TMX Group Inc. signage and stock prices are displayed on a screen in the broadcast center of the Toronto Stock Exchange (TSX) in Toronto, Ontario, Canada.Bloomberg
Simple profits
Our Rob Carrick raised a few critical eyebrows a week ago by suggesting that more aggressive investors consider buying a simple S&P 500 ETF for their tax-free savings account.
The argument is straight forward. The well diversified S&P 500 has outperformed both the S&P/TSX composite index and the MSCI Europe Australasia Far East index over most timeframes in the past 30 years. Management expense ratios don't come much cheaper – in the 0.11 per cent range – and they are available in hedged versions should one want to omit the currency risk.
It is certainly a simple solution for building a TFSA portfolio. Many readers will undoubtedly have different strategies that could work better over the long haul. But let's give Rob kudos for his timing. Over the past five days, the S&P 500 has been in a clear uptrend and is now just 22 points from a record high.
Index investing is great for low fees and little homework, but it's important for all investors not to be too smug with their prowess. Take our Strategy Lab battle, for instance. Our four experts started with a hypothetical $50,000 portfolio on Sept. 13, 2012. The results since the inception date? Hands down, growth investor Chris Umiastowski made the most impressive returns, with a gain of 269 per cent up to the end of May. Next up was Norman Rothery with a 72-per-cent return, proving that value investing isn't dead. Dividend guru John Heinzl was at 49 per cent. In last place: index investor Andrew Hallam, with a modest gain of 33 per cent (note that his portfolio consists of a balanced portfolio that includes bonds.)
That's a pretty short time frame, of course, to be testing the mettle of four veteran investors. But it does go to show just how wonderfully unpredictable the investing world really is.
Three big numbers to note
2,112.13 Today's close of the S&P 500. It's now 22.59 points away from its record intraday high of 2,134.72 in May last year.
21.89 Current price-to-earnings of the S&P/TSX composite index. The PE ratio started this year at 21.17.
18% Probability of a July 27 Fed rate hike, as implied by futures trading Tuesday. A week ago, odds were put at 52.9%. The market is now pricing in a zero-per-cent chance of a rate hike at its June meeting.
Stock picks from the Street
Chorus Aviation. Aviation isn't a sector you think of when you're looking to boost your income portfolio. But Gordon Pape says that while Chorus Aviation is riskier, it offers a decent reward with its 7.83 per cent yield. It is more stable than some airline operators, as it has set agreements with Air Canada, and its labour agreements provide cost predictability.
Advantage Oil & Gas Ltd. With meteorologists predicting a sizzling hot summer for parts of the U.S., natural gas prices have already begun to rise in anticipation of higher use this summer, notes Jennifer Dowty. Advantage Oil & Gas is a good play on this weather trend, she says, as it's a low-cost producer with a strong balance sheet that expects to boost production over the next several years.
NexGen Energy
The uranium sector has been in the dumps for years, but there's one Canadian name that's been drawing recent interest of late. NexGen Energy announced last week that it has agreed to sell $60-million in convertible bonds to CEF Holdings Ltd. and affiliated shareholders to raise money to help develop uranium projects in Saskatchewan. CEF Holdings is 50-per-cent-owned by Hong Kong's richest man, Li Ka-shing. Is there still time for investors to buy in? Jim Huang, president of T.I.P. Wealth Manager, seems to think so. He said this week that NexGen is one of his three top stock picks.
The Rundown
Commodities take the bull by the horns
Commodities from oil to gold have ended their epic swoon – and, in the process, turned Canadian stocks into some of the world's hottest offerings. The Bloomberg Commodity Index closed Monday up more than 20 per cent from its low on Jan. 20, putting the beleaguered sector into bull market territory. This raw material exuberance has boosted the Canadian stock market into one of the best performing in the world so far this year, write Ian McGugan and Tim Shufelt.
Commodities bull? This investor is skeptical
Scott Barlow isn't sure he trusts the recent rally in commodities. Especially when the London Metals Exchange just showed a 30-per-cent jump in copper inventories in the past two days. And then China is slowing and the U.S. dollar is weakening.
Put your money on the banks
A number of global hedge funds have been shorting the banks, but Scott Barlow says banks are not expensive based on forward earnings, even though a number of banks have been forced to put aside extra cash to deal with potential losses in the energy sector.
How this Rhodes Scholar invests
James Flynn used to be a stock picker, but as a student with a heavy course load and a slew of d extracurricular activities, he has little time to devote to his investing portfolio. As a result, he's narrowed his stock picks and focused on some key exchange-traded funds. He was also convinced to aim for a low-cost portfolio after reading the writings of Vanguard Group founder John Bogle. In just a few years, this student has watched his portfolio rise to $59,000 from $30,000.
What would liven up Priceline's stock? TripAdvisor
Priceline's stock has been a bit dull lately as it faces cutthroat competition in its industry from the likes of Expedia. But there's an asset Priceline should go after and make sure Expedia doesn't get a hold of – TripAdvisor, argue these two Bloomberg columnists.
Time to step on the scale
Our Strategy Lab value investor Norman Rothery thinks it might be worth moving to equally weighted indexes this summer. He gives a great explainer of the differences between market-cap weighted and equally weighted index funds.
Do-gooders beat the market
Rob Carrick suggests checking out the iShares Jantzi Social Index ETF for feeling good about returns. In the past 12 months, it's beaten the TSX 60, refuting concerns that responsible investing means accepting inferior returns.
Combining value with dividends
Love your dividends but worried about valuations getting stretched? Then check out Number Cruncher contributor Julie Michaels' hunt for dividend-paying value stocks that have strong earnings. Her screen turns up a well-diversified list of U.S. dividend stocks.
Going global in your dividend hunt
Check out Rob Carrick's last installment of the 2016 ETF Buyer's Guide. He looks at the pros and cons of dividend ETFs with a focus beyond our border.
Ask Globe Investor
The Question: With interest rates unlikely to go much – or any – lower, are rate-reset preferred shares a low-risk investment with upside?
The Answer: It's worth remembering that people thought rate-reset preferred shares were a low-risk investment when these complex securities started appearing around the time of the financial crisis. But with Canada's five-year bond yield – the benchmark used to set dividends on rate-reset shares – plunging, the shares have taken a beating.
Another observation I would make is that rate-reset preferreds have already rallied sharply from their lows earlier this year. The BMO Laddered Preferred Shares Index ETF (ZPR), for instance, has gained about 15 per cent since late February (excluding dividends), even as the five-year Canada bond yield has slipped back to about 0.65 per cent after briefly poking its head above 0.9 per cent in April.
A sustained increase in the five-year Canada bond yield would probably give rate-reset preferreds a lift, but so far that hasn't happened. Remember, too, that the five-year Canada bond yield dropped below 0.5 per cent in February, and there's no reason it couldn't revisit that level. If it does, rate-reset shares could suffer a renewed setback.
One other thing to keep in mind: If you're tempted by the yield on a preferred share ETF such as ZPR or the iShares S&P/TSX Canadian Preferred Share Index ETF (CPD), it almost certainly overstates the actual yield you can expect going forward. That's because many of the preferred shares in these ETFs will cut their dividends unless the five-year Canada bond yield rebounds.
If you're planning to invest in rate-reset preferreds – whether individually or through an ETF – be sure that you understand the risks and indulge only in moderation as part of a well-balanced portfolio. These securities may look like "a low-risk investment with upside," but there is no such thing as a free lunch with investing.
-- John Heinzl
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What's up in the days ahead:
Our contributor Brenda Bouw profiles D-Box Technologies, the maker of those motion simulator chairs in movie theatres everywhere. She'll look at what the prospects are now after the stock's nearly doubling in price since just the start of this year. For investors thirsty for more profits, Scott Barlow looks at the rising demand for water and the stocks that can benefit. And our John Heinzl has made a decision on where he's going to put nearly all his cash from dividends that have accumulated over the past five months. Stay tuned!
Check out the Globe Investor calendar for more events.
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Compiled by Gillian Livingston and Darcy Keith
Darcy Keith