If past returns were a reliable indicator of future returns, the investor asset mixes I’m seeing these days would make great sense.
One reader talked about having 70 per cent of a portfolio invested in Nasdaq 100 stocks. Another mentioned a portfolio of two mutual funds, a balanced fund with a one-third weighting and a U.S. index fund for the rest.
These portfolios remind me of how investors were loaded to the gunwales with Canadian stocks and funds leading up to the global financial crisis 10 years ago. Resource stocks were on fire back then, and the Canadian market had been a strong global performer. U.S. stocks lagged and you could barely register the level of interest in having U.S. exposure among Canadian investors.
Ten years later, the S&P 500 has turned in annualized total returns of 13.3 per cent in Canadian dollars (for the period ending July 31), while the S&P/TSX Composite Index averaged 5 per cent. In no way am I predicting that the Canadian market is about to pull ahead of the U.S. market. But it’s clear from long-term stock market history that outperformance is temporary. Keep a strong weighting of U.S. stocks, but don’t get cocky.
The MSCI World Index divides up the world as follows: 62 per cent in the United States, 35 per cent in markets outside North America and 3 per cent Canada. Global investing purists might be happy with a 3-per-cent Canada weighting, but most investors in this country will want a lot more than that. One thought is one-third evenly split between Canada, the United States and international stocks in the equity side of your portfolio. American true believers could take that up to 40 per cent, with another 30 per cent in Canadian and international.
The U.S. market is an awesome diversifier for the Canadian market, which is deficient in technology and health-care stocks. Tech has been a huge performer in recent years, but market leadership tends to change over time. A diversified portfolio will ensure you’re not overly penalized when the market shifts, and that you’re well placed to scoop up gains in whatever markets and sectors take the lead.
-- Rob Carrick, Globe Investor columnist
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Stocks to ponder
Celestica Inc. (CLS-T). This stock is one of the most oversold stocks on the TSX and it may provide a window into what’s happening in the technology sector generally. The stock appears to be another case where the 200-day moving average is an important indicator of reliability for RSI (Relative Strength Index) buy signals. In July 2017, Celestica was significantly oversold from late July to early September, but the buy signal was followed by a small rally before further weakness ensued. The same pattern reoccurred in early November 2017, late January 2018 – buy signals predicted a small bounce but not a sustainable rally. Scott Barlow takes a look at the most overbought and oversold stocks on the TSX (for subscribers).
Yangarra Resources Ltd. (YGR-T). This stock appeared on the negative breakouts list (stocks with negative price momentum) last week as the share price has been under pressure over the past few months. There are 10 analysts that have buy recommendations on the stock, anticipating the share price will deliver strong gains to investors in the year ahead. Management has strong growth expectations with production to rise to between 9,000 and 10,000 barrels of oil equivalent per day (boe/d) in 2018, up from 5,740 boe/d reported in 2017. Looking out to 2019, the Street is anticipating cash flow per share will increase over 60 per cent year-over-year. The average target price suggests the share price has 65 per cent upside potential. Calgary-based Yangarra Resources is a junior oil and gas company with operations focused on the Cardium in central Alberta. Jennifer Dowty reports (for subscribers).
Athabasca Oil Corp. (ATH-T). This stock is back in the doghouse after a promising rally earlier this year came to an abrupt end amid weaker oil prices and renewed confusion over the future of pipeline expansions. But there’s something here for investors with a bit of patience and a strong risk appetite. The Calgary-based oil producer has offered one of the more volatile ways to gain exposure to the Canadian energy sector, given its focus on oil production and high sensitivity to oil prices. When things go right with energy fundamentals – a rising oil price is a good start – Athabasca’s share price should rally higher than the vast majority of its bigger, more diversified and well-financed peers. David Berman reports (for subscribers).
Toronto-Dominion Bank (TD-T). A couple of bank stocks have surfaced on the positive breakouts list as their share prices gain momentum. Quarter-to-date, the financials sector in the S&P/TSX composite index is up 4 per cent (price return), outperforming the S&P/TSX composite index, which is down 0.4 per cent. TD Bank’s stock has rallied the most of all the ‘Big 6’ banks so far this year. Its share price closed at a record high on Thursday. TD Bank is the fifth largest bank in North America as measured by total assets. In fiscal 2017, the company’s earnings mix was 60 per cent Canadian retail, 26 per cent U.S. retail, 10 per cent wholesale, and 4 per cent TD Ameritrade. Jennifer Dowty reports (for subscribers).
Rosenberg’s view of the markets: Less bull than meets the eye
David Rosenberg takes a look at what a tightening U.S. Federal Reserve will mean to the economy, and in particular, equity markets. And there’s reasons to be cautious he notes. (For subscribers.)
Horizons adds high-flying Tilray to major marijuana ETF
Tilray Inc. – one of the most volatile marijuana stocks whose shares nearly doubled in a matter of hours earlier this week – has been added to the largest cannabis exchange-traded fund in Canada. On Friday, the Toronto-listed Horizons Marijuana Life Sciences Index ETF (HMMJ) expanded its holdings to include Tilray, as well as Aleafia Health Inc. and Namaste Technologies Inc., according to Horizons ETFs Management (Canada) Inc. Clare O’Hara reports.
Coinsquare moves into ETF business with two new funds
Cryptocurrency trading platform Coinsquare is moving into the exchange-traded fund business as its investment management division launches two new technology funds. Coin Capital Investment Management Inc., a portfolio management subsidiary established in July, has become the 30th ETF provider in Canada with the launch of two new ETFs focused on global emerging technologies. With a management fee of 0.64 per cent, the Coincapital STOXX Blockchain Patents Innovation Index Fund (LDGR) and the Coincapital STOXX B.R.AI.N. Index Fund (THNK) began trading Thursday morning on the Toronto Stock Exchange. Claire O’Hara reports.
U.S. hedge fund Paulson & Co. launches group aimed at shaking up gold sector
New York hedge fund Paulson & Co. has launched an initiative alongside a number of other large institutional investors aimed at shaking up the gold industry after years of poor performance amid a floundering gold price. In a statement on Friday, the Shareholders Gold Council (SGC) said it will promote “best practices” in the gold sector and encourage “constructive engagement between the gold-mining industry and the investment community.” The SGC plans to publish research on relevant topics. Niall McGee reports.
Others (for subscribers)
Number Cruncher (for subscribers)
Ask Globe Investor
Question: I’m in my mid-50s and interested in selling some of my RRSP mutual funds. I’ve had them for at least 10 years. So, I think I have had them long enough to not get charged a penalty fee for selling them within a couple of years. Do they get taxed the same rate as if I had capital gains from selling stocks in a company?
Answer: Profits aren’t taxed at all within an RRSP. You only pay tax on any money you withdraw from the plan (or from a subsequent RRIF). Those withdrawals are taxed at your marginal rate at the time.
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What’s up in the days ahead
On Saturday, Rob Carrick takes a look at a popular retirement investment product that Manulife Financial will pay you to leave and why it’s doing this.
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Compiled by Gillian Livingston