Joachim Klement is a U.K.-based investment strategist who recently attempted to explode some real estate-related myths that are very popular in Canada right now.
Real estate prices have appreciated much faster than the S&P/TSX Composite in many of Canada’s hottest property markets over the past decade, but Mr. Klement highlights studies showing that real estate doesn’t outperform equities over longer time periods.
Between 1901 and 1970, four major British university endowment funds lost an average 1.5 per cent annually on the value of commercial property investments and were down 0.2 per cent per year on residential investments once inflation was take in to account. The annual yields on the investments raised the annual returns, but only to 2.1 per cent and 2.8 per cent annually.
A separate study analyzing U.S. markets from 1900 to 2015 found that inflation-adjusted returns on equities were more than 300 per cent higher than real estate. In the U.K., equities performance was double real estate returns for the same time frame.
The strategist also made a point that surprised me even though it should be obvious, “Why do people think that property investments are so much better than stocks? Because they don’t see the volatility of property prices on a daily basis. Real estate is so illiquid that people tend to have only two price points: the amount they paid for it when they bought the house and the amount they sold it for.”
The illiquidity makes property investment appear less risky than it is, but it also offers advantages, as the author notes – real estate investors are more or less forced to buy and hold, unlike equity investors who are tempted to buy and sell investments at the worst times.
Domestic borrowing costs are expected to remain low relative to history and population growth remains strong – Canada’s has been the strongest in the G-7 according to Statistics Canada. These two trends should help support real estate values for the near future. For the longer term, however, Canadians should be careful not to extrapolate recent strong returns from property investments too far into the future.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Calian Group Ltd. Last quarter, this growth stock reported record revenue, with the majority of its revenue coming from its contracts with the Canadian government. Given the relative stability of its government customers, the company has paid its shareholders a consistent quarterly dividend, which is currently yielding 3 per cent. Jennifer Dowty profiles the stock, which hit a record high this week.
Restaurant Brands International Inc. Buying great companies whose shares have suffered a setback is a proven investing strategy, which is why John Heinzl is using more than half of his model portfolio’s cash balance to purchase an additional 15 shares of Restaurant Brands International Inc. (QSR). Why is John still so bullish on the stock, suffering from some poor metrics at Tim Hortons? Read his explanation here.
The Rundown
This is the quick, clean way to get bonds in your portfolio
Bond ETFs are an example of how a simple, sensible investment can get complicated in a flash. Rob Carrick has some advice on how to navigate the asset class.
Dregs of financial crisis today’s jewels: Pimco
More than a decade after risky mortgage lending sparked the financial crisis, some of those same products are creating today’s best investment opportunities, Pimco’s group chief investment officer, Dan Ivascyn, said on Tuesday. Read more from Reuters.
Canadian robo-adviser Planswell shuts down after investors pull planned financing
Canadian robo-adviser Planswell is closing down after losing a $20-million round of funding from a group of investors that included Sun Life Financial Inc. Clare O’Hara reports.
Others (for subscribers)
Wednesday’s analyst upgrades and downgrades
Tuesday’s analyst upgrades and downgrades
Wednesday’s Insider Report: Million dollar trades by three management executives
Tuesday’s Insider Report: Tim Hortons executive cashes out over US$10-million
Others (for everyone)
Fund managers avoid risk in fixed income as U.S. growth slows
Globe Advisor
Will diluted ‘best interest’ rules doom us to unaffordable old age?
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Ask Globe Investor
Question: Can I withdraw funds from my LIRA to pay my tuition for college?
Answer: You can only withdraw from a Retirement Savings Plan (RSP) to pay for tuition to an approved training or education program. It is called the Lifelong Learning Plan (LLP). It allows you to withdraw from your RSP to pay for full-time training or education for yourself or your spouse or common-law partner. You can withdraw up to $10,000 in a calendar year to a maximum of $20,000 in total. The amount withdrawn under the LLP does have to be paid back over a 10-year period. There are several rules and guidelines to the LLP. You can find them here. Unfortunately, you cannot withdraw from a locked in retirement account under the LLP.
--Nancy Woods, Vice President, Portfolio Manager and Investment Adviser with RBC Dominion Securities.
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What’s up in the days ahead
Andrew Hallam presents “The profitable ETF portfolio” that can survive a market crash.
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Compiled by Globe Investor Staff