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Inside the Market Gordon Pape’s mailbag: Portfolio tweaks for a correction, hyperinflation protection and short-term investment options

I’ve received a lot of questions from readers in recent weeks, on a variety of topics. Here are some of the things you’re asking about.

Plant-based “meats”

Q – I am a long-time reader and have benefited from your advice over the years. I was wondering if you have any thoughts on the relatively recent trend on the “plant-based meat substitute” industry? Any Canadian or U.S. based names that you would recommend? Or an ETF, if one exists? Thanks, and best regards. – Kamal G.

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A – The timing of your question was certainly bang-on. On May 2, meat-substitute producer Beyond Meat Inc. (BYND-Q) launched its initial public offering on Nasdaq at US$25 a share. At one point around 2 p.m., the shares had almost tripled in value at US$72.85. They finally finished the first day of trading at US$65.75, a gain of 163 per cent on the day, with more than 22 million shares changing hands - this for a firm that lost almost $30-million last year, and which has warned it may never make a profit!

The stock rose as high as US$85.45 before reality set in and the shares pulled back to the mid-$60s.

What this tells us is that investors think meat-substitutes made with plant products like peas and soy are the next big food craze. The problem is that there are not many investment opportunities yet. The only other major company exclusively devoted to plant-based eats is California-based Impossible Foods, which is privately owned, at least to this point. There are no ETFs specializing in this field that I’m aware of. The Vegan Climate ETF is supposed to start trading in New York this year, but it hasn’t launched yet.

However, some major meat producers are hedging their bets and getting into the plant area. In early April, Maple Leaf Foods (MFI-T) announced it will build a US$310-million plant-based protein food processing facility in Shelbyville, Ind. At 230,000 square feet, the company says this will be the largest facility of its kind in North America.

If you want to invest in the meat substitute business, Maple Leaf looks like a good compromise choice. It’s an established company and the shares pay a dividend. Beyond Meat may be hugely successful at some point but at this stage and price it is pure speculation.

Hyperinflation

Q - How does one go about protecting a 100-per-cent GIC Portfolio from hyperinflation? – Trevor B.

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A – There is no way to directly protect locked-in GICs from hyperinflation, of the type Venezuela is currently experiencing. But the chances of that happening in Canada are extremely remote. We have a sound financial system and a strong central bank, which if needed would take drastic action to avoid any such situation here.

Although GICs, bonds, and similar securities would lose value in a hyperinflation scenario, you could invest in a form of insurance by buying an offsetting amount of gold. Its price would rise if the value of paper currency drops.

Sold house, where to invest?

Q – We have sold our house and wish to put a sizeable sum into short-term investments in order to purchase a replacement within two years. We are looking at two-year GICs as well as potential high interest mutual funds/ETFs. Naturally, the big banks are not an option due to their low rates. But smaller banks like EQ Bank offer realistic rates. Thoughts? – Alan G.

A – Since the money is going to be used within a short time, you don’t want to take any chances with it. A low-risk bond ETF is a possibility – the iShares Core Canadian Short Term Bond Index ETF (XSB-T) gained 3.71 per cent over the year to April 30. But if interest rates start to climb again, it could potentially lose some ground. That happened in 2017. The loss was fractional, but it was still a loss.

A high-yield savings account is certainly worth considering but you should consider the degree and nature of deposit insurance coverage. Motive Financial’s Savvy Savings Account currently pays 2.8 per cent and is covered by the Canada Deposit Insurance Corporation (CDIC). But that only protects the first $100,000 of your money. You probably have more from the house sale, which means you should look at spreading it around, so you’re not exposed if one financial institution runs into trouble. EQ Bank doesn’t pay as much (2.3 per cent) but it too has CDIC coverage. Using those two companies, you could invest $200,000 with full deposit insurance protection at an average rate of 2.55 per cent.

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As for GICs, RateHub.ca shows the best two-year rate as being 2.85 per cent from Oaken Financial. Oaken is owned by Home Capital and their deposits are CDIC protected. However, Home Capital ran into some financial problems a few years ago that spooked investors so keep that in mind when making a decision.

You can check other options at www.ratehub.ca.

Future of markets

Q – In light of the U.S. Fed decision not to increase interest rates this year, and with the slowdown in the gradual shedding of mortgaged-backed securities and Treasury bonds it purchased during the financial crisis, would it not appear that the government and its agencies will do anything short of giving money away to keep the markets moving up. Here in Canada, the Liberals are certainly giving money away to the Millennials in the hope of getting re-elected. I have been holding too much money in my accounts thinking up until now that there would be a correction due to the quick recovery that has taken place since the beginning of January. I am 67 years old and must be diligent. Thank you in advance. – Bill H.

A – No one can predict how the market will move in the short term. At your age, I think prudence should outweigh greed in making your investment decisions. Government pump-priming may help markets, but it is not the only factor at play. For example, if the trade talks fall through with China, I would expect a significant correction. Structure your portfolio in a way that makes you comfortable and then don’t worry about it.

If you have a money question you’d like answered, send it to me at gpape@rogers.com and write Globe Question in the subject line. I can’t guarantee a personal response but I’ll select the most interesting questions to answer here from time to time.

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Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.

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