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Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

Q: I continue to struggle to find the right level of diversification, especially fixed income in my portfolio. One of the strong reasons for my struggle is the recent very strong bond performance and concerns that I am too late.

The standard rule of thumb 60/40 blend is challenged here. I am wondering if you saw this article on the Globe’s website. Could you take a look at the article and share your thoughts on Merrill Lynch’s thesis ? As well as the suggestion of using dividend paying stocks as, at least, a particle substitute.

Thanks.

.... from the Globe and Mail Investor website ( a partial excerpt...)

The 60-per-cent fixed income, 40-per-cent equity portfolio has been an important benchmark for balanced funds and overall asset allocation for decades.

Merrill Lynch analyst Jared Woodard, however, believes the 60/40 portfolio is now far less relevant because of the rising risks in bond markets.

In The End of 60/40, Mr. Woodard cites three reasons that bonds may no longer provide the portfolio stability and consistency they once did.

The first reason is that bond portfolios have not been providing diversification. He writes, “The core premise of every 60/40 portfolio is that bonds can hedge against risks to growth and equities can hedge against inflation; their returns are negatively correlated."

The problem in recent years is that periods of major market weakness have seen both bonds and equities fall.

In the U.S., longer duration government bonds have generated terrible risk-adjusted returns over the past three years - lower than junk bonds and emerging market equities. This means that investors who bought Treasury bonds for steady returns and lower portfolio volatility have seen volatility actually increase.

The data is U.S. based, but the performance of U.S. and Canadian long-term bonds has been virtually identical, as this chart posted to social media underscores.

Mr. Woodard’s final warning about bonds concerns overcrowding. He notes that globally, the fund manager allocation to U.S. Treasury debt is close to a 20 year high. So far in 2019, investors worldwide have sold US$208-billion from equity funds and bought $339-billion worth of bond funds.

With government bonds so popular, the analyst is concerned that “Crowded positioning means that natural swings in bond prices may be exacerbated as active investors rebalance their holdings.”

To the extent that Canadian investors have made the same switch to fixed income – and the 38 per cent increase in the market capitalization of the iShares Core Canadian Universe Bond Index ETF suggests fixed income has been popular domestically - these risks are also present here.
Read Answer Asked by Donald on October 17, 2019
Q: I’m considering starting a 2% position in this company for a 10 year hold in my rrsp.

I like the space they’re in but it seems like they have a lot of debt and the dividend payout is >100% (according to yahoo). Is this accurate / concerning at this point?

I’d appreciate your thoughts.

Cheers

Also it shows they only have 50 employees. Do you see that as a risk in itself? If a competing company poached 3 or 4 employees that is a big hit to their workforce.
Read Answer Asked by Dennis on October 17, 2019
Q: Hi there, ATZ quarterly results looked strong (however as did the past Q's), but the stock does not really seem to gain much attention and attraction since IPO. What are your thoughts on this company and do you foresee it eventually gaining traction like such Canadian brands like Lululemon or Canada Goose? Does it need a US listing to gain attention and investors? Would you step in today? If so, at a full or half position? Thanks!
Read Answer Asked by Michael on October 17, 2019
Q: Can you comment on the prospects of AMX?

They also just announced a bought deal prviate placement flow through units at a price of $1.80. Can you explain how flow through units work? Why was it priced at $1.80 when share price is around $1.14 yesterday. Whats the advantage and disadvantage of AMX issuing flow through shares from the perspective of current shareholders, the company and buyers of the flow through shares. Thanks
Read Answer Asked by Roy on October 17, 2019
Q: I am looking at adding Akumin for some exposure to the health care field and like that they are Canadian but operate in the U.S. Could you please give me your thoughts on this company and its potential growth over the next 3-5 years.
Also, can you please tell me the difference between AKU;CA and AKU.U;CA, and which you would recommend buying.

thanks
Read Answer Asked by Paula on October 17, 2019
Q: The message from BYL seems to be that industry conditions are not optimal and the prices of others like KEYS and SWKS are progressing only modestly. Yet BYL and KEYS in particular appear to be gearing up for a very robust future; SWKS is maybe a bit more robust. What's the problem, do you expect it to be an extended drag on the sector, and do you think BYL has a fair chance of being able to compete with its offerings? Thanks
Read Answer Asked by Mike on October 17, 2019
Q: I am considering buying long calls - Jan 2022 on VET or ARX because there seems to be a lot of consensus that oil prices will eventually go up. I frequently sell covered calls but almost never buy calls. However, buying around current prices is very inexpensive and 2022 is a long runway, I would wait until I see tax selling volumes, probably in Nov., before buying. I would appreciate your thoughts or suggestions for any other candidates . Thanks
Read Answer Asked by gary on October 17, 2019
Q: Are taxes to be paid on all dividends received in a TFSA or only on US $ dividends.

Thanks
Read Answer Asked by Robert on October 17, 2019
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