The single most important question investors need to ask, a new top tech stock, and the best Canadian ETFs

If there were awards for best finance and investing blogs, the Best Newcomer of 2018 would be among the easier decisions – Nick Maggiulli ‘s debut is an easy winner, at least in my opinion. Mr. Maggiulli’s ability to use real-life metaphors for important investing concepts made the site easy and entertaining to read. (No, he’s not paying me).

In a Jan. 29 post, the author uses the following example as a way of describing how investors can successfully simplify their investing process into “One Big Thing,”

“What one piece of information would help you make better decisions in different areas of your life? To give you an example, I once proposed this thought experiment to one of my single, male friends:

Imagine you had a list of 10 single women your age and you can only go on a date with one of them. However, you know nothing else about any of these women. Not what they look like. Not their personality. Nothing. If you could only have one piece of information on all of them (no photos), what would you ask for before making your decision?

My friend thought about it for a moment then said, “How often they go to the gym.” I asked him why and he said that gym frequency was indicative of other positive attributes such as: hygiene, self-care, motivation, etc."

In market terms, I use this process – reducing an investing dilemma into a single important question – a lot. In the current market environment there are a number of major risk factors – the new management team for the world’s richest country is ethically and intellectually challenged, China’s potential credit issues, trade disputes, domestic household debt, and a deteriorating global economy.

I decided that the way to simplify these risks into one big question was to follow the U.S. earnings season extremely closely. Specifically, this meant starting every day with the S&P Index EPS screen on the Bloomberg terminal (click link for example), a page that summarizes all profit reports to date broken down by sector. My thinking was that the market effects of risk factors should have been apparent in earnings.

Mr. Maggiulli took the one big question concept in more of personal finance direction,

”Instead of asking what determines investment returns, we could ask, ‘What determines retirement success?’ The American Society of Pension Professionals and Actuaries (ASPPA) has an answer. They published an article in 2011 where they found that 74 per cent of retirement success had to do with one thing: savings rate.”

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

WPT Industrial Real Estate Investment Trust (WIR.U-T). This security appeared on the positive breakouts list (stocks with positive price momentum) last week. This Canadian-listed REIT is uniquely positioned, providing investors with exposure to the U.S. industrial market. Among its top tenants are well-known companies including General Mills Inc., Amazon.com Inc., Unilever, and Zulily. The REIT pays its unitholders a stable monthly dividend denominated in U.S. dollars, which it has maintained at the current rate of 6.33 cents per unit since 2015. The REIT has interesting growth opportunities with its newly formed U.S. industrial venture with the Canada Pension Plan Investment Board and Alberta Investment Management Corp. Headquartered in Toronto, WPT Industrial REIT has a portfolio of 57 properties located across 15 U.S. states, 56 industrial properties and one office property. Jennifer Dowty reports (for subscribers).

Shopify Inc. (SHOP-T). Canada’s tech sector has a new top dog. A meteoric rise in Shopify Inc. shares in recent weeks has made the Ottawa-based e-commerce giant the single largest IT listing in the country, a title previously held by home-grown champions of technology past and present, including Nortel Networks Corp., BlackBerry Ltd. predecessor Research in Motion Ltd, and, most recently, CGI Group Inc. With a $24.7-billion market capitalization, Shopify finds itself atop Canada’s tech sector at a pivotal stage in its evolution. Questions linger from a 2017 short-seller attack over Shopify’s business model, competitive threats are rising and profitability is still proving elusive. But the market still expects nothing less than explosive growth, said Brian Madden, a portfolio manager at Goodreid Investment Counsel Inc. Tim Shufelt reports (for subscribers).

The Rundown

Rob Carrick’s 2019 ETF Buyer’s Guide: Best Canadian equity funds

Last year’s big decline in the Canadian stock market offers a lesson for ETF investors on the importance of digging deep into a fund before buying. The S&P/TSX composite index lost 8.9 per cent on a total return basis in 2018 (dividends plus share price changes), while the Canadian equity funds in the 2019 edition of the Globe and Mail ETF Buyers’ Guide lost as little as 2.8 per cent and as much as 10.1 per cent. Eleven Canadian equity ETFs are covered – some that track major indexes, some that screen indexes for stocks with particular virtues and a couple of low-volatility funds. Their widely varying returns last year highlight how differently these strategies work in a down market. Rob Carrick reports (for subscribers).

Don’t rest easy investors, the hard work for this market rally is about to begin

So the stock market changed its mind. You have a problem with that? Probably not. January was a giddy thrill ride for investors worldwide, as the market narrative jumped overnight from doom to boom. In Toronto, the S&P/TSX Composite Index ended an extended plummet the moment the Christmas turkey cooled, and bounced 8.4 per cent higher between New Year’s Day and month-end. In the United States, the S&P 500 enjoyed its best January since 1987, after enduring its worst December since 1931. Meanwhile, the MSCI World Index reversed course and soared 7.7 per cent as investors around the globe succumbed to sudden-onset bullishness. Can the January surge continue? It’s possible. But the next stage will be far more challenging. Among other things, it will hinge on whether a still strong U.S. labour market can continue churning out jobs despite a decelerating global economy. Add in the uncertainties around Brexit and around U.S.-China trade talks and the potential for another market reversal is high. Ian McGugan reports (for subscribers).

These are the top three income stocks that bucked the downtrend

The year just ended was a bad one for the market and income stocks did not escape the downturn. Although almost all retained their regular dividends/distributions, many saw their market prices slip. Rising rates were a major contributor to this, negatively affecting interest-sensitive stocks. But not all income stocks lost market value in the past 12 months. Gordon Pape takes a close look at three income stocks that were able to post gains last year (for subscribers).

Low valuations aren’t a good enough reason to bet big on bank stocks

Canadian bank stocks have rebounded over the past six weeks after touching their lowest valuations since the financial crisis. But an enduring recovery rests on profit and revenue growth over the year ahead, and the outlook here is murky at best. For sure, the stocks are enjoying some momentum right now. The Big Six have risen 11.4 per cent since Dec. 24, when the stocks traded at just 9.2-times estimated earnings, the lowest price-to-earnings ratio in nearly a decade. But in the run-up to the start of the banks’ fiscal first-quarter reporting season on Feb. 26, some observers see potential hurdles, given a slowing Canadian economy and weak lending growth. David Berman reports (for subscribers).

EM’s moment: Last year’s headwinds could be this year’s tailwinds

Could it be emerging markets’ day? It may well prove to be an inflection point – the moment in time when the perfect alchemy of underlying forces propels an EM rebound in 2019. There’s little question, 2018 was ugly. Tightening U.S. monetary conditions, a strengthening U.S. dollar and escalating global trade tensions made for a turbulent year. By the final tally, the MSCI Emerging Markets Index – representing 24 countries – was off 6.5 per cent, a disappointing performance to be sure, yet less than losses on both European and Canadian indexes, which fell 6.6 per cent and 9 per cent, respectively. By the fourth quarter, EM’s rout gave way to a turnaround of sorts, at least relative to other indexes, which got hammered as anxieties peaked late last year. Regina Chi from AGF Investments takes a look at the key tailwinds that are poised to fill the sails of emerging markets in 2019. (For subscribers).

Reasons for optimism on Canadian stocks, emerging markets in 2019

Although equity investors were sides-wiped at the end of 2018 in what was an erratic trading environment, the good news is that global equity markets have regained some momentum so far this year, which has lent support to our view that the profound pullback witnessed in late 2018 was largely overdone. Late last year, global equity markets posted their worst quarterly results since 2011 as investors worried about global trade tensions, rising borrowing costs and worrisome signs of slowing global growth. Already, we are seeing some encouraging developments that could see both price-to-earnings multiples and earnings expectations revert higher over the course of the year. Candice Bangsund from Fiera Capital explains.

RRSPs vs. upstart TFSAs: The old standby still has its place

One of the most popular queries investment advisers get these days from both young and older investors is whether a TFSA or RRSP is the best way to save money for retirement. Tax-free savings accounts were introduced in 2009 and have become an alternative or complement to traditional registered retirement savings plans, launched in the 1950s. While the newcomer has its particular benefits, including an ability to withdraw money without a tax hit, the good old RRSP still has its place for both the 30-year-old and 60-year-old investor, experts agree. The decision on which route to take may come down to tax planning. Adam Stanley reports.

You have no ‘Choice’ but to check your ACB

John Heinzl takes a look at the warped calculation one reader’s discount broker received regarding his Choice Properties Real Estate Investment Trust units. He stresses that investors need to verify the average cost – also known as the book value or adjusted cost base (ACB) – of their holdings, because brokers sometimes get these numbers wrong.

For investors who want to bet on blockchain, casting a wide net is key

Blockchain technology has been hailed by its boosters as the “next internet revolution,” a shift that will transform financial services, logistics and other industries that make transactions and keep records. Joel Schlesinger looks at the options for investing in blockchain technology right now.

Cashless society series:

An increasingly cashless world is forcing banks to improve the penalty box ambiance of their branches

The declining use of cash in our society could be the best thing to happen to branch banking. The old-style bank branch sent a subtle message to customers: You need us more than we need you. Lineups were slow, the spaces were cramped and the service was minimal at best. The declining use of cash has broken this power dynamic. People don’t need to visit the branch as much as they used to, which means there are fewer opportunities for banks to sell the investments, credit lines and credit cards that sustain their revenues and profits. The Royal Bank of Canada branch that opened beside the Place d’Orleans Mall in suburban Ottawa last May is a shining example of how banks are trying to keep branch banking alive in an increasingly cashless world. Rob Carrick reports on the changes this bank branch has made.

Others (for subscribers)

My two favourite investment themes remain the same

What a strong January has meant for stocks the rest of the year. (Hint: You’ll really like this)

Consumers are bummed, businesses are bummed, David Rosenberg is bummed

The financial fleecing of Canadian millennials

Veteran bond manager Bill Gross retiring after more than four decades

Some U.S. funds waiting for earnings to buy shares of surging Chipotle

Fed could raise rates as much as twice this year: BlackRock’s Rieder

Tuesday’s Insider Report: Chairman invests $500,000 as the stock price dips

Growing field of activist investors pushes companies to perform better

U.S. small-cap stocks shrug off debt concerns, for the moment

Monday’s Insider Report: Chairman is a buyer of this REIT yielding 9.5%