Investment Q&A

Q: Year end soon, so time for some predictions. Wondering what you would guess the Bank Of Canada benchmark interest rate will look like in, say, 3 years, currently at 5.0% Over the next 3 years, what level of performance do you expect from the TSX Venture Index and the TSX Composite Index - a lot of people are saying that small caps are due for some outperformance after many years of underperforming. Understood that this is just educated guesswork.

Q: So a lot of people think that interest rates have peaked and are set to go down, thus the market reacts positively. I believe that interest rates have peaked BUT will remain higher for longer. I anticipate that the market will initially react negatively to this but eventually will settle down to the new reality and continue to react to such metrics as earnings growth etc..
Recognizing that no one really knows the future, what would be the likely scenario ( short and long term ) for each of the sector ETF’s I am invested in : Canadian banks , American tech, American healthcare, Canadian large cap industrials/ utilities. Thanks. Derek.

Q: Hi,

Here are my current sector allocations with target sector allocation in brackets and holdings. For a growth focused long term investor, does this make sense to you? We have around 45 holdings with a few ETF's (VEE, XEF) for international exposure and 100% equities.

I've noticed in your growth portfolio, your main sectors are financials, industrials, tech and cons. disc, with the other sectors at relatively low weights and I've tried to match our allocation with that. For an individual DIY investor, how often should one be looking at their sector allocation and rotating sectors? For example, looking at economic contraction and expansion cycles, are there certain times when we should be over or underweight sectors?

Currently, what part of the cycle are we in and with the FED indicating rate cutes in 2024, should I be trimming and adding in certain sectors? I find it too hard to perfectly time sector outperformance so ideally I just want to buy great businesses that will perform well throughout any cycle and I feel that the companies that I own will do very well over time. Do you agree? I'm not looking to make dramatic shifts in sector allocation, but maybe some small adjustments. For example, trim some tech and add to materials/energy. However, when I think about trimming quality companies like CSU/LMN/SHOP, etc.. and adding to more energy/materials, sectors that are highly cyclical and not in control of their own destiny (dependent on commodity prices), I get hesitant. Can I get your general thoughts on sector allocation and sector rebalancing. Thank you!


Technology 24.47% (22) SHOP, KXS, CSU, NVEI, CRWD, TOI, NVDA, LMN, INTU
Financials 22.61% (18) SLF, V, MA, JPM, GSY, TD, TSU, BN
Consumer cyclical 16.02% (18) ATZ, MGA, BYD, SBUX, BKNG, CROX, DOO
Industrials 14.13% (20) WSP, ATS, TFII, GDI, HPS.A, HEI, CPRT, AXON, TVK
Consumer staples 6.34% (5) PBH, COST, DOL, ATD
Energy 4.90% (5) TOU, WCP, TVE, ENB
Communications 4.16% (5) GOOGL
Cash 2.10% (2)
Health care 1.91% (5) WELL
Materials 0.71% (5) LUN
Utilities 0.37% (0) BEP

Q: As interest rates potentially get cut at some point in 2024, What sectors do you like heading into 2024/2025 and what sectors do you dislike?

Thanks
Tim

Q: A family member of mine is looking at investing some money that will serve as a retirement fund/as a hedge against inflation. She is also investing some money in GICs as the rates are presently good, while simulatously serving as an insurance policy should markets take a dive at some point. She is approaching 60 years of age and will be retiring within the next 12 months. She has no interest in investments and we believe that ETFs are the answer. This individual is conservative and wants to minimize risk, while definitely wanting to beat the guaranteed interest rate we get of approximately 5%.

One family member suggested the following ETFs (mostly due to the low cost of fees I believe)

VOO, VEQT, QQQ and S&P500 (which I don't know, supposedly has .05% fee)
(and suggested that 20% goes into QQQ)

Looking at your recommendations for ETF's from the questions asked, I have seen XIC, SPY, CDZ, XIC, CDZ, XGRO, QQQ, VGRO, VIG, ZSP, (to name a few).

I think there are more ETF's than there individual stocks. It would be great to have some coverage across Canada and the US.

We have a few questions:
1. Do you think the list provided by the family member is acceptable?
2. Could you provide your recommendation of ETF's (with a short description of the ETF) that fits the risk level of the mentioned individual (while simultanously providing a little risk). What % of each ETF would you recommend (i.e. buy equal amounts of each of the recommended ETFs or ...).
3. Do you believe that it is the right time to buy ETFs. With the recent run up, is it preferable to wait for a pullback and buy on dips or acquire all today or .....

Please deduct as many questions as deemed necessary.

Thanks.

Q: Hello Peter,

After Fed Powell's update today, is it reasonable to push the pedal for a Santa rally into the new year? If so, what sectors in the US would you look at? Would you look at anything in Canada at all? Any stock suggestions for a 'rational exuberance' would be most welcome.
Looking forward to your perspective.

Regards

Rajiv

Q: Hi Team
I have heard the term, window dressing, where the fund will sell their "dogs" and buy stocks that have gone up at year end so it looks like they have done well. My question is, if the sell at a loss, does that not show up in the year end results showing that they had a bad year?

Thanks

Q: I have cash to invest, mostly into ETFs and as a value investor the P/E of the S&P 500 is a stumbling block for me: 23% for IVV vs about 15% for XIU - so about 50% more. XEF has a P/E of 14.31%. The rule of 20 says P/E + inflation should be 20 or less. A hard question, but do I overlook the P/E of the S&P 500 and invest now with a long term hold or do I wait?
Thanks for your comments!

Q: Today on CBC an investment person said he expected interest rate cuts to start earlier next year than later. But he then said the stock market historically seels off during interest rate cuts. This was a surprise to me. Is this just his opinion or is it historically fact? Additionally, once cuts start (and I do not expect to get to the past lows in a long time) what parts of the market do you believe will sell off and which will be a benefit.

Q: I have holdings in all 11 sectors, 30% of my holdings are high yield and enhanced yield covered calls I have many of what are held in the covered calls as individual stocks. Also there is crossover to some extent in the cover call holdings. However some covered calls are OTM others ATM, with different percentages also some use leverage others don't. Thus I get the upside increase AND the dividend. I also hold growth stocks such as PBH, IWO , LNF, PKI. and others. Am I making a mistake here or is everything tickety-boo?
Thank you for your great service

Q: The Rule of 40 is a SaaS financial ratio which states that a healthy SaaS company has a combined growth rate and profit margin of 40% or more.

Do you prescribe to this rule? Why is this specific to SaaS companies and not other industries?

Q: I heard lot of money has been invested in MONEY MARKET or GIC. is there a way for regular investors to check when money is coming out of money market or GIC and investing in EQUITIES.

Thanks for the great service.

Q: With the US economy predicted to outperform Canada's next year, would you suggest tilting portfolios toward US equities? On a related note, both my TFSA and RSP are filled with US stocks, meaning addition US equities would have to go into a cash account. Can you recommend a website that clearly outlines tax consequences at various income levels in non-registered accounts for both capital gains and interest from US stocks? Thank you.

Q: The Fidelity International Value index ETF has done very well over the past year. Its seems like value style of investments has performed better then growth/ momentum style in the last year for the global sector. Do you think this trend will continue for international stocks or is it the other way round. Looking forward for the next 2-3 years would interest rates going down be more of a favorable environment for the valve stocks?

Q: I would like to keep "high risk stocks" in my non-registered account, aka trading account, rather than in my TFSA or RRSP or LIRA accounts. But I'm wondering what the attributes or metrics or characteristics of "high risk stocks" are in Canada or US. Keen to learn from you what to look for for such stocks....Thanks....Tom 

Q: Is your allocation recommendation specific to either the US or Canadian market or is it a blend of both?

Q: Hi,

After any stock breaks to all time highs, such as Lumine and Boyd lately, I know this is a sign of strength of the stock and I know you like when this happens. If I wanted to add to a current position or initiate a new one, what factors do you look at in order to buy?

For example, the companies may have had good earnings lately or analysts may have upgraded their price targets and initiated coverage. I know there are a lot of different unknown factors at work in the market, but what would cause investors to pay up and drive a stock up to new highs with no current news? Do you look at volume on the breakout or mainly just long term fundamentals? Do you look for the stock to hold that new level before buying? I'm not a trader, but more longer term focused investor now. I'm always of the belief that there are smarter investors out there that have more information than others, which causes stocks to be mispriced. Thoughts?

Thanks!

Q: Hello, I have a mortgage renewing in the next 2 months. Currently, my bank is offering a 3 year fixed 50 bps (0.5%) lower than a 5 year variable. The 4 year and 5 year fixed are only about 25 bps lower than the 3 year fixed so I don't think those are good options.
I'm curious to 5i's thoughts on where interest rates may go in the next 1-3 years? (I'm leaning to the variable as I think the BOC is going to have to cut rates over the next 2 years).
Thanks,
John

Q: I have 13% of my portfolio in diverse covered calls that hold blue chip companies. I am comfortable with that as I look mainly for income. The portfolio is composed of 30% ETF's including the covered calls and 70% individual stocks (16/56). there are a few growth but mostly dividend paying blue chip many that are repeated in the covered call ETF's. I am 77, and have a defined teacher pension.
Total positions are 56. This seems to suit my needs as I have survived so far with a steady income. Am I making a misake or does this seem a valid plan?

Q: Is LSPD recent results (Nov 2nd) represent a significant improvement or you would still stay on the side line before adding or starting new position? How would you compare NUVEI and LSPD today?
Thanks for your insight, Peter