It's tricky for investors to time the market. Even pros admit they can't dart in and out of stocks at just the right moment.
But one thing is certain: You can't make money unless you already have some in the market.
Given the unpredictable nature of the markets, we asked three investment professionals for their current top picks among stocks, mutual funds and exchange-traded funds.
From Greg Newman, portfolio manager with the Newman Group, a ScotiaMcLeod affiliate
- The pick: Baytex Energy Corp. (BTE-TSX)
- 52-week trading range: $36.37 to $46 a share
- Annual dividend: $2.64 a share
The Calgary oil producer has struck a major deal to buy Australia-based Aurora Oil & Gas Ltd. and gain access to the higher-priced light oil from Texas's Eagle Ford shale region. The move will reduce its heavy oil exposure to 53 per cent from 75 per cent and increase its production base by almost 50 per cent, Mr. Newman said. "Management has also said it will hike Baytex's dividend by 9 per cent when the deal closes [in May]." With the acquisition, his one-year target for the stock will move to $57 a share from $50.
- The pick: Algonquin Power & Utilities Corp. (AQN-TSX)
- 52-week trading range: $5.96 to $8.33 a share
- Annual dividend: 34 cents a share
This Oakville, Ont.-based renewable energy and regulated utility offers "a combination of growth and value," Mr. Newman said. Acquisitions, rate increases and development projects should help cash flow grow at a compounded annual rate of 32 per cent over the next two years. With an estimated payout ratio of 57 per cent for 2014, Algonquin's dividend should continue to grow, he added. Its stock trades at a compelling free cash-flow yield of about 10 per cent (using 2015 estimates) versus its peers at around 7.7 per cent. He has a one-year target of $8.50 a share.
- The pick: Power Corp. of Canada (POW-TSX)
- 52-week trading range: $25.02 to $32.82 a share
- Annual dividend: $1.16 a share
This Montreal-based holding company controls Power Financial Corp., whose units include Great-West Lifeco Inc. and IGM Financial Inc. As the economy recovers, life insurers will benefit from rising stock markets and higher bond yields, while asset managers such as IGM's Investors Group will see money flowing into higher-margin equity funds, he said. Power Corp. trades at about a 21-per-cent discount to its net asset value, but that is expected to revert back to its 15-year average in the 15-per-cent range, he said. Nr. Newman's one-year target is $35.50 a share.
From Dave Paterson, fund analyst, D.A. Paterson & Associates Inc.
- The pick: Sprott Enhanced Equity Class
- Manager: John Wilson of Sprott Asset Management
- Fee: 2-per-cent management fee (plus operating expenses) and a performance fee
- Minimum investment: $1,000
This relatively young Canadian equity fund, which holds 25 to 30 domestic and U.S. stocks, aims for positive returns as opposed to beating a specific index, Mr. Paterson said. The manager has a strict sell discipline and uses options to provide downside protection. The fund does not own Canadian banks and has little exposure to commodity stocks, he said. "The fund should hold up well in periods of extreme market volatility, but will likely lag when markets take off." The fund gained 12 per cent for the year ended Feb. 28.
- The pick: Mawer Global Equity Fund
- Manager: Paul Moroz and Jim Hall of Mawer Investment Management Ltd.
- Fee: Management expense ratio of 1.45 per cent
- Minimum investment: $5,000
This go-anywhere global stock fund invests in companies with strong management teams and competitive advantages and whose stocks trade at reasonable prices. It has returned an annualized 17.8 per cent for three years, outpacing the MSCI World Index in Canadian dollars. It is currently overweight financial and industrial stocks and underweight consumer names. "I would expect that this fund [which is not currently hedging its currency exposure] will continue to deliver above-average returns with below-average risk over the long term," he said.
- The pick: Mackenzie Ivy Foreign Equity Fund
- Manager: Paul Musson and Matt Moody of Mackenzie Investments
- Fee: Management expense ratio of 2.54 per cent
- Minimum investment: $500
This global stock fund has "a proven history of protecting capital in market declines," Mr. Paterson said. It invests in companies with strong balance sheets and solid management teams and whose stocks trade at reasonable valuations. The fund, whose currency is not hedged, has more than half of its assets invested in consumer staples and consumer discretionary names. Over the past five years, it has returned an annualized 12 per cent. This fund is a "great core global equity holding," but it will likely underperform during a significant market run-up, he said.
John Hood, president and portfolio manager at J.C. Hood Investment Counsel Inc.
- The pick: iShares S&P/TSX Capped Composite ETF (XIC-TSX)
- 52-week trading range: $18.51 to $22.87 a unit
- Fee: Projected MER of 0.05 per cent
- Annual distribution: 58 cents a unit
This Canadian equity ETF, which tracks 242 stocks, has become more attractive now that its management fee has been chopped recently to 0.05 per cent from 0.25 per cent, Mr. Hood said. "It even beats Vanguard [known for its very low-fee ETFs]." Fees matter because they eat away at returns over time. Because the ETF is invested in large, mid-sized and small companies, it is more diversified and now cheaper than the higher-profile iShares S&P/TSX 60 ETF. "I have owned XIC for years and have been happily collecting the dividends," he said.
- The pick: iShares S&P 500 ETF (CAD-hedged) (XSP-TSX)
- 52-week trading range: $17.61 to $21.84 a unit
- Fee: Projected MER of 0.10 per cent
- Annual distribution: 31 cents a unit
This ETF, which tracks the S&P 500 Index, has had its management fee cut to 0.10 per cent from 0.22 per cent. "You have to be in the U.S. market now because the American economy is coming out of recession stronger than anywhere else," Mr. Hood said. This ETF is for investors who want low-cost investment but also don't want to worry about currency risk. Investors who believe the U.S. dollar will strengthen versus the loonie might consider the U.S.-listed Vanguard Large-Cap ETF (VV-NYSE), he added.
- The pick: iShares S&P/TSX Equity Income ETF (XEI-TSX)
- 52-week trading range: $18.97 to $22.61 a unit
- Fee: Projected MER of 0.22 per cent
- Annual distribution: 96 cents a unit
This ETF, which provides exposure to 73 Canadian dividend-paying stocks, has a yield of more than 4 per cent. It has also become a lot cheaper recently after its management fee was slashed to 0.20 per cent from 0.55 per cent, said Mr. Hood. "I thought it was too expensive before." XEI is appealing because it is more diversified and is invested in larger companies than some other dividend ETFs, he added. XEI's top 10 holdings include three banks as well as stocks such as Potash Corp., Shaw Communications and Husky Energy.