Flexibility might be an investors key to survival!

Check out the new blog posts at https://www.canadianmoneysaver.ca/blog

-Flexibility might be an investors key to surviving what lies ahead.
-Question of the Week by Richardson GMP
                                                      -Where can a stock investor look for relief?

BE SMART. BE NIMBLE. BE INFORMED.

New blog post on https://www.canadianmoneysaver.ca/blog

BE SMART. BE NIMBLE. BE INFORMED.

Don’t be reluctant to take advantage of the opportunities that lie outside our border!

Small Cap Power.com

Peter Hodson recently did an interview for

SmallCap Power, a global investment site.

 

Please go to https://www.canadianmoneysaver.ca/blog for our latest blog posts!

 

 

Time to Wade back into Equities?

Canadian MoneySaver

We at Canadian MoneySaver have been working diligently to bring you information on your financial well-being!
We have added one more tool to our tool-chest!

You can now go to www.canadianmoneysaver.ca and find our new blog there.  We will be adding 2 new blogs per week.  Although you cannot sign up to receive blogs via email (not yet - we are working on it), you can go there often to get important information that can help you manoeuvre your financial well-being.

Our latest blog:  Time to Wade back into Equities?  Click here to read it!

Have a wonderful day!  Enjoy the Sunshine!


Cheers,
Canadian MoneySaver

"Red Flags"

Peter Hodson

Our editor has posted a new blog post on the 5i Research website...

Watch Out for these "Red Flags"  

Please go to https://www.5iresearch.ca/blog/watch-out-for-these-red-flags to read the full post.

Question of the Week!

QUESTION OF THE WEEK

by RM Group of Richardson GMP

Considering where equity markets are currently trading, is it safe to say the concerns about Cyprus were overblown?

The simple answer is no. There was certainly a great deal of risk surrounding the bailout of Cyprus and that risk still exists. However, markets did not sell off dramatically as some expected, because the exposure of European financial institutions to Cyprus was not as high as Greece or Portugal. Therefore, hits to capital levels thus far have been limited, sovereign financing is still available and liquidity within the European financial system has not dried up. To give you a graphical illustration of the limited impact of Cyprus, we present a chart that we introduced a couple of weeks ago illustrating 10 year bond yields in the "troubled periphery” nations of the eurozone. As you can see over the past two weeks, yields may have moved up marginally in all five countries, but they certainly did not jump to the same extent they did when all ran into financial difficulty. The real damage hasn’t been done to liquidity, but instead to confidence in the European banking system and the expected safety of what is believed to be insured deposits. While we don’t expect the same approach of the Cyprus bailout to be applied to Greece, Ireland, Portugal and Spain as they are already well into their bailout process, we do hear rumours of concern in countries like Slovenia and Malta where going after depositors could be a course of action if either of these countries run into trouble. But if the Eurozone was trying to create the image of a strong and reliable banking system within the continent, their approach to solving the problem in Cyprus has failed miserably in promoting such an image. The initial bailout plan, which would have gone after all depositors, has done nothing but create distrust of European officials and of the banking system in general. Such mistrust leads to money leaving various countries or even the continent, and regaining this trust will take a very long time. From this perspective we can easily conclude that fears were not overblown whatsoever

^{Source: Richardson GMP Limited
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.} 

Globe and Mail article worth Reading!

How three contrarians found value in unloved stocks Add to ...

TERRY CAIN

Special to The Globe and Mail

They are two of the best-known companies in Canada. One is a 75-year-old institution with a leading position in the country’s transportation sector. The other is an international leader (and cultural phenomenon) in mobile communications. And last summer they were completely out of favour with the investment community.

Click Here to Read More!

Five More Things You Need to Know About Mutual Funds

Peter Hodson

An earlier column of mutual funds attracted a lot of commentary from my one-time colleagues in the business. They didn’t like someone, especially a former insider, saying bad things about their industry. But the problems exist and we promised we would detail some more of them, so here are five more to consider — industry wrath or not.The mutual fund business is a great industry — for the people that sell them. For investors, it’s not so good. Here are five problems with the industry:

1. Bigger is certainly not better
Beyond a certain asset level, there are very little marginal cost savings to be had from a bigger mutual fund compared to a smaller fund. However, the industry’s goal is to get assets in the door so there is a drive to favour big funds.
Certainly, funds that performed well in the past tend to become larger as investors seek performance and are pushed by the huge marketing efforts by fund companies.
But as we know from direct experience, it is much harder to get good investment outperformance from a large ($1-billion-plus) fund. You can’t buy everything you want to with a large fund, and the market impact on sales/purchases really eats into performance.
Ask any fund manager, “If you were paid on fund performance only, would you want a $200-million fund or a $2-billion fund?” and the answer will always be the smaller fund.
The industry’s drive towards bigger funds is just not the best thing for investors.

2. Trailer fees
It is quite amazing that the majority of mutual-fund investors don’t know that fund companies pay their advisors simply to keep clients holding their mutual funds. Sometimes this fee can amount to 1% annually.
The fee is supposed to be for service, but what if a client should really go to cash or switch to a lower-fee fund? Will the advisor look at things objectively if their income is reduced by such a change?
This is clearly a conflict, but don’t expect any changes to the compensation model anytime soon.

3. Large clients pay more
In the mutual fund world, it really doesn’t take more effort to manage a $900-million fund than it does to manage a $400-million fund. Yet a client with $90,000 in the fund will pay twice as much in gross management fees as a client with $45,000 in assets.
Admittedly, some advisors and fund companies have scalable fees, but the levels only typically kick in at super-wealthy levels, usually above $500,000 in assets, if not more.
The fact that there isn’t a discount on fees for larger clients might be unique in the business world: It simply doesn’t make any sense to charge your biggest clients more than your smaller clients.

4. Closet indexing
If you have ever taken a look at the Top 10 holdings of the biggest mutual funds in Canada, you will find almost the same stocks — a couple of banks, a couple of utilities, a couple of cellphone companies, and maybe Potash Corp. of Saskatchewan Inc. or Goldcorp Inc. thrown in as well.
Most large Canadian funds above $1-billion pretty much own the exact same things, so investors end up with index-like performance, but pay much more in fees than they would with an equivalent ETF product.
Most fund managers — rightly so — like their jobs, and straying too far from the index is a risky proposition for them. If they are wrong, they look pretty bad. But hugging the index and not straying too far from it only ensures: a) job security for the managers, and b) mediocre fund performance.

5. Overdiversification
If you look at your mutual fund statements, you will see it likely holds hundred of different companies. Once, I counted 500 different positions in a single mutual fund.
But numerous independent studies over the years have proven that the investment benefits of diversification are severely diminished once you get beyond just 20 companies. Not only is it impossible for a fund manager to fully keep track of 200 different companies, it also adds nothing to the fund¹s risk/return profile. Next time your manager mentions that he/she owns 100 stocks, ask them, “Why?”
Consider these facts — and the five covering the industry’s excessive fees and bonuses, short-term focus, unnecessary asset gathering, and needless deal buying and stock trading from our earlier column — the next time you are thinking about investing in mutual funds.
There are some good funds out there and, yes, they have some benefits. But we still have enough bad points to ensure another future column about the negative aspects of the industry.

Peter Hodson, CFA, is CEO of 5i Research Inc., an independent research network providing conflict-free advice to individual investors.

Question of the Week!

QUESTION OF THE WEEK

by RM Group of Richardson GMP


Global markets have done very well so far in 2013.  What have been the driving factors?  

Indeed, most major exchanges have moved higher in 2013, but there are many factors contributing to this strength. We’ve already discussed the influence of stable Eurozone sovereign debt yields in our Chart of the Week. Again, we stress the inability to fund government debt scares investors away in droves! In addition to the sovereign yields, we can also add 1) solid money flows into equities since January, 2) strong U.S. housing and employment data, 3) reasonable data out of China including stable industrial production and rising exports, and 4) continuing monetary policy support from most of the world’s central banks.

In addition, we would point out a factor that isn’t really being talked about much and that is the lack of news out of Washingoton D.C. Many of you may recall that markets became very nervous at the end of 2012 due to the possible impact of the "fiscal cliff” which was averted at that time; however, when it comes to budgetary matters in the U.S., no news apparently means good news for stock markets. We are not political analysts, but it has become very clear that the Republicans on Capitol Hill are divided and that the party is fractured. House Speaker John Boehner (Republican) is in a very difficult position as he has been unable to influence some of his members who are adamantly opposed to tax increases. Because he does not have unanimous support from his own House members, he has very little political capital to use in negotiating with the President at the moment. In fact, there has been some discussion that if a budgetary bill went to the floor that included tax increases then John Boehner could lose his job as speaker. This inability to forcefully negotiate has caused the Republicans to step back until they are in a better position to discuss budgetary terms that would be more favourable to the majority of the Republican Party. However, that could take a very long time.

Naturally I suspect you’re asking "can we keep up this market strength?” First, I’ll say that most investors would agree that the current rate of market appreciation is unsustainable. Second, any of the factors listed above that support the bulls can easily reverse course, with the exception of central bank support, and result in profit taking. So it is quite possible that markets could pull back in the near term, but for the time being the market is telling us that it likes what it sees in 2013.

Click Here to go to the Richardson GMP website.

Three Simple Ways to Hedge Against Inflation.

Ryan Modesto

With the vast amounts of liquidity flooding markets and record low interest rates leading to increased borrowing, many are expecting higher rates of inflation sometime in the future.  Understanding how one protects themselves, or even benefits, from potential changes in these rates can set an investor up for success if/when these expectations come to fruition:

Treasury Inflation-Protected Securities (TIPS): These are likely the simplest way to preserve wealth against inflation. These securities are issued by the U.S. treasury and can be purchased directly from the treasury or through an ETF. The initial amount of the security is adjusted every six months to match changes in the consumer price index. While the interest rates paid are low, there is potential for the cash flows from the rates to increase as they are calculated on the adjusted principal. The ‘cherry on the top’ with these securities is that the investor at least receives the initial principal, protecting from the risk of a deflationary environment. TIPS are likely worth discussing with an advisor for investor’s looking for an alternative to government bonds with a similar risk profile. While these are unlikely to result in significant gains, TIPS will at least preserve an investors buying power. More information can be found here: http://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips.htm

Commodities: Since inflation is the result of an increase in costs of goods, it makes sense that owning those goods would allow an investor to match inflation. Interestingly, the chart below that compares a broad based commodity ETF (DBC) and monthly inflation numbers (U.S. Inflation) may tell a different story. Between the volatility of commodities and the likelihood of government intervention creating inefficiencies, investors who are holding commodities as a hedge against inflation need to understand the inherent risk associated with this type of investment. 

Equities: Inflated prices should typically lead to inflated company values due to the goods and services that they are selling having higher values as well. While holding equities in general is likely a good strategy to protect against inflation, not all equities are created equal. Look for companies that operate as oligopolies and are able to easily pass costs on to the end user such as the telecommunications companies in Canada. Some other areas worth examining are waste management companies as they often have an ability to pass inflation on to the customer over the long term and ‘vices’ such as tobacco since, for better or worse, these companies can essentially charge whatever price they wish.  

Inflation is an often overlooked factor in investors’ portfolios and can erode returns over the long term. While the effects of inflation can occur without an investor realizing it outright, the effects will appear very real when a dollar today only buys fifty cents worth of goods 10 years from now. Having exposure to assets that increase with inflation should hopefully provide protection to a portfolio from an unexpected rise in the rate and at least mitigate the longer term, wealth eroding effects of inflation.

Ryan Modesto

Canadian MoneySaver Contributing Editor 

Raising the Bar for Financial Advisors

Ken Kivenko

Pollock vs UrquhartGreg Pollock is President and CEO of lobbyist Advocis

A Debate: Raising the Bar for Financial Advisors 

 http://www.bnn.ca/Schedule.aspx

Would regulating the use of the title “financial advisor” and requiring membership in a recognized professional association assure investors will get qualified and ethical advice from their advisors? BNN kicks off the conversation with Greg Pollock, President and CEO of Advocis, and Diane Urquhart, independent financial analyst and former senior securities industry executive.

Ken Kivenko

CMS Contributing Editor

Save the Date!!!

Peter Hodson

Save the Date!!!

CMS editor Peter Hodson will be on Market Call Tonight on April 4th. 

Phone in with your questions. 

1-855-326-6266

Research Tools Continued....

Ryan Modesto

Research Tools for Investors Continued.

A while back we posted a blog discussing some free and easy to use research tools that can help with the investment decision making process and wanted to share a few more that we feel are a good supplement to an investors research:

StockChase:

StockChase compiles analyst opinions on a wide range of stocks, most of which are taken from analysts appearing on the Business News Network (BNN). The site allows you to search either by company or analyst and has opinions dating quite far back.

• Pros: 
• Simple and easy to use
• Quick way to get an idea of general sentiment for a particular stock
• Easy way to track an analyst of interest
• Cons:
• Focus is on Canadian analysts only
• Paraphrasing of opinions can lead to errors/misinterpretation

 http://www.stockchase.com/

Seeking Alpha:

Seeking Alpha offers news and opinions/commentary on just about everything related to equities and ETFs. The users range from the neighbours’ kid next door to investment professionals and everything in-between so caution is warranted. Similar to StockChase, it can be particularly useful as a ‘final check’ before you make a buy/sell decision to ensure you didn’t overlook something substantial. Readers should assume that everyone writing on the site has something to gain from you taking a position in the investments mentioned.

• Pros:
•  Can provide inspiration for investment ideas
•  Can open eyes to pros/cons of stocks you may not have thought about Reading material for all stages of investors
•  Cons:
• Approach articles assuming extreme conflicts of interest exist
• Investments talked about are often ‘hot stocks’ and can be emotionally charged 
• Conflicts of interest (we felt we should say it one more time to drive the point home)

 http://seekingalpha.com/

TMX:

In addition to the typical stock metrics (high/low, beta, P/E, etc.), TMX also offers option quotes which is a great feature for those interested. TMX has an OK stock screen tool and various other resources that are worth viewing.

•  Pros:
•  Price quotes, charts, option quotes and news feed all in one place
• Significant amount of reading material offered
• Offers a mobile app
• Cons:
• Many aspects seem to be more for people who know what they are looking for, opposed to those who are just looking
• Similar to above, the site could be more user-friendly

 http://www.tmx.com/en/index.html

StockCharts:

SotckCharts offers a handy charting service. While it is more designed for technical analysis, it is a tool that any type of investor can find value in. Registration is not required for the basic service which is a plus.

• Pros:
• Easy to use charting tool
•  Offers various technical indicators
• Cons:
• Likely more suited to ‘traders’ than long term investors

 http://stockcharts.com/

by Ryan Modesto