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On June 22, 2016, one British pound was worth approximately $1.90 CDN. The next day, on June 23, 2016, British citizens voted to leave the European Union. The unexpected result of the Brexit vote has lead to a great deal of uncertainty. As we have underscored before, markets don’t like uncertainty. As a result, since the vote took place, the British pound has dropped to its lowest level in over 30 years; at the time of writing of this blog post, the pound closed at approximately $1.60 CDN.

How currency fluctuations can be positive

At Rempel Capital, we’re not currency traders, but we do take advantage of currency fluctuations when it’s beneficial to your portfolio. For example, a few years ago, when the Canadian dollar was at par with the US dollar, we purchased some US positions for our models. When the exchange between the two currencies returned to more traditional levels, it translated into a 30-35% gain on our original US investment.

In the case of the British pound, the exchange rate is now more in favour of the Canadian dollar. So yes, theoretically, if you purchased a British investment now, and months later the pound returned to its pre-Brexit value of $1.90 CDN, the gain would be approximately 18%.

How we manage the purchase

Once we’ve purchased an investment that’s in another currency (e.g. a US or British stock), we monitor it with the Canadian currency in mind. If the value of the other currency increases in relation to the Canadian dollar, we must evaluate whether it’s time to sell and take our gain. If the value of the other currency decreases further in relation to the Canadian dollar, we must evaluate whether to add to our initial investment.

The bottom line: any time the Canadian dollar is strong or at par with another country’s currency, that’s the time to consider investing in a company headquartered in that country.

 

This blog post was prepared solely by Herb and Andrew Rempel, who are registered representatives of HollisWealth® (a division of Scotia Capital Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada). The views and opinions, including any recommendations, expressed in this blog post are those of Andrew Rempel alone and not those of HollisWealth.

® Registered trademark of The Bank of Nova Scotia, used under licence.

 

 

 

In the 1980s, then British Prime Minister Margaret Thatcher liked to use the term “there is no alternative” when communicating her government’s economic policy. She used the phrase so frequently that people shortened it to an acronym, and thus “TINA” was born.

Today, investment prognosticators and the financial press are using TINA to describe the current investment climate. Gone are the days when investors could rely on bonds to produce stable returns that would exceed the rate of inflation. In the opinion of some, at present “there is no alternative” to equities if one hopes to achieve investment returns greater than 3%.

Are we really in a TINA market?

No doubt you’re asking yourself: is this line of thinking accurate? Are we really in a TINA market? There is some compelling evidence to support this belief:

• Bond yields are at their lowest rate in history
• Roughly two-thirds of government bonds are yielding less than 1%, with over 35% trading at negative yields to maturity Source: PCR Investment Call Featuring Myles Zyblock and Chief Economist Jean-François Perrault (Tuesday May 17, 2016)
• Invest in a 10-year Canadian bond, and after 10 years you will achieve a return of just 1% Source: PCR Investment Call Featuring Myles Zyblock and Chief Economist Jean-François Perrault (Tuesday May 17, 2016)

How long will this TINA market last?

No one knows for sure how long this TINA market will be the norm. Global growth has slowed, and has been forecasted to slowdown even more. Interest rates remain low at banks around the globe. As long as interest rates are low, bond rates will remain low too. Combine these factors with the stats mentioned above and it’s understandable why the sentiment among many market followers is that all investors can expect from bonds for the foreseeable future is low growth.

 

This blog post was prepared solely by Andrew Rempel who is a registered representative of HollisWealth® (a division of Scotia Capital Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada). The views and opinions, including any recommendations, expressed in this blog post are those of Andrew Rempel alone and not those of HollisWealth.

® Registered trademark of The Bank of Nova Scotia, used under licence.

 

 

 

Three of the most common investment vehicles are mutual funds, ETFs and individual securities. However, when it comes to managing your portfolio and growing your capital, I steer clear of mutual funds and instead invest in ETFs and individual securities. Here are the reasons why.

1. Mutual funds are expensive

There are several fees associated with holding a mutual fund in your portfolio. First, there is the annual Management Fee, which is the fee charged by the mutual fund company for managing the fund. In addition, there is the annual Management Expense Ratio (MER), which incorporates the Management Fee plus additional costs associated with managing the fund.  The MER on a Canadian Equity mutual fund is typically between 2.25% and 3%. For an International Equity mutual fund, it can be as high as 4%. The MER can be lower when held in a Fee-based account. Compare these numbers to the average administration fee of a Canadian Equity ETF, which is usually 0.25%-0.75%, or an International Equity ETF, which ranges from 0.25%-0.75% as well.

MERs aren’t the only fees mutual funds charge. In addition, mutual funds can be front-end loaded or back-end loaded.

A front-end load is a sales charge paid by you, at the time of purchase, to your mutual fund salesperson. It’s usually between 1% and 2%.

A back-end load is the fee charged to you when you redeem, or sell back, your units to the fund. Redeem your units within the first two years, and the fee will be between 5% or 6%. It drops to 0% to 2% only after 5 to 6 years. Basically, when you buy this kind of mutual fund, you’re locked into holding it unless you want to pay a fee. To drop that mutual fund from your portfolio and avoid having to pay a fee, your only option is to switch your capital to another mutual fund the company offers—however, it may be one that does not meet your criteria.

With ETFs and individual securities, there are no front-end or back-end loaded fees.

Oh, and there’s one more cost associated with a mutual fund: every time the fund’s portfolio manager makes a trade, the cost of the trade reduces your overall return. As your portfolio manager, I don’t do this. The buying and selling of ETFs or individual stocks is all included as part of my flat, monthly fee.

2. You can’t speak with a mutual fund portfolio manager

If you hold a mutual fund and would like to speak to the portfolio manager of that fund, typically you can’t. Generally speaking, they’re not available to the investing public. In contrast, I am a Portfolio Manager who is always available to speak with my clients and answer any questions you may have.

3. Mutual funds can be limiting

In most cases, a mutual fund has a mandate which influences what the fund’s portfolio managers can and cannot invest in. For example, a mutual fund’s mandate may be that it can only invest in the TSX 60. Such a mandate can really limit the scope of investment opportunities available to the portfolio manager. As an independent portfolio manager, I do not operate under such restrictions. Instead, I am free to evaluate any and all investment opportunities, and to make investment decisions accordingly.

4. Mutual funds trade differently

Mutual funds only trade once per day, after markets close at 4:00 PM. The price for a unit of each mutual fund is then readjusted and posted at around 6:00 PM. So, if you bought or sold your mutual fund units in the morning, you wouldn’t be able to learn at what price your trade settled at until 6:00 PM. As a result, theoretically, by the time your trade is executed, the price could be lower or higher than what it was in the morning. When you buy or sell an ETF or individual securities, you avoid this issue. The trade is completed while markets are open, and the price at which the trade was made is known immediately.

5. Mutual fund fees aren’t as transparent

With so many different percentages making up the fees that are part and parcel of owning a mutual fund, it’s not surprising that even regulators have been putting increasing pressure on operators of mutual funds to be more transparent. On July 15, 2016, they will have to be. That’s the day mutual fund companies have been mandated by the Ontario Securities Commission to start providing an annual report that breaks down the various fees and other compensation charges, in dollars.

Transparent fee reporting is something I have provided for my clients since I moved to fee based accounts. Every month on your statement you can see what my monthly fee is and, at the end of the year, HollisWealth provides a final summary of those fees.

As you can see, the reasons for avoiding mutual funds as an investment vehicle are quite compelling. At the end of the day, choosing between mutual funds or ETFs and individual securities is all about being prudent with your investment dollars and transparency.

This blog post was prepared solely by Herb Rempel who is a registered representative of HollisWealth® (a division of Scotia Capital Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada). The views and opinions, including any recommendations, expressed in this blog post are those of Herb Rempel alone and not those of HollisWealth.

® Registered trademark of The Bank of Nova Scotia, used under licence.

 

As your portfolio manager, it’s my job not only to invest your capital, but to protect it as well. One of the ways I preserve your capital is by selling positions and going to cash when market volatility strikes.

When do I start transitioning to cash?

For example, I started selling stocks and going to cash in the spring of 2015. This action was triggered by the weakening price of oil. By August/September of that year, the markets were experiencing even more volatility and the general sentiment was negative. As a result, I sold more equity positions and increased the cash held in our portfolios. In December, the markets enjoyed a bit of a rebound, but soon after the New Year, China’s Shanghai Exchange was deemed badly overvalued: a dramatic correction then ensued. This situation sent markets around the world into a further tailspin. Once again, to preserve capital, I sold off many of our equity positions and went to cash.

How much cash will I hold in an account?

During the last year or so, when market volatility was at its peak, my portfolio models were holding between 50% to 100% cash.

When will I start lightening up on cash positions?

Before I buy back into the markets, I wait for them to show me that they are moving in a steady, positive direction. If I believe a move to the upside is only short-term and not sustainable, I will remain on the sidelines.

What are the signs that it’s time to buy back into the markets?

When certainty is restored to markets, volatility lessens and markets stabilize. When this happens, it’s time to move from a majority-cash-position and begin buying equities again. So what factors can help restore certainty for markets? There are many:

1. Interest Rates: It doesn’t matter a great deal if interest rates are going up or down. What matters most is that the US Federal Reserve and the Bank of Canada provide some confirmation. Once markets know what they face, they tend to stabilize.
2. Price of Oil: Like interest rates, the markets become less volatile when they have a handle on a realistic price for oil. So, if the current price were to stabilize at $35–even though it would be dramatically lower than the $100+ price oil was just a few short years ago–that would be the “new normal,” and subsequently market volatility would be reduced.
3. China: Over the last several months, markets were upset by various situations involving China. First, back in August, the Chinese central bank devalued its currency, the Yuan. Second, in January, questions arose when the Chinese announced their gross domestic product (GDP) had grown by 6.8% when international market watchers felt 2.4% was a more realistic number. The Chinese have since revised the numbers, bringing them more in line with market expectations. The third and final issue that continues to contribute to market uncertainty is the Chinese stock market. Many feel the overall market is inflated.* Until investors are confident that it isn’t, volatility will endure to some degree. (*Source: http://www.theguardian.com/world/2015/jul/16/why-chinas-stock-market-bubble-was-always-bound-burst)
4. US Election: Though not as great an influence on markets as the preceding three factors, markets do tend to be affected when there is indecision about whether the US is going to be led by a Republican or Democratic government. A final election outcome will definitely provide some market stabilization.

Market volatility will always be a part of investing. No one can control it, but going to cash is one step I can take to control the impact it can have on the value of your portfolio.

This blog post was prepared solely by Herb Rempel who is a registered representative of HollisWealth® (a division of Scotia Capital Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada). The views and opinions, including any recommendations, expressed in this blog post are those of Herb Rempel alone and not those of HollisWealth.

® Registered trademark of The Bank of Nova Scotia, used under licence.

 

With the arrival of a new year, a feeling of optimism naturally permeates the air. However, for people who had money invested in the markets it was a challenge in January to stay optimistic. The entire month was an unpredictable ride; major swings to the positive and negative sides took place on a weekly basis. What was the cause of all this stock market volatility? Well, actually, more than one disruptor was behind the turmoil.

Market volatility reason #1: The devaluation of the stock market in China

For years, financial analysts in Europe and North America have speculated that stock prices in China were inflated. Over the last few months, the market decided they were right. Couple the sentiment of the analysts with the devaluation of the Chinese currency, and the result was a 25% drop in the value of the Shanghai Exchange.

Market volatility reason #2: Distrust of the Chinese GDP number

The legitimacy of the numbers associated with China’s economic growth has long been questioned. That distrust was fueled even further in January when the Chinese government reported that the country’s gross domestic product (GDP) grew by 6.8%. Meanwhile, seasoned market watchers were suggesting Chinese growth could be as low as 2.4%. Such a large discrepancy between the two caused many to question the accuracy of the Chinese number; as a result, stock markets worldwide went into a tailspin.

Market volatility reason #3: Automated computer trading

The selling and buying of stocks is no longer transacted by frenzied traders in loud jackets on the stock market floor. Computers now tend to a large proportion of these tasks. The computers are programmed with algorithms that trigger buy and sell orders when certain price levels are reached. When markets experience wild swings, the algorithms are triggered more frequently, the number of trades escalates and the perception of even greater stock market volatility is created.

Market volatility reason #4: Price of oil

The Organization of Petroleum Exporting Countries (OPEC) reiterated that its members are not going to curb their production of oil despite the current glut on the market, but that hasn’t stopped the price of oil from bouncing up and down. The market is so desperate for an oil price recovery that any news will spark a sudden uptick. Case in point: in January, there was a rumour that the Saudis and Russians were going to reduce production. As well, there was a report that claimed North America was in for a colder winter than last year. Both of these conjectures caused the oil price and the markets to rise, only to decline soon after.

Market volatility reason #5: Interest rates

In the US, the Federal Reserve decided not to raise interest rates in January, which was the opposite move from what market watchers had predicted it would do. In Canada the expectation was that the Bank of Canada would lower interest rates, which it didn’t do. Both of these surprise announcements caught market watchers off guard and, as a result, caused stock market volatility.

All five of these reasons have one thing in common: they represent uncertainty. The one thing that markets dislike the most is uncertainty. The bottom line: the higher the level of uncertainty, the higher the level of market volatility.

Here’s to a more certain 2016 going forward.

 

 

During the second week of August, the Chinese central bank devalued its currency, the yuan. This decision ignited market volatility around the world, caused stalwart Chinese stocks — such as China Mobile, Baidu and Alibaba — to drop in value by as much as 20%, and made a negative impact on investor portfolios.

Why Did The Chinese Government Devalue The Yuan?

The official reason given by The People’s Bank of China is that it devalued the yuan by almost 2% relative to the U.S. dollar in response to weaker-than-expected economic growth in China. Some argue the action was designed to stimulate exports. In addition, I believe the Chinese devalued their currency because they would like the yuan to become a reserve currency.

 What Is A Reserve Currency?

A reserve currency is a foreign currency that is held by central banks and other major financial institutions as a way to pay off international debt obligations, or to influence domestic exchange rates. For some time, China has been pushing for the yuan to join the U.S. dollar, euro, yen and pound as a designated reserve currency. The Chinese government would like this to happen for several reasons: it will stabilize China’s currency, relieve pressure on its banks to keep a higher level of reserves of foreign currency on hand, and, of course, reserve status for the yuan would have high symbolic value as well.

So What Does A Reserve Currency Have To Do With The Devalued Chinese Yuan?

For quite some time, the international financial community has felt that the Chinese government has manipulated and overvalued the yuan in relation to the U.S. dollar. Many market watchers feel that the recent devaluation of the yuan by almost 2% has brought it more in line with what foreign governments and the International Monetary Fund (IMF) believe is its true market value. This action, in my opinion, is a strategic move on China’s part to tell the world it runs an open, transparent, credible financial marketplace—criteria that are key in the eyes of the IMF when determining whether a currency becomes a reserve currency.

When Will Market Volatility Subside?

Financial markets don’t like uncertainty. There are always a number of factors in play which can cause volatility. When China devalued the yuan, it caused a great deal of uncertainty and, as they tend to do, markets around the world overreacted and panic selling set in. Markets should begin to settle and the volatility should be less dramatic once investors realize that this change in the valuation of the yuan is a good thing because it aligns China’s currency with where the rest of the world thinks it should be.

 

 

 

 

Several times over the last few weeks, Greece or its creditors have made decisions/announcements that have caused volatility in the markets.  As the Greece financial crisis wears on, it will cause more uncertainty with investors selling positions based on emotion, not logic, and having knee-jerk reactions, rather than exercising patience.  But remember, typically, the markets overreact and then recover. For example, on one recent trading day, the US markets had basically shrugged off the latest drama surrounding the Greece financial crisis by market close.

What Happens If Greece Defaults?

If Greece eventually defaults, goes bankrupt and leaves the Eurozone, Continue reading “Does The Greece Financial Crisis Affect Your Investments?”

The idea persists that your portfolio should become more conservative as you age when in fact that’s not necessarily true. The truth is your age alone isn’t going to dictate whether you should become conservative with your portfolio or take risks with your portfolio. Rather, there are a number of factors that determine the makeup of your portfolio, and these factors are different for everyone. They include your personality, upbringing, social standing, your disposition to risk and your desired lifestyle, in addition to your age.

First let’s discuss what I would consider to be a conservative and aggressive portfolio.

What Is A Conservative Portfolio?

Defining what makes a portfolio conservative is a somewhat subjective exercise, but here are the parameters that I use. A conservative portfolio is one that doesn’t experience a lot of value fluctuation. In other words, it stays pretty much the same month to month but at the end of the year it generally outperforms GICs by 2%-3%.

What Is An Aggressive Portfolio?

Again, the answer to what makes a portfolio aggressive in design is a subjective one, but here are my thoughts. An aggressive portfolio is one that experiences more pronounced fluctuations month to month with the potential to increase or decrease dramatically. As for returns, you can generally expect to outperform the S&P/TSX or S&P500 indices by 2%-3% per year.

When Should You Take Risks With Your Portfolio And When Should You Be Conservative?

There are a few different ways to look at the question of when to take risks and when to be conservative with your portfolio. For example, it’s important to think about your goals. You’ll want to consider how much of your portfolio is meant for you and how much is meant for your heirs. I recommend asking yourself what you’ll need if you live to be 100. After determining that number, everything else in your portfolio can be left for your heirs. And since you won’t have an immediate need for that money, less conservative investing can lead to a higher return for your estate.

Another aspect that will affect whether to take risks with your portfolio or opt for more conservative investments is your personal situation. Let’s take a look at a hypothetical example: A widow with $150,000 in her portfolio at age 75, who is generally frugal, is likely going to be conservative. That makes sense for her. With her small portfolio, she can’t afford to lose at any time. Conversely, a couple in their eighties with a $5 million portfolio who don’t live extravagantly, can afford to take more risks with a portion of their investments to try to  increase the value of their estate.

How To Gauge Your Tolerance For Risk.

It’s one thing to talk about risk; it’s another thing to actually take risk on—especially when it comes to investing. That’s why it’s important to determine what your comfort level truly is before any investment decisions are made. To accomplish this task I follow a three-step process.  First, I ask clients to complete an investor-profile questionnaire. Next, I review their investment statements to get a sense of the types of investments they are currently holding. The third thing I do is have a conversation with them; talking about everything from investments and their financial goals to how they approach life. By getting a sense of the big picture, I can better analyze a client’s risk tolerance.

 

You may have heard the saying ‘sell in May and go away’ before. This is a popular adage that gets thrown around in the investment media and by self-investors. It’s based on the idea that historically during the six-month period of May to October stock markets underperform compared to the six month period of November to April. In the past, this may have taken place a few years in a row and because it did, someone decided it was an annual trend that investors could count on repeating every year thereafter. Don’t believe everything you hear!

Here are some insights from a portfolio manager that will help bust the “sell in May and go away” myth.

The pros and cons of the ‘sell in May and go away’ strategy.

Con:

• The ‘sell in May and go away’ theory is that it’s not always true. In fact, if you were to look at the performance of the TSX and the S&P 500 over the last seven years, only once did the markets go down (in 2011) between May and October. In other words, if you had followed the ‘sell in May and go away’ strategy you would have been out of the market and lost money six out of seven years.

Continue reading ““Sell in May and Go Away”. Fact Or Fiction?”

During the first few months of 2015, the big story was the dramatic drop in the price of oil; from $110 a barrel to the low $46 range. Why did this happen? Quite simply there was an oversupply of oil on the market and a lower global demand. This was not an unusual occurrence. Oversupply and lower demand are a natural part of an economic cycle for commodities such as oil.

Here are some insights from a Portfolio Manager on what caused the price of oil to decrease, if it will go back up and whether or not it will impact the economy and stock market. 

Factors that caused the price of oil to decrease

There were many reasons that contributed to the oil price cascading. Some of the key ones were:

1. The softening of the Chinese economy, which had been going at a breakneck pace for a number of years.
2. The greater prevalence of fuel-efficient vehicles in North America.

Normally when demand for oil slows down, production is reduced. This has not been the case. Despite the reduced demand, the Organization of Petroleum Exporting Countries (OPEC) has continued producing oil at the same level that it was when oil was trading at $110 a barrel. By not curtailing oil production, OPEC has maintained the oversupply in the marketplace, and as a result the price per barrel has remained low.

Will the price of oil go back up?

The price of oil has already gone back up somewhat. On March 18, 2015 it reached its low for the year – $46.18. Most in the financial community felt that oil at $110 a barrel was unsustainable long term, but no one anticipated that the price correction would be so dramatic. As usual, the markets overreacted and helped drive the price lower than it should have been. Since that time, however, the price of oil has recovered to a degree, trading in the $55+ range just a month later. Looking forward, we anticipate that the price for oil could easily settle somewhere in the $60-$70 range by the end of the year.

How does a lower oil price affect the economy and the stock market?

1. Here in Canada our economy is very dependent on the oil industry. As a result, a low oil price could trigger a recession in Canada and cause the share prices of oil-related companies, ETFs and mutual funds to drop in value.
2. In the United States it’s a different story. A lower oil price could actually stimulate the US economy. Oil is used to produce fuel; cheaper oil means cheaper fuel. If American consumers are able to pay less at the pumps, they will have more disposable income in their pockets.
3. For companies, cheaper fuel means it will cost them less to ship their goods, allowing them to realize increased profits and a higher share price for their investors.

At this point, the drop in the price of oil has had minimal impact on the TSX or the Dow. If the price of oil continues to recover towards a more reasonable range of $60-$70, this should remain the case.