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Me and My Money

Control your risk and return Add to ...

Preet Banerjee, 32

Occupation: Senior vice-president with a financial firm in Oakville, Ont.

Portfolio: Pro FTSE RAFI Canadian Index Fund and other index funds, Ford Motor Corp. , Bank of Nova Scotia, Direxion Daily Small-Cap Bull 3X exchange-traded fund and index options.

Core/satellite portfolio Mr. Banerjee's portfolio follows a core/satellite approach. The core part consists of passive investments, notably index funds such as Pro FTSE RAFI Canadian Index Fund.

The index funds track fundamental indexes, which weigh companies by book value, sales, dividends and free cash flow. Mr. Banerjee says they give less weight to overvalued stocks than indexes based on market-capitalization weights.

The satellite part consists of active investments. "I know that psychologically I need to scratch my itch to trade stocks. So I dedicate a small amount of my portfolio for that," he explains.

Index Options He uses index options to control the risk/return characteristics of his portfolio. To him, put options on market indexes are like insurance policies against market declines. And they are best bought when complacency is high.

"When the markets are not that volatile, I tend to buy put options since they are cheap when people are not overly worried about a correction."

"When the market is volatile I tend to sell index calls as they have bigger premiums," he adds. This provides extra income during the bullish phase and adds to portfolio returns.

Triple-leveraged ETFs He trades triple-leveraged ETFs in his satellite portfolio. "Triple-leveraged ETFs are not for everyone," he warns. "But for those who truly understand them they can be a great trading tool. I've used them both for short-term trading, for a day or two, and have held them for longer periods."

Best Move "I bought Ford at $6.22 and Bank of Nova Scotia at $37 during the credit crisis and they have contributed to a gain of over 70 per cent in my trading account over the last year."

Worst Move "My worst move was completely cashing out my investment in the Altamira Resource Fund during university to pay for beer and partying."

Advice "Many actively managed mutual funds closely follow benchmark indexes. You would be better off with low-cost index funds," he suggests.

Mr. Banerjee, an executive at Pro-Financial Asset Management, offers advice and insights on his blog, WhereDoesAllMyMoneyGo.com. And as W Network's financial expert, he answers questions on the television channel's website.

Special to The Globe and Mail Want to share your strategies? E-mail mccolumn@yahoo.com

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