This Oct. 24, 2016, file photo shows Tesla Model S on display in downtown Los Angeles. (AP Photo/Richard Vogel, File)The Associated Press
In the late 1990s, CI Investments opened a mutual fund based on Boomernomics, an investment theme designed to benefit from the eventual aging of the Baby Boomer generation. The fund was closed in 2005 due to lack of interest and poor performance, not because the strategy was wrong but because it was too early. The emphasis on health care, for instance, would have turned out great had the mandate continued.
Electric vehicle investments remind me of Boomernomics in the sense that investors are allocating funds now to a trend which may not really get started for a number of years. Despite the hype, electric vehicle sales still form only a tiny fraction of the total, according to Bloomberg's New Energy Finance research team. "Just 695,000 electric vehicles were sold in 2016 … equivalent to about three days of sales in an 84-million-strong market."
Tesla Motors has a market cap of $56.2-billion (U.S.) after selling just over 76,000 electric vehicles in 2016. General Motors has a market cap of $65.7-billion and they sold 10.3-million vehicles last year. Tesla sales are growing quickly and the company sold a record (for them) 25,000 cars in the first quarter of 2017, but the company has a market cap 86 per cent of General Motors when they sell less than one per cent of the number of vehicles.
There is clearly an ocean of future growth already priced in to Tesla stock while Jefferies analyst Philippe Houchoi warned in September that the company will not even turn a profit until 2020.
None of this is to suggest that electric vehicles aren't desirable, or that they won't dominate global auto sales at some point in the future with help from government regulations. The sector will, one day, be a great investment. The question is when.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Amazon.com Inc. If you're searching for the perfect symbol of this frothy, tech-loving, disruption-applauding era, look no further than Amazon.com Inc. The online retailer changes hands for around $1,000 (U.S.) a share, a price that has quadrupled since 2012 despite the company's conspicuous lack of profits. The Seattle-based e-commerce giant has lost money in two of the past five fiscal years. Only once in its two-decade history has it managed to squeeze out annual earnings of more than $5 a share. Ian McGugan explores the investment case for the retailing juggernaut.
Pure Industrial Real Estate Trust. This REIT has been a solid performer for investors. Year-to-date, PIRET is the top performing real estate investment trust in the S&P/TSX composite index (based on price return). In 2016, PIRET delivered a total return (including the distribution) of 36 per cent, well above the 17.6 per cent total return for the S&P/TSX composite REIT index and the 21.1 per cent total return for the S&P/TSX composite index. The REIT has 10 buy recommendations and offers investors a stable distribution, currently yielding 4.7 per cent. Pure Industrial Real Estate Trust owns a portfolio of 170 industrial properties across Canada as well as in the United States with a focus on major markets such as Toronto, Vancouver, Texas, Georgia, and North Carolina. Jennifer Dowty explains.
General Electric. The Contra Guys have owned General Electric stock for years. But their mantra is "Never fall in love with a stock. It will not love you back." There are concerns about this stock right now, which has been struggling in recent years. The dividend might be cut, the debt load needs to be managed and on Nov. 13 CEO John Flannery will outline a new strategic focus. The stock could react. The Contra Guys explain why they're holding onto their position.
The Rundown
A new portfolio for low-risk investors
An increasing number of readers are worried about the lofty valuations in the stock market. Gordon Pape agrees that prices are very high. That does not mean they can't go higher, but you aren't buying anything cheap these days. He outlines a new Low-Risk Portfolio whose goal is to protect assets against stock market losses while providing a respectable return. Gordon Pape outlines his new portfolio.
Short sales on the TSX: What bearish investors are betting against
The average short position for companies in the S&P/TSX 60 index has steadily edged down over the past two years, from 5.5 per cent to 2 per cent of outstanding shares. But at the company level, short selling remains high for several TSX listings. Larry MacDonald looks at the stocks short sellers favour.
Third-quarter surge drives charity investors' returns
The Canadian economy found its stride in the third quarter, bringing it into the spotlight for a trio of money managers committed to raising funds for charity. The three veteran investors are participating in an investment challenge dedicated to raising money for the Holland Bloorview Kids Rehabilitation Hospital, which is the largest facility of its kind in Canada. The Toronto hospital's mission is to improve the lives of children living with disabilities. Tim Shufelt reports on how each manager fared in the third quarter.
Here's a way to profit from all the young jobless males playing video games
As an investment theme, video games have been remarkably successful investments even if there are ways they remind me of tobacco stocks. Cigarette companies are worse, of course – their products kill people and give them strokes while video games are merely correlated with immobility-inspired obesity and distinctly anti-social worldviews. Still, these are not tendencies most investors are willing to promote with their portfolio assets. The performance of video-game stocks, however, makes it tempting to ignore these ethical quibbles. Scott Barlow explains this is a sector to look at.
Are you sleepwalking to the next market meltdown?
It's been nearly a decade since the worst global market meltdown after the Depression, and it seems the carnage is a fading memory for many investors. In 2008, global equities – measured by the benchmark MSCI World Index – lost more than half of their value in less than a year. Yet, a recent Wells Fargo/Gallup poll finds only 54 per cent of Americans expect another meltdown – down from 58 per cent in 2014 and 62 per cent in 2013. Dale Jackson examines the potential for a market pullback.
Even the best DIY investors need financial planning help
A reader with some serious chops as an investor has a question about retirement planning. She wonders which of the various accounts she and her husband have – registered retirement savings plan, locked-in retirement account, tax-free savings account and non-registered savings – should be drawn down first in retirement. This is important stuff for minimizing taxes and the claw back of Old Age Security benefits, and using capital most efficiently. Rob Carrick takes a look at what makes most sense.
Others
Monday's Insider Report: Companies insiders are buying and selling
The Globe's stars and dogs for last week
Big money stays away from booming bitcoin
Banks and asset managers warn of global markets' murky future
Bullish on Finning International
Vancouver real estate developer betting on Atlantic Gold
Oil investors jump back into the fray as revival beckons
Four stocks where waiting for a pullback proved costly
Ask Globe Investor
Question: In April of 2009, I purchased a 10-year Manulife bond that yields 7.768 per cent and matures on April 8, 2019. However, in early October, I looked at my discount brokerage account and was surprised to see that Manulife had "redeemed" the bond. I have never heard of a bond being redeemed at the behest of the issuer. Is this legal?
Answer: Yes, it's legal, and it was all disclosed. When Manulife Financial Corp. announced the $600-million offering of senior "medium term notes" in April, 2009, it stipulated in the prospectus that the company "may, at its option, redeem the notes on not less than 30 nor more than 60 days' prior notice to the registered holder." Further, it said the redemption price would be the greater of: the bond's par value; or a price based on a spread of 125 basis points – or 1.25 percentage points – over the yield of a Government of Canada bond with the same term to maturity.
"That's known in the business as a Canada call and it's very common," said James Hymas, president of Hymas Investment Management. "One of the very important things to do when investing in corporate debt is to look at the call provisions, because they will almost always be there somewhere."
Generally, companies will only redeem bonds when it is in their best interests (or when required because of the terms of the issue). When Government of Canada bond yields were at historic lows, it wasn't advantageous for Manulife to redeem the notes because it would have had to pay a steep price. But when government yields started to spike several months ago – and as the maturity date approached – redemption became attractive, Mr Hymas said.
Let's look at the specifics.
Manulife announced on Aug. 15 that it intended to redeem the notes and, on Oct. 3 it said the redemption price would be $1,073.81 (per $1,000 face amount) plus accrued interest of $38.52. The redemption price was based on the second option in the prospectus, as it was higher than par. This equates to a yield to maturity (YTM) of 2.73 per cent, Mr. Hymas said. (If you're wondering why the YTM is lower than the 7.768-per-cent coupon rate, it's because the notes were trading above par.)
Here's where the benefit to Manulife comes in. On the same day it announced the redemption, the company said it would refinance the debt by issuing $750-million of subordinated debentures that will pay interest "at a fixed rate of 3.049 per cent until August 20, 2024" after which it will convert to a floating rate.
"They essentially bought back their old debt at a yield of 2.73 per cent and were able to replace that with an extension of term of more than five years and with debt that was actually subordinated and that's a good deal for them. They're only paying about 32 basis points [in additional yield] and that's a bargain," he said. (Subordinated debt, with its higher risk from a bondholder's perspective, would normally carry a higher interest rate than senior debt.)
Another benefit is that, unlike the senior debt that was redeemed, the new subordinated debt qualifies as Tier 2 regulatory capital with the Office of the Superintendent of Financial Institutions, Halina von dem Hagen, Manulife's executive vice-president, treasury and capital management, said in an e-mailed statement.
--John Heinzl
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What's up in the days ahead
What's the best way to buy into the electric vehicle craze? Ian McGugan explores some options in Wednesday's Globe and Mail.
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Compiled by Gillian Livingston