Category Archives: news

Most markets around the world are hitting new highs ….

Market Update – December 2016

The American Central Bank finally raised interest rates last week by ¼ of 1%.  Here in Canada the Bank of Canada have not raised interest rates.  However, the bond market is reflective of rising interest rates in the short end of the yield curve where five year Canada bonds have moved from 0.60% to 1.22% within two months.  This is why you may have noticed the Canadian banks moving to adjust mortgage rates slightly higher.

The U.S. election created uncertainty about market direction initially with the Dow futures declining 1,000 points the night of the election win for the Republicans.  However, that quickly reversed before markets opened the next day and we have had quite a rally since.  Canadian auto parts stocks have moved higher after being weak following Mr. Trump’s threat to rip up Nafta and the Biopharma group in the U.S. remains weak after Democrats had campaigned on introducing drug price controls.  I believe this group represents the best current value in the U.S.

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In November, you may have noticed a change we made to our reporting statements.  Hopefully, you will find this new statement easier to follow.

This year, your December statement (and every year end statement going forward), will have four new pieces of information.  It will include, a reminder of what you paid National Bank Financial for wealth management expressed in both dollars and as a percentage of your portfolio for the year, your performance expressed as both time weighted portfolio performance and money weighted portfolio performance.  You are used to seeing time weighted performance from every portfolio review we have had with you – which is really a smoothed average.  Money weighted is a bit more jagged suitable for portfolios that fluctuate in size with significant money inflows/outflows.

Recently we completed a review of tax loss selling for client portfolios and are nearly finished a campaign of discussion with all of you about the importance of having an Enduring Power of Attorney.  If you think about it, an Executor might be important to settle your eventual estate, but you are not directly impacted by what happens once you have passed away.  However,  not having a Power of Attorney could very much impact you if you were ever incapacitated and not able to act on your own behalf.  Not sure about who could act for you?  You can also utilize Natcan our sister trust company.  If you already have established a Power of Attorney, please don’t make the mistake of tucking it away in a file cabinet where it could prove effectivley useless.  Make sure your Power of Attorney has an original or notarized copy and let your bank as well as us know about it by letting us see an original or notarized copy which we will keep on file – just in case.

In just over one week, you will be eligible to contribute to a Tax-Free Savings Account (TFSA).  In January, you will be eligible to contribute $5,500 per individual for 2017 and a combined total of $52,000 in contributions if you have never contributed to a TFSA in the past.  Remember you can contribute stock as well as cash – yet another reason to have your TFSA with us at NBF.

We will be closing at 1pm on Friday December 23^rd and will be open December 28^th – 30^th.

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.

Best wishes to you and your family this Holiday Season!

 

National Bank Financial

Rob Hunter
Senior Investment Advisor
Vice President

 

*Sources: Thomson Reuters, NBF Week at a Glance

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).

This information was prepared by Rob Hunter, an Investment Advisor with National Bank Financial and Life Underwriter with National Bank Insurance.  The particulars contained herein were obtained from sources that we believe reliable but are not guaranteed by us and may be incomplete.

The opinions expressed herein do not necessarily reflect those of National Bank Financial.

The investment advice given only applies to residents of the provinces of British Columbia, Alberta, Manitoba and Ontario.

National Bank Financial is a member of the Canadian Investor Protection Fund.

Post-election Market Update

• Market Summary
  • Canada down / USA up
  • July – 2016 Canada up / USA (up and down)
• Fixed income versus Dividends
• Enhancing income by selling calls

After cyclical downturn in commodities, Canada’s market bottomed early in the New Year and has been rebounding since January.
West Texas Intermediate $47.57 (low $27.67)
Natural Gas $2.70 (low $1.60)
Canadian dollar / U.S. – spot $1.30 (low $1.47)

While economic data out of the U.S. is encouraging, the market doesn’t like uncertainty and that is what the U.S. Presidential election has been dishing up. While the S&P hit a ‘new high’ this week, it is marginal to a market that has been moving sideways for one year.
*All prices at time of writing and subject to change without notice.

Fixed Income versus Dividends…
A common frustration for investors wanting income is almost zero interest rates.

Five year Canada bonds currently 0.52%!! Government bonds offer a 100% guarantee with a fixed maturity date. Today, they often offer a negative rate of return after tax and inflation.

Dividends paid by Canadian corporations are not guaranteed and nor is capital invested. That said, investors can partially offset some of that risk by diversifying into multiple stocks paying dividends.
The current yield on the TSX 60 (holding of top 60 TSX stocks) currently pays a dividend of 2.88% but several banks and pipelines pay 4%. While interest from most fixed income is taxed at the highest rate, dividends are most often taxed at the lowest!

Here is what 2.88% and 4% dividend income approximately looks like as a pre-tax interest equivalent (PTIE) after applying the dividend tax credit. It will vary slightly with different tax rates.

Dividend 2.88% 4.0%
*PTIE 4.03% 5.6%

Enhancing income by selling calls.

Selling a call creates an obligation to sell a stock for a fixed price for a fixed period of time – if called upon to do so. I generally like selling calls at a price higher than what I paid for the stock. That obligation however, eliminates upside beyond that higher price. In return the seller of the call, receives money which is tax friendly as it is only half taxable as a capital gain.

So effectively, selling calls enhances income, reduces risk and creates a market driven exit strategy out of stock.

In Canada, only 10% of advisors are licensed to deal in these options and only 5% practice. I have been adding this value for clients throughout my career and consider it a core to my value proposition as an advisor.

Can it be relevant? Yes by virtue of the fact that selling calls creates additional income in a portfolio that would not otherwise be there. To discuss the pros and cons or selling calls further feel free to contact me at your convenience.

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.
Sources: Thomson Reuters, Stockcharts.com, BNN (How high income earners ease their tax burden – March 2016)

Best,
National Bank Financial
Rob Hunter
Vice-President
Senior Investment Advisor

 

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). This information was prepared by Rob Hunter, an Investment Advisor with National Bank Financial and Life Underwriter with National Bank Insurance. The particulars contained herein were obtained from sources that we believe reliable but are not guaranteed by us and may be incomplete. The opinions expressed are based on our analysis and interpretation of these particulars and are not to be construed as solicitation or offer to buy or sell the securities mentioned herein. National Bank Financial may act as financial advisor, fiscal agent or underwriter for certain of the companies mentioned herein and may receive remuneration for its services. Rob Hunter, National Bank Financial and/or its officers, directors, representatives, and associates may have a position in the securities mentioned herein and may make purchases and / or sales of these securities from time to time in the open market or otherwise. The opinions expressed herein do not necessarily reflect those of National Bank Financial. Several of the securities mentioned in this article may not be followed by National Bank Financial’s Research department. The securities mentioned (inclusive of income trusts and option strategies) in this article are not necessarily suitable to all types of investors. Income trusts and preferred shares are equity investments. Please consult your investment advisor to discuss investment risks. All prices and rates are subject to change without notice. Stocks typically fluctuate in value. Stock values can go to zero. Selling calls against stock (Covered Writing): Shares may need to be sold at the strike price of the option at any time prior to expiration. If the calls are assigned, further opportunity for appreciation in the underlying security above the strike price is foregone. Risk/Reward of the strategy = Strike price minus the purchase price of the underlying plus the premium received from the sale of the call. The maximum loss is the same as holding a long position less the premium received. The investment advice given only applies to residents of the provinces of British Columbia, Alberta, Manitoba and Ontario. National Bank Financial is a member of the Canadian Investor Protection Fund.