonds or Real Return Bonds. Which do you like?
Thanks for your time
Jim

Q: In your opinion, what would one use to short the SPX indexe. As things seem to be a little stretched, and getting more so. On the US and Can side
Thanks

Q: What was the sector rotation in the US you spoke of yesterday?? It was "a fairly strange market day with a giant US stock reversal."

Q: SOX has been on a hot roll this year. I know you commented positively on Q3 earnings but any idea subsequent to that as to what has lit the fire?

Thanks

Kim

Q: Hello:back In the 1990’s the tsx and the Dow were just about even. Today there is about a 10000 point difference. In general terms, can you explain why this has occurred. Also I have read in several articles that the tsx usually lags the Dow by about six months to a year. (Either up or down). Do you agree with this statement. If yes will the tsx begin to narrow the gap in the next few years?