Looking for investing ideas? Here’s your weekly digest of the Globe’s latest insights and analysis from the pros, stock tips, portfolio strategies plus what investors need to know for the week ahead.
‘Unprecedented valuations’: Retail REIT executives are buying while unit prices collapse
As stock markets were plunging this week, Michael Zakuta wasn’t panicking, John Heinzl writes. He was calmly buying shares of his own real estate company. “I bought today and I bought yesterday,” he said in an interview on Wednesday. “I’m confident we’ll look back and say, wow, what a great buying opportunity this was.”
He is in a better position to judge the current crisis than most. As president and chief executive officer of Plaza Retail Real Estate Investment Trust, which operates primarily open-air retail centres in eight provinces, he has an insider’s view of how novel coronavirus fears and social distancing measures are affecting business at Plaza and other REITs.
For the big chain stores that make up the vast majority of Plaza’s tenants – such as Shoppers Drug Mart, No Frills, Dollarama, Canadian Tire and Sobeys – business is carrying on and Plaza sees no interruption to rental income. Yet its units have plummeted about 33 per cent from their high, and now yields more than 9 per cent. SmartCentres REIT, meanwhile, has seen its unit price plummet about 50 per cent from highs, with a yield of about 11 per cent.
More from John Heinzl: Amazon, Air Canada and more investing stars and dogs for the week
Don’t take a chance on catching a falling knife
During my days as an equities portfolio manager, I learned not to catch a falling knife, Jennifer Dowty writes. It’s better to wait for the markets to stabilize and risk missing the initial snapback, rather than accumulating positions too soon for two main reasons.
First, markets tend to overshoot. Cheap stocks can get cheaper. Second, ripple effects may rock the markets. News of bankruptcies, a credit crunch and rising unemployment may place further pressure on stocks. There could also be a re-escalation of coronavirus cases once restrictions and lockdowns are removed.
So, when should investors pull the trigger and buy stocks? A good practice is to wait until there is a string of multiple up days in the market, potentially signally that aggressive selling activity is exhausted.
Rob Carrick’s 2020 ETF Buyer’s Guide: Canadian Dividend ETFs
The fifth instalment of the Globe and Mail ETF Buyer’s Guide turned out to be a stress test for exchange-traded funds holding Canadian dividend-paying stocks. It did not go well, Rob Carrick writes.
Dividend ETFs are a convenient, cheap, transparent way to acquire a portfolio of dividend-paying stocks in a single purchase. Most pay monthly dividend income, so they’re ideal for retirees and other income-seekers. But their performance in early 2020 dispels any illusions investors might have about dividend funds holding up better in bear markets. Many dividend ETFs fully participated in the downturn, and then some. You can check out how individual funds stack up here.
More from Rob Carrick: A realist’s personal finance guide to the recession ahead
Gordon Pape: Negative interest rates could be coming to Canada. Three investments to prepare for it
A reader asks Gordon Pape: “If we head towards negative interest rates like some parts of the world, where does one invest their money to earn a decent return?” He responds: We may be closer to this scenario than most people think.
According to a recent report from Bloomberg, almost US$15-trillion worth of investment grade debt, more than a quarter of the global total, is in negative territory, including all of Germany’s government bonds. This means that investors who buy now will get less money back than they invested when the bonds mature.
Why would anyone do that? Fear. These people are telling the world they expect stocks, real estate, and all other assets to lose significant value in the years ahead. They would rather commit to a small loss over time than run the risk of catastrophic losses in other assets.
So, to go back to the reader’s question, where do you invest in these circumstances? Bonds, real estate, and gold look like the best choices. If you don’t like any of those, hold cash, even if your account pays zero interest. It’s better than investing for a guaranteed loss.
More from Gordon Pape: Own plummeting Canadian energy stocks? Here’s what is likely to happen next
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Can I sell my stocks, buy them back right away, and claim a loss? (and will companies cut their dividends?)
A reader writes to John Heinzl: I’m looking at my portfolio and, like everybody else, I see a lot of red. Tell me what is wrong with the following: If I sell everything where I have a loss and then buy it back immediately I would be in the same position but I would have all those losses which I could apply to future gains for tax purposes over the next many years.
He responds: Unfortunately, it doesn’t work that way. If you sell a stock for a loss and immediately repurchase it, this is called a “superficial loss” and you cannot use it to offset capital gains. The same is true if you sell the stock and an affiliated person – such as your spouse or a company controlled by you or your spouse – repurchases the same stock.
And here he replies to a question on whether companies will cut their dividends in the current crisis.
What investors need to know for the week ahead
Companies releasing their latest earnings in the week ahead include Nike, Lululemon Athletica and Hexo. Economic data on tap include: Canadian wholesale trade for January (Monday); U.S. new home sales for February (Tuesday); U.S. durable goods orders for February (Wednesday); U.S. real GDP and corporate profits for the fourth quarter (Thursday); Canada’s survey of employment, payrolls and hours for January and U.S. personal spending and income for February (Friday).