the majority are still chasing yesterday's stories of Canadian Balanced funds,.
Canadian Dividend funds and Canadian Bond funds. The Mullane Team.
KEVIN’S COMMENTS SPRING 2013 I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone, and may not reflect the views of National Bank Financial Group. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by the Research Department of National Bank Financial.
Market Comment It is interesting to take a step back and look at how much has changed in terms of the stock markets. We are now in a bull market where the sentiment has definitely changed to the positive. In keeping with our management discipline most of our recent trades have been taking profits out of the stock market to rebalance portfolios. We are particularly proud of our holdings in the U.S. stock market; they have produced very well for our clients in a period where most investors have been moving out of equities (see chart below). We can tell you that most Canadians have very little exposure to the stock markets outside of Canada. Fund flows indicate that the majority are still chasing yesterday’s stories of Canadian Balanced funds, Canadian Dividend funds and Canadian Bond funds.
The Mullane Team Kevin Mullane, B.Comm Vice President Senior Investment Advisor Phone: (780) 412-6605 Toll-free: 1-800-253-9873 Email:
[email protected] Kyle Murphy, B.Sc, CFA, CIM, DMS Associate Investment Advisor Phone: (780) 412-6636 Email:
[email protected] Chris Kothlow, B.A, CIM, FMA Associate Investment Advisor Phone: (780) 412-6637 Email:
[email protected]
Watch for Kevin regularly on:
EEA Corner Total Focus Optometry
Sources: Franklin Templeton Investment Corp.; S&P 500: © 2012 Morningstar Research Inc.; Equity and Bond Fund Flows: Investment Company Institute. Flows are represented by monthly 12-month net new cash flows. Indexes are unmanaged and one cannot directly invest in an index.
Total Focus Optometry offers a full range of eye care services. Their office is located on Gateway Boulevard near 34th Avenue. You can call their office at (780) 988-3937 to book an eye exam with Dr. Craig McQueen or you can stop by to browse their huge selection of eyewear.
We remain cautious on the bond side of the equation. In typical style the herd has gathered here, and in an attempt to satisfy an insatiable desire for yield many investors are ignoring the risk of the bonds they are buying. My clients did not get caught up in the Tech meltdown in 2000-2003 or the Income Trust euphoria in 2005-2006, and we will not get caught up in the bond euphoria we find ourselves in at this time. Remember that the price of a typical bond will move in an opposite direction to changes in interest rates. Falling interest rates will drive bond prices higher, but rising interest rates will cause bond prices to drop. 30-year bond yields are at the lowest level in history (ie. the highest prices) dating back to 1872. Although slow economic growth provides some justification for low interest rates, it has been primarily the actions of major central bankers that had led to such unusually low rates. Many government bond yields are negative after factoring in inflation.
Since the 1930’s when interest rates have moved up in Canada they have increased an average of 6% and a minimum of 3%. We are at the point where the masses believe rates will never move up – but they will. In the words of economist Herbert Stein, “If something cannot go on forever, it will stop.” At current levels even small movements in interest rates can lead to capital losses. If 30-year bond yields rise back to 4.5%, the average level from 2003 to 2008, long bond prices will drop over 40%. As a result we remain cautious on the bond/cash side of our portfolios. The masses have abandoned cash equivalents, while we have liquidity ready to deploy into any stock market weakness. (Source: www.bankofcanada.ca)
Upcoming Events
Kevin’s Keys to Success in the Financial Markets Get a structure for your overall financial portfolio Adhering to an asset mix structure with discipline is what enables my clients to survive and thrive in the financial markets Allows you to control the risk in the portfolio Helps keep emotions from getting in the way Rebalance your portfolio on a regular basis Stick to the structure by taking profits when times are good, and adding to the growth side when markets are weak Consider taxes It is ultimately your aftertax profit that matters Take advantage of taxsheltered accounts and use them to hold the least taxefficient securities when possible Avoid the herd It is very difficult to make money buying what is popular Many of the best investment opportunities are found by thinking “outside the box”
Estate Seminar Saturday, May 25, 2013 from 9-11 a.m. at the Derrick Golf & Country Club - We are currently planning a presentation that will focus on several of the main topics related to estate planning including wills, trusts and joint ownership of assets. Additional details to come. - If you are interested in attending, please contact Chris Kothlow at (780) 412-6637 for additional details and to reserve seats. You are welcome to bring a guest if you know someone who would benefit from the presentation.
Food for Thought… “Every time everyone’s talking about something, that’s the time to sell.” George Lindemann
What’s New Thank you Thanks to Brad & Cathy R. and Ken M. for the referrals. We continue to have capacity to take on a few new clients, and we appreciate the trust you have in our team to help your family and friends with the management of their long-term investment portfolios.
Electronic Mailings National Bank Financial began offering the E-delivery service in January 2013. Trade confirmations and prospectuses are currently available, and then portfolio statements and tax slips will follow at a later date. You can sign up for Online Services on the NBF website, www.nbfwm.ca, and make the selection for Electronic Document delivery. Feel free to let us know if you would like additional details on the process.
Top Picks Stocks Capital Power (CPX) -
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I continue to like Capital Power at these levels. The company’s major growth initiatives for 2013 remain on track and our analyst has a 12-month price target of $24. The current dividend yield is attractive at just under 6%. Stock chart at right from Oct 2009 to Mar 2013 (Sources: ThomsonReuters, NBF Analyst Patrick Kenny)
Flow-through Shares Frontstreet 2013 Flow-through Shares - Flow-through shares provide an attractive tax write-off against your income that can be very useful for -
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individuals in the top tax brackets. I especially like buying this kind of investment when it is on sale. The stock prices of many companies in the junior mining and junior oil and gas sectors continue to be depressed which makes it a good time to invest. At the peak of their popularity flow-through companies quickly raised approximately 1.2 billion dollars without leaving their ivory towers in Toronto and Calgary. We now find them traveling across the country with hat in hand asking for dollars, another signal that it is a good time to invest. The current lack of funds in the space means the managers are able to invest the dollars in higher quality companies at better prices. I am buying the Frontsteet Flow-through offering this year. It is not too big in size and does invest in mining stocks. If you are interested in getting more information do not hesitate to call.
Exchange Traded Funds Vanguard FTSE Emerging Markets ETF (VWO-US) - These units trade in US dollars and invest in
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companies located in emerging markets like China, Brazil and Taiwan. These units give exposure to this area of the market at an extremely low management cost of 0.18%. Emerging markets provide excellent long-term growth potential, but tend to be more volatile than investment in developed markets. Stock chart at right from Mar 2008 to Mar 2013 (Source: www.vanguard.com)
East Coast Investment Grade Fund (ECF.UN) - I recently met again with manager Mike McBain and I continue to like their approach for investing in the -
corporate bond space. This fund has interest rate hedges in place to offset the risk of rising rates. The units are trading at $11.30 with a current yield of 5.3% as a tax-efficient Return of Capital distribution. (Source: www.arrow-capital.com)
Mutual Funds IA Clarington Global Opportunities Fund - I had mentioned this fund in our last newsletter, and I wanted to highlight it again now. The manager Brad Radin had a strong track record previously at Franklin Templeton, and he continues to post impressive numbers managing the Global Opportunities fund at IA Clarington (as of Feb. 28, 2013 he was up 28.8% in the last 6 months!). I especially like this opportunity because the skills of an active manager like Brad tend to be amplified when he has the flexibility of a small fund (currently only managing $150 million at IA Clarington). (Sources: www.iaclarington.com, www.franklintempleton.ca, Morningstar)
Kevin’s Personal Notes Sandi and I will see our two older daughters graduate this spring. We are very proud of both of them. Kelly already has an undergraduate Engineering degree and will now add a Masters of Environmental Health to her resume. Mandy will be a Registered Nurse. Shelby will finish Grade 11 at Louis St. Laurent this summer. Sincerely,
Kevin Mullane, B.Comm
Chris Kothlow, B.A, CIM, FMA
Kyle Murphy, B.Sc, CFA, FCSI, CIM, DMS
Vice President Senior Investment Advisor
Associate Investment Advisor
Associate Investment Advisor
If you would like a no-obligation review of your portfolio, please do not hesitate to give me a call directly at (780) 412-6605 or 1-800-253-9873.
EEA Corner – Kevin Mullane is a member of the Edmonton Executive Association. Please note that National Bank Financial makes no recommendation of the companies mentioned, and assumes no liability should their services be used. StockCharts Limited License - Permission to use the Information available from the StockCharts.com website is granted, provided that (1) the copyright notice below appears in all copies and that both the copyright notice and this permission notice appear, (2) use of Information available from this StockCharts.com website is for informational and non-commercial or personal use only, and (3) no Information available from this StockCharts.com website is modified in any way. ©StockCharts.com National Bank Financial may act as financial advisor, fiscal agent or underwriter for certain companies mentioned herein and may receive remuneration for its services. National Bank Financial and/or its officers, directors, representatives or associates may have a position in the securities mentioned herein and may make purchases and/or sales of these securities from time to time on the open market or otherwise. An investment in mutual funds may give rise to brokerage fees, follow-up commissions, management fees or other fees. Please read the prospectus prior to investing. Each return rate indicated is a historical annual total compounded return rate and includes changes in value units or shares and reinvestment of all dividends or distributions and do not take into account purchase or redemption commissions, investment fees or optional fees or tax on income payable by the security holder, which would reduce returns. Unit values of mutual funds are not guaranteed, their values and returns fluctuate and past performance is not necessarily indicative of future performance. The securities or sectors mentioned herein are not suitable for all types of investors. Please consult your investment advisor to verify whether the securities of sectors suit your investor’s profile as well as to obtain complete information, including the main risk factors, regarding those securities or sectors. Some of the securities mentioned in this letter may not be monitored by the analysts at National Bank Financial. The particulars contained herein were obtained from sources we believe to be reliable, but are not guaranteed by us and may be incomplete. This is not an offer to buy or sell securities. National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada. The National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX). National Bank is a member of the Canadian Investor Protection Fund.
