Once upon a time, there was a "hot" stock everyone wanted. Nortel Networks Corp. was once one of the stocks that so dominated the Canadian market that investors acted like the heat would last forever.
Of course that was back when Myspace was the next "hot" Internet sensation and Britney Spears the next "hot" singer.
Hot always eventually turns tepid, Nortel now a dimming memory of corporate failure. And so, many market professionals resist suggesting investors get caught up in "hot" sectors and "hot" stocks for their long-term RRSPs.
Anna Knight, a certified financial planner at International Capital Management in Toronto, stresses the need to keep stock holdings diversified in multiple sectors in order not to miss out on any good trends.
Still, for those investors who can't help speculating a little, what areas look tempting for 2014?
A must-have sector Ms. Knight picks is consumer staples such as grocery retailers. "You definitely want to have some exposure to that area, no matter what happens," she said, noting that demand for food and consumer goods can only rise as the population increases. "It follows Warren Buffet's philosophy – invest in businesses that are going to be here moving forward."
And by extension, the other must-have is transportation to carry all those staples to stores. "We haven't invented another way to transport it than by vehicles and rail," she said. "If you want to bullet-proof your portfolio, [pick] those two areas. It could fluctuate, but you're never going to go wrong over the next 15 to 20 years."
Information-technology stocks are also still attractive, she said, but they can vary greatly over time, carrying major risks. "RIM [Research In Motion Ltd., now known as BlackBerry Ltd.] is a perfect example. It can be doing phenomenally, then a shift in technology, and they are out of favour," Ms. Knight said.
The infrastructure sector, in particular, looks good as a way to tap into what may be a continued growth period. John Stephenson, fund manager at First Asset Investment Management in Toronto, sees the sector as a good bet for RRSPs and recommends telecoms and utilities. Even if some may have limited growth, they serve as classically defensive investments – companies such as TransCanada PipeLines Ltd. or Inter Pipeline Ltd.
"The sectors that will likely work right now are those that are levered to a little bit of growth. Where's the growth coming from? The U.S.," he said. "The U.S. should do 3-per-cent economic growth, which doesn't sound like a lot, but it would be the best in a decade. The sectors that will do well are the financials: So, in Canada, the banks, insurance companies, you could pretty much pick all of them."
These are well-suited to RRSPs, given their capital gains and dividends, he said. He also noted technology, but equally warned that it's a difficult investment to get right. "I wouldn't recommend that for an RRSP."
Michael Bowman, executive vice-president at Wickham Investment Counsel in Hamilton, Ont., continued a general liking among financial managers for infrastructure stocks, and adds engineering and construction companies to the mix, such as Aecon Group Inc., Chicago Bridge & Iron Co. and the construction-services company Fluor Corp.
"If we believe that a worldwide economic recovery is taking place, and if we believe that we are in a rising interest-rate environment, then there are a number of sectors that investors could be looking at," Mr. Bowman said.
This could indicate a healthier outlook not just for consumer staples, but for consumer discretionary stocks, which got hit much worse than staples after the 2008-2009 meltdown. "When there's more money floating around, people have some available money to do [leisure-oriented] things." As examples, he named Harley Davidson and Walt Disney.
Unlike some advisers, he's not averse to investors being more hands-on with their RRSPs. "Because it's an RRSP, people don't need to have a buy-and-hold-forever attitude. I think the key to investing is to find upcoming trends in the marketplace, always being liquid and always being conscious of fees," he said.
For others though, "hot" tips should be tempered with "hot" caution. Ms. Knight said that it's fine to weigh a larger percentage of your equity portfolio in a certain sector, if you have a personal knowledge of that sector. Someone working in the mining industry may have a higher comfort level with mining stocks.
But she suggests staying clear of individual "hot" picks. "Unless you are actually going to do the due diligence and work on the stocks, don't buy [individual] stocks," she said. "Understand the business you're buying. Pretend you're walking in and opening a franchise of that business. That's how much you have to know."