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With all that’s been happening in the markets, it has been a while since I responded to some of the questions that have been piling up. So let’s remedy that now.

AI ETFs

Q - Please advise ETFs and/or mutual funds that you would recommend that focus on artificial intelligence and on blockchain technology. Thanks very much! – Ed P.

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A – There is only one Canadian fund that focuses on blockchain. It was launched by the Harvest Funds earlier this year under the name Blockchain Technologies ETF (HBLK-T). So far it has been a loser, dropping from a high of $11.29 on its first day of trading (Feb. 7) to $9.05 as of the time of writing. I regard any blockchain funds as risky at this point – the technology is new and it is too soon to know which companies will prosper and which will end up on the scrap heap.

There are several U.S.-based artificial intelligence ETFs but the only Canadian one I know of is the Horizons Active A.I. Global Equity ETF (MIND-T), which was launched last fall. It has fared better than the blockchain entry, although it is down from its high of $26.49, reached in January.

The best-known AI fund is the Global X Robotics and AI ETF (BOTZ-Q), which was launched in September 2016. It’s coming off a very good year, gaining 39.35 per cent in the year to March 31. However, it has been soft recently, so you may want to watch it for a while before investing.

Needs 4-per-cent income

Q – I have been lucky over the years in investing and now have sufficient funds that an average 4-per-cent return would be enough to support my wife and I without touching the capital. As banks and utilities pay decent dividends, and have very low chances of going out of business, would investing in them for the long term be a good idea? This would allow me worry free long-term security, free of concern about the market’s ups and downs. – Charles D.

A – This is a good strategy as long as you are comfortable with the probable dips in the prices of interest-sensitive stocks as rates rise. There are many high-quality companies that offer good yields and are unlikely to go out of business no matter what the economy does. Your portfolio could include shares in companies like Scotiabank, CIBC, BCE, Telus, Fortis, Canadian Utilities, and TransCanada Corp. If you want to add some high-yield U.S. stocks to the mix, look at AT&T, Verizon, and Southern Company.

One suggestion: don’t invest everything at one time. With rates rising, yields are likely to improve in the coming months. Take positions gradually to take advantage of that.

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Canadian stocks in New York

Q - I have some U.S. dollars in a money market fund in an RRSP and a RRIF. Does it make good investing sense to purchase interlisted Canadian stocks, such as Pembina Pipeline or Canadian National, on the New York exchange? My reason for wanting to do this is because I don’t have any Canadian cash available in these accounts and I want to increase my holdings of Canadian blue chips. Will this strategy still give me currency gains if the Canadian dollar falls? Thanks very much for your past (and present) advice. - Charles W., Kamloops BC

A –All transactions in an RRSP or RRIF are valued in Canadian dollars, regardless of the currency of the investment or the market where purchased.

For greater certainty, I put this question to a broker. Here is his reply.

“Many people have a USD side of their accounts as well as a CAD side. To answer the question, let’s look at the shares of RBC (RY-T, RY-N). As of the time of writing, RY on the TSX was trading at $99.80 and is down 2.7 per cent year to date. RY bought on the NYSE was trading at US$76.96 and is down 5.7 per cent for the year. The extra 3-per-cent drop reflects the Canadian dollar decline versus the U.S. dollar.

“The value of the RY shares in the RRSP and RRIF are the same – as expressed in Canadian dollars. The dividend is the same in both situations.

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“The only advantage the reader has is avoidance of foreign exchange costs. The disadvantage is the increased complexity of understanding a stock’s performance relative to the currency of reference (i.e. Canadian dollars).”

RESPs

Q - My son is 17 years old. He will be going to university in September. His RESP fund of roughly $70,000 is invested in Signature High Income Class F. This fund is 60 per cent in bonds, income trusts, and cash & equivalents. It holds 40-per-cent equity. Is this the right fund at this time, given the fact that he will be withdrawing money staring this year for the next four years? If not, what are the better alternatives to preserve the capital and generate reasonable income? – Sam

A – This fund has a good long-term track record but for the past five years it has underperformed its peer group and is down about four per cent year-to-date (as of April 12). As of the end of February, about 49 per cent of its assets were exposed to the stock market.

In my view, this is too much equity exposure at a time when your son is only a few months away from starting university. The goal now should be to preserve the assets that are in the plan, especially at a time when markets are so volatile.

You should talk to your financial advisor for specific advice, but one possibility would be to cash in the mutual fund and invest the proceeds in a laddered GIC. This would preserve the capital (GICs are covered by deposit insurance) and would ensure money is available each year for your son. If you are looking at four years of college, purchase four GICs of $17,500 each that mature on Sept. 1 of 2018, 2019, 2020, and 2021. You won’t earn a lot of interest, but you’ll rest easy knowing the money is there when needed.

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Q - I made 2016 and 2017 RESP contribution for my twin grandchildren and intend to carry on for 2018. Can you suggest what type of funds/ stocks/ETFs I should be holding? – Yvonne C.

A – The younger the children are, the more risk you can take in the plan. The easiest route is to use ETFs that cover the broad markets. For example, you could invest in a TSX-linked ETF, an S&P-linked ETF, and one that covers the EAFE stocks. You could also add a bond ETF to provide portfolio balance. As the children approach college age, reduce equity exposure to preserve capital.

If you have a money question, please send it to me directly at gpape@rogers.com. I can’t promise to answer each one individually, but I do my best.

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Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.

Follow Gordon Pape on Twitter at twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney

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