Playing defence

RYAN By Guest Blogger Ryan Lewenza

This week I’m going to pull back the curtain and highlight a few of our key investment themes. Just like a magician, I can’t give away all of our tricks but here’s a few ideas that we believe could do well in the current market environment.

I should start with a quick summary of our market outlook and portfolio positioning. We remain bullish with our constructive view predicated on the following: 1) our generally positive view of the US/global economy heading into 2020 (i.e. no recession); 2) our expectation that earnings growth will pick-up over the next 12 months; 3) central bank easing with the Fed cutting rates this year and the ECB/BOJ keeping rates at rock bottom lows; 4) supportive market cycles like the Presidential Cycle; and 5) the technicals, which remain demonstrably bullish with global equities in a long-term uptrend and above the rising 200-day moving average.

Here comes the but or the however, while we’re constructive on the economy/equity markets, risks remain elevated (e.g. Trump’s trade war, Brexit, Hong Kong), and given these risks we are looking for creative ways to position for more upside, while reducing risk in our holdings and the overall portfolio. Essentially, we’re taking smaller bets with our client’s hard earned savings. We think this is prudent given where we are in the business/market cycle.

Against this backdrop one great way to play for more upside but with lower risk is though low volatility ETFs. These ETFs screen the different equity markets for those stocks with the lowest volatility. The ETFs are also rebalanced, generally quarterly, by kicking out those stocks that experience an increase in volatility. This helps to ensure the ETF is zeroing in on those stocks with the lowest volatility and is adjusting to changing market conditions.

The chart below really hits home the attractiveness of low volatility stocks and why we believe this is the right time to own them. I calculated rolling, long-term volatility (standard deviation) for both the S&P 500 Index and the S&P 500 Low Volatility Index, which holds 100 of the lowest volatile stocks within the S&P 500. Note how the Low Vol Index consistently exhibits lower volatility by roughly 25%.

Now you would assume the returns would be significantly lower, but this has not been the case in recent years. For example, over the last five years the S&P 500 Low Volatility Index has returned 11.75% annually, beating the S&P 500 Index at 10.34%. Now as they say, past performance is no guarantee of future results, but I do believe the Low Vol theme could continue to perform well, at least until the next bear market, where we would then likely exit this theme/position.

Low Vol Reduces Equity Volatility by 25%

Source: Bloomberg, Turner Investments

Next up is our preference for US value stocks over growth stocks. Over the last decade growth stocks have been the clear winner with the S&P 500 Growth Index up 272% versus the S&P 500 Value Index up 193%.

We believe this is going to flip with value stocks set to outperform growth stocks over the next decade. Fortunately, we’re in good company with JP Morgan’s highly regarded quant analyst, Marko Kolanovic, recently stating that “the value rotation should continue into Q4 and Q1”, and more assuredly, that this rotation is “once in a decade”. That’s a bold a statement, and is up there with Trump’s claim that the Ukraine call was “perfect”.

Value stocks, at times, can be more defensive than growth stocks. For example, in last year’s Q4 sell-off value stocks declined 18% versus the S&P 500 at -20% and growth stocks at -21%. One reason for this is their cheaper valuations. Currently the S&P 500 Value Index trades at an attractive 16x earnings versus the Growth Index at 26x. I believe that if the equity markets come under pressure that value stocks could hold up better than growth stocks due in part to their lower valuations.

Value stocks are a good holding for us right now given the mix of decent upside in the coming years and that they tend to fall less than the overall market during downturns.

Value Stocks Are Attractively Valued

Source: Bloomberg, Turner Investments

Finally, readers of this pathetic blog know that we are strong proponents of holding REITs in portfolios given their high dividend yields and solid long-term returns. This year is case in point with REITs up over 23%, beating the TSX. We like REITs as they can provide a hedge to a weaker economy and stock market as they are negatively correlated with interest rates. Below I illustrate this where I chart the Canadian REIT Index with government bond yields (note: the government yield is inverted to better show the relationship).

Historically, REITs have a negative correlation of -0.64 to government bond yields. In simple terms, they often do well when government bond yields decline. So if markets do come under pressure and bond yields decline then REITs could do relatively well.

REITs Provide a Hedge to Lower Interest Rates

Source: Bloomberg, Turner Investments

As I’ve laid out today, we see the potential for further market gains. But this call is no slam dunk given the myriad of risks that exist today. So to hedge our bets we’ve been reducing risk in portfolios by investing in lower risk ETFs like low volatility, value and REIT ETFs, which should hold better in a downturn should we be wrong.

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.

 

62 comments ↓

#1 Flop... on 11.23.19 at 11:18 am

Woke up this morning.

Did not find a safe in my basement, like I had wished.

Some people have all the luck…

M45BC

#2 nobody on 11.23.19 at 11:55 am

The trouble with being negatively correlated with bond yields is that we are below 2%. Not a lot further they can fall and a lot further they can rise.

Unfortunately their customers are very positively correlated with bond yields. In a recession you save 25bp on your mortgage but all your tenants have gone bust.

#3 Hmmmm on 11.23.19 at 12:36 pm

REITs cratered massively in 2008…. so there wasn’t much of a negative correlation then! just like preferreds did!

They are now very pricey.. still its been a great run for 10 years though and they do churn out a steady dividend

#4 DON on 11.23.19 at 12:38 pm

#59 DON on 11.22.19 at 10:59 pm

#100 Mattl on 11.22.19 at 1:32 pm

Actually 8.5 million. And mortgage debt is growing faster than the population. It’s not all sunshine & ponies. – Garth

Agreed, there are issues for sure. HELOC growth is concerning.

But just posting 1.6 trillion without the context – which includes a residential market valued at 8.5 trillion – is only a partial picture.
*****************

What are you worried about? Houses can only go up up up!

Forget about the Airbnb regulations coming to a theatre near y (revenue hungry indebted local governments).

Forget about your neighbors helocs. Besides they would tell you if there was a problem with their finances in any event.

Forget that house prices are in peak ranges and unaffordable for local families. Isn’t that why you left the Lower Mainland?

A downturn will never ever ever happen again. Just live your life and have some fun.
*************

My apologies Mattl, I shouldn’t have trolled you.

It was a weak moment.

#5 Alessio on 11.23.19 at 12:46 pm

What about the repo market headwind? I think that’s worse than Hong Kong and Trade War and Brexit, no?

#6 Stan Brooks on 11.23.19 at 1:10 pm

REITs will do just fine as the coupons with expiration dates called currency lose aggressively value. The only thing holding it’s value is taxes, so expect more of these.

Jimmy the Greek roast chicken dinner from 4.50 to 9.50 with significantly reduced dish size (60-70% of original) in smaller plates in just a few years.

But inflation is sub 2 %. Sure.
That CPP 1 % ‘indexation’ in terms of purchasing power will buy 40 % of that dish from 5-6 years ago.

And you know what? It will become 20 % pretty soon with the delusional figure heads at the helm of BoC now blaming the climate change.

Cheers,

#7 DON on 11.23.19 at 1:14 pm

@Crowded

I hear yah.

I agree with your sentiment on some unions. I expect all to pull their weight.

I have have some family members that are RNs (Bachelor of Applied Science types, chem, biology, physics, etc). On several occasions (in the interest of their patients they challenged the doctor on medication mistakes – life/death instances). You can imagine what would have happened if they didn’t feel they could speak up – and they faced severe bullying for it – but held their ground.

Those woman are my heroes. Not many people willing to mess with the nurses union as so many depend on them. So be it! As long as they do their jobs and do it well.

I would hate to be a transit driver in Vancouver (couldn’t pay me enough) the #19 Metrotown – Stanley Park bus route at night is interesting to say the least. If I was that bus driver (constantly looking over my shoulder) I would request a bullet proof cage. That bus needs a bouncer as well as many others throughout the GVRD.

There is good and bad in everything. But yes some Unions are ‘to big for their britches’ and shouldn’t defend the indefensible especially in less than stellar economic conditions. Just be thankful you have career jobs and donate to charities, especially at this time of year.

Cheers,

Cheers,

#8 Andrewski on 11.23.19 at 1:20 pm

Thanks for your professional analysis Ryan. I’m super happy with my REIT exposure & definitely going to read more about your other recommendations.

#9 DON on 11.23.19 at 1:21 pm

Thanks for the perspective and analysis Ryan! I appreciate it.

#10 NoName on 11.23.19 at 1:30 pm

Interesting read

https://www.theatlantic.com/magazine/archive/2019/12/social-media-democracy/600763/

#11 crowdedelevatorfartz on 11.23.19 at 1:45 pm

Ryan,
Interesting and reassuring topic today!.
Thanks again for taking the time to explain your views in every day language.

#12 crowdedelevatorfartz on 11.23.19 at 1:55 pm

@#10 No Name

Fascinating article.

Almost exactly what the Comedian Sacha Baron Cohen said in his speech about Facebook, Google, Twitter, etc.

https://www.businessinsider.com/sacha-baron-cohen-facebook-adl-speech-is-must-watch-2019-11

Its well worth watching.
Facebook and all these other “rumour mills” are going to be facing a serious legal backlash in the very near future.

#13 Flop... on 11.23.19 at 2:15 pm

I’ll put this one up for a bit of Saturday content.

Property taxes in the States less than 2% of revenue.

I thought Ol’ Rhino was gonna do an article on Mike Babcock and his mega contract.

He’ll be alright, he can always get a short-term job as a mall Santa if he wants to keep things ticking over.

Babcock, not InfLewenza…

M45BC

In One Chart: Where Do State Tax Revenues Come From?

The United States federal progressive income tax dates back over 100 years, to the Revenue Act of 1913. Back then, the U.S. received most of its tax revenues from tariffs. Many states have followed the federal government’s lead in collecting a progressive state tax income. Today, income tax is one of the many ways that states collect tax revenue, but some wonder whether today’s variety is actually regressive.

States collected just over $1 trillion in tax revenues in 2018.

The federal debt has grown to $23 trillion, from $13 trillion in 2010.

The Treasury is on pace to borrow more than $1 trillion during the current fiscal year.

Democratic presidential candidate Elizabeth Warren has proposed 2% annual tax on wealth over $50 million and a 6% tax on wealth over $1 billion.

Warren claims the wealth tax would raise $3.75 trillion over the next decade, but critics point to economic and constitutional challenges.
Our data is 2018 state tax revenues for all 50 states by category as reported by the United States Census Bureau’s Annual Survey of State Government Tax Collections. Each category and its sub-categories are color-coded and plotted to scale on the viz.

Top 5 Tax Revenue Sources for State Governments

1. Income taxes: $440.3B (42.7% of total tax revenues)
2. General sales taxes: $317.4B (30.8% of total tax revenues)
3. Selective sales taxes: $165B (16% of total tax revenues)
4. License taxes: $57.4B (5.6% of total tax revenues)
5. Property taxes: $20.1B (1.95% of total tax revenues)

The single largest category of revenue is individual income, followed by general sales. Income taxes paid by corporations fall at a distant fourth. With wages and purchasing power barely budging in years, and a federal debt that has risen to $23 trillion, from $13 trillion in 2010, many are calling for a reconsideration of how the government collects revenue. The Treasury is on pace to borrow more than $1 trillion during the current fiscal year — what sources are available to close the gap?

A particularly aggressive strategy to drive revenues from the wealthiest individual comes from Democratic presidential candidate Elizabeth Warren, whose proposed wealth tax would set a 2% annual tax on wealth over $50 million and a 6% tax on wealth over $1 billion.

However, even with a Democratic-controlled presidency and Congress, the wealth tax faces a bevy of technical and constitutional challenges, as it’s unclear exactly how total wealth would be measured. Warren claims that her wealth tax can successfully fund providing Medicare for all citizens without raising taxes on the middle class, but billionaire investor Ray Dalio foresees taxes increasing regardless, as mounting debts and liabilities must ultimately be paid.

Recently, Microsoft co-founder Bill Gates has voiced concerns about that Warren’s wealth tax would stifle entrepreneurial risk-taking: “You really want the incentive system to be there, and you can go a long way without threatening that,” Gates said. However, Warren has stood her ground on the tax, even offering Gates via Twitter to personally meet and explain how the tax would affect him.”

https://howmuch.net/articles/breakdown-all-states-taxes-revenue

#14 Bob on 11.23.19 at 2:23 pm

Good read

With these active trades\changes in allocation increasing costs on
A portfolio ,is it possible to provide any alpha ,Ryan. Of course there’s management fees as well

Most of the academic literature says NO, profoundly so. Over time ‘good managers ‘ probability of staying on the right side of the bell curve over time is pure chance ,randomness

Why not just rebalance twice a yr ?

#15 DON on 11.23.19 at 2:37 pm

@ #10 NoName on 11.23.19 at 1:30 pm

Interesting read

https://www.theatlantic.com/magazine/archive/2019/12/social-media-democracy/600763/
*************

Thanks for the link

Garth has his blog set up much like the recommendations in the article. More people would benefit from reading this. I like the fact that they go back to the founding father’s of the US Constitution and why they set things up the way they did – to protect us against our own human behaviour – it was a passion for them.

I came across this last night:

https://www.vox.com/2019/11/19/20963757/what-is-ok-boomer-meme-about-meaning-gen-z-millennials

And embedded in the the above link – I clicked on this.

https://www.inquirer.com/columnists/millennials-gen-x-okay-boomer–20191113.html

I have (early ‘millenial’ siblings and a mix of staff) and many many older and younger. But I sit in the middle and use many of these bridging tactics in my workplace and non workplace environments.

Separate post: @Nonplused

I get what you are saying, I just need to step away from the computer and put the key board down.

I’ll leave with this thought (I haven’t thought it all the way through yet – my quantum computer is hazy at the moment)

#65 Economystical on 11.23.19 at 12:19 am

This whole idea that the private sector supports government is backwards! “You didn’t build that!”, as Obama once declared. It is the government that supports the private sector.

And to all a good day.

#16 One big joke on 11.23.19 at 2:57 pm

Ever thought about a trailing stop to exit the market? Not that hard.

#17 Long-Time Lurker on 11.23.19 at 3:02 pm

I went defensive in September — before the election.

Hey, Yukon Elvis. Meet Yukon Greta. On the left.

https://digitalcollections.lib.washington.edu/digital/collection/hegg/id/601

Politically correct = mob mentality?

#18 Erick on 11.23.19 at 3:26 pm

How do you proceed for these adjustments ?
Do you sell existing positions and replace them with the new ETFs (like low volatility ETFs) ?
Or do you keep existing positions, but invest new money in the new ETFs ?

#19 TurnerNation on 11.23.19 at 3:45 pm

A hockey photo. That’s a no-no these days.

The plan is shut down Kanada, shut down its culture and industry in one fell swoop.
Hockey head Grape cherry canned on the same 11th day they defaced a monument in T.O. Two-pronged attack.
Two week later more salvos, continue.
(You see, our global government and (in)security forces care what’s in our head. We must think thoughts of purity and alignment at all times. All others will be watched.)

Hockey league names are offensive:
https://www.cbc.ca/sports/hockey/hockey-canada-age-group-names-1.5364260

– Hockey players are default bad and are in need of re-education. How long until teams are shut down due to newly enforced quotas? Not long:

https://atlantic.ctvnews.ca/saint-mary-s-university-in-halifax-talks-diversity-and-equality-in-hockey-1.4699312
“Meanwhile, MacDonald says young hockey players are learning to see their game and the role they play in it with more positivity and inclusion. She notes she hopes athletes will take what they learn into their lives – both on and off the ice.
“Positive mental health, accepting people’s gender and sexuality, not being racist – it’s all just expanding your knowledge to understand what other people are going through,” says MacDonald.”


SOME humour here at least. A new TESLA truck arriving in Alberta. 15 minutes later this happens:
https://i.redd.it/p9clumckfg041.jpg

#20 Sail Away on 11.23.19 at 3:55 pm

#16 One big joke on 11.23.19 at 2:57 pm

Ever thought about a trailing stop to exit the market? Not that hard.

——————————–

Less straightforward than it seems. The trail needs to be a significant drop of 20% or so to avoid being triggered by smaller events. Then what happens is that cash in hand feels safer, so you don’t buy in lower, which results in having sold at a low after markets recover. Seen it many times and have actually done it a time or two. I always track buys and sells, and in nearly every case it would have been better to hold.

If you set a smaller 10% drop, then you may end up selling near the bottom at the absolutely worst time. Momentum trading, swing trading and stop-loss protection are dangerous for most. Set and forget far better.

Only sell for an actual reason, not the vagaries of Mr Market.

#21 TurnerNation on 11.23.19 at 4:01 pm

#12 crowdedelevatorfartz facebook and others are untouchable. They are not what you think.
People including one I myself know were barred, for use of not their real name (it’s all facial rec these days) and asked to upload Government issue photo ID to verify their personage.
Another person I know had account deleted after posting an anti-war article.
Really, all this and it’s just a chat program. Do you China much? How’s your social credit score looking these days.

#22 Irwin on 11.23.19 at 4:13 pm

“Trump” mentioned twice in the article. That’s two more than I can handle today. Did not read after the “finder” revealed the two mentions.

Bye

#23 Shawn Allen on 11.23.19 at 4:16 pm

In Quest of Alpha

#14 Bob on 11.23.19 at 2:23 pm
Good read

With these active trades\changes in allocation increasing costs on
A portfolio ,is it possible to provide any alpha ,Ryan. Of course there’s management fees as well

Most of the academic literature says NO, profoundly so. Over time ‘good managers ‘ probability of staying on the right side of the bell curve over time is pure chance ,randomness

Why not just rebalance twice a yr

****************************************
A big question here is Alpha compared to what benchmark?

Just what benchmark should a Canadian balanced portfolio be measured against? Certainly not the TSX stock index or the S&P 500. There is no agreement of the international exposures or even the fixed income versus equity split and so there is simply no agreed upon benchmark.

As far as beating the index. If you define the index as the average of all portfolios – which is academically a good approach – then precisely half of portfolios should out perform and half under perform over ANY time period.

No study has ever found that being consistently above the index (however defined) is always PURELY random, but yes random would explain much of that.

#24 Shawn Allen on 11.23.19 at 4:20 pm

Reitman’s

#104 Sail away on 11.22.19 at 2:02 pm
for Shawn Allen:

Here’s a case that might interest you: Reitmans has been on my watchlist for years as a Buffett-type value stock- it continues to decline in value, but has lots of cash and pays a high dividend now. It’s currently trading at about 1/3 its book value.

It seems either acquisition or fold and pay out might be approaching. It’s been steadily declining for years to this lowest of the low state but is maintaining a solid balance sheet. Tax-loss selling will probably drop it more. Any thoughts?

*************************************
Sorry, but it would not be appropriate for me to try to answer that question on this blog or offer any thoughts.

#25 Sail Away on 11.23.19 at 4:26 pm

#5 Alessio on 11.23.19 at 12:46 pm

What about the repo market headwind? I think that’s worse than Hong Kong and Trade War and Brexit, no?

——————————

I think the repo market is a bit more macro than this blog gets. I’d be interested to know why you think it’s an issue if you can explain your reasoning succinctly and specifically.

#26 Yukon Elvis on 11.23.19 at 4:42 pm

#17 Long-Time Lurker on 11.23.19 at 3:02 pm
I went defensive in September — before the election.

Hey, Yukon Elvis. Meet Yukon Greta. On the left.

https://digitalcollections.lib.washington.edu/digital/collection/hegg/id/601
……………………..

Good ‘ol Dominion Creek, I remember it well. I was foreman on that job. That’s me on the right.

#27 Ryan Lewenza on 11.23.19 at 5:00 pm

Bob “Good read. With these active trades\changes in allocation increasing costs on a portfolio ,is it possible to provide any alpha ,Ryan. Of course there’s management fees as well.”

For our clients there are no additional fees for any changes we make in the portfolio. This is all included in the fee. With respect to just rebalancing portfolios, we do that too. In managing our portfolios we do two main things. We periodically make changes to the holdings like switching from an ETF that tracks say the TSX to our new Low Volatility holding. The second thing we do is rebalance accounts, for example, trimming Low Vol when it goes up a lot and add to bonds or preferred shares. All of these changes are included in the fee. But I want to stress, we’re not making changes every day or week. We stick with the 60/40 portfolio and just make tweaks based on our outlook. – Ryan L

#28 Ryan Lewenza on 11.23.19 at 5:08 pm

Erick “How do you proceed for these adjustments ?
Do you sell existing positions and replace them with the new ETFs (like low volatility ETFs)? Or do you keep existing positions, but invest new money in the new ETFs?”

Yes we sell and replace. For example we replaced our straight TSX ETF holding for our Low Vol ETF last year. Thankfully we did that since our Low Vol ETF has far outperformed the TSX. I think we’ll hold the Low Vol ETF into the next major downturn, then switch back to the TSX ETF as it will likely outperform coming out of the bear market. So we’re talking about one major switch every few years. It’s a pretty simple strategy. When the outlook is uncertain we prefer Low Vol and lower risk investments and when our outlook is really positive we add in a bit more risk, but always sticking with our long-term 60/40 approach. – Ryan L

#29 oh bouy on 11.23.19 at 5:08 pm

@#12 crowdedelevatorfartz on 11.23.19 at 1:55 pm
@#10 No Name

Fascinating article.

Almost exactly what the Comedian Sacha Baron Cohen said in his speech about Facebook, Google, Twitter, etc.

https://www.businessinsider.com/sacha-baron-cohen-facebook-adl-speech-is-must-watch-2019-11

Its well worth watching.
Facebook and all these other “rumour mills” are going to be facing a serious legal backlash in the very near future.
_______________________________

poignant words from Cohen.
I see a lot of what he’s talking about in this comments section.

#30 Yanniel on 11.23.19 at 5:16 pm

“one great way to play for more upside but with lower risk is though low volatility ETFs.”

Volatility and risk are not synonyms. Take cash. It has low vol, but it has inflation risk and also the risk of “failing slow” given the poor returns it offers. Low vol strategies are not guaranteed to be low risk.

That said, I do think they have a place in a portfolio.

#31 Grunt on 11.23.19 at 5:16 pm

Good solid advice Ryan. In the near term we really need to see that CN rail strike settled.

#32 Loonie Doctor on 11.23.19 at 5:30 pm

Thanks for the guidance and wisdom Ryan. I believe you or Garth mentioned this approach to de-risking a bit around the beginning of the year. I listened and am happy for it. Shifted some of my US exposure to USMV and IUSV and some of my XEF to EFAV. REITs really have been nice this past year too. I have more ETFs than I normally hold, but it seems like a good idea for all of the reasons you mention. I try not to make bold moves, but making some tweaks like this helps to satisfy my need to tinker without causing too much behavioral havoc.
-LD

#33 Dustin on 11.23.19 at 6:20 pm

Thanks Ryan. I’ve been reading this blog for a dogs age and today I learned what an etf is. I didn’t even know that the S&P was an ETF. I like the Saturday technical specials, they’re awesome.

#34 Yanniel on 11.23.19 at 6:25 pm

#27 Ryan Lewenza on 11.23.19 at 5:00 pm
Bob “Good read. With these active trades\changes in allocation increasing costs on a portfolio ,is it possible to provide any alpha ,Ryan. Of course there’s management fees as well.”

For our clients there are no additional fees for any changes we make in the portfolio. This is all included in the fee.

——
I think Bob was referring to the higher MER of low vol ETFs when compared with simple vanilla ETFs. “ Of course there’s management fees as well.”

#35 the Jaguar on 11.23.19 at 7:03 pm

Just spied Jason Kenney prowling down the 8th ave mall towards the Hyatt Hotel with his bodyguards looking just like the underworld mob boss he is…………
The Jag is pretty sure I could take every one of them in an Indian Leg Wrestle.
Mercy. Can you still use that reference?
Too bad the Stamps aren’t playing in the Cup on Sunday, but as long as we are making a little change on the out of town heathens we can call it a success..

#36 Sail Away on 11.23.19 at 7:11 pm

#24 Shawn Allen on 11.23.19 at 4:20 pm
Reitman’s

*************************************
Sorry, but it would not be appropriate for me to try to answer that question on this blog or offer any thoughts.

——————————————-

Interesting. Are you on the board? You haven’t been reticent to delve into other stocks- Home Capital being one. Maybe Garth disapproves of this discussion on his blog?

Thanks for the response in any case. I’ll continue researching.

#37 short horses on 11.23.19 at 7:22 pm

Great article, Ryan. I’ve been using a low volatility ETF for a good chunk of my Canadian equity allocation since time immemorial. While this may have more to do with this particular ETF’s construction, one of the things I like most is that a handful of banks are not over-represented.

Why the Byfuglien pic? Despite years of consistent returns, we need to be prepared for black swan events?

#38 Capt. Serious on 11.23.19 at 9:05 pm

Out of curiosity, have you crash tested this rotation from normal to min vol assuming you get it wrong, say by 50% in timing? I would guess that mostly you are just giving up upside if mistimed. The no free lunches theory makes me a bit wary of min vol. Seems like one should expect at least returns to be lower compared to just the market return. Value I have more faith in, but I highly doubt anyone can time it. Lean a bit sure. What did Asness say recently, something like it’s time to sin a little? Value is very cheap right now.

#39 Remembrancer on 11.23.19 at 9:10 pm

#36 Sail Away on 11.23.19 at 7:11 pm

I don’t follow them myself, but based on quick random 2018 / 2019 google blurbs I’d say check out whether you like their same store sales trends…

#40 Rargary on 11.23.19 at 9:13 pm

Love your blogging Ryan. Over my head per usual but worth paying attn to. I’m catching up my daughter’s RDSP so very little wiggle room for my options. Slow climb with my TFSA ($7,000). Will get there one day. Thx for freely sharing your brilliant knowledge

#41 SoggyShorts on 11.23.19 at 9:58 pm

#6 Stan Brooks on 11.23.19 at 1:10 pm

How come you didn’t mention
Hotels,
Clothing,
e-readers,
TVs,
tablets,
laptops
Apples (the fruit)or
smart phones and plans?

Is it because they all have dropped in price and contradict your “inflation is over 10%” position?

BTW, do you still feel good about your guarantee of $2 gas? I think there’s just 18 months left to see if you called that one…

#42 BS on 11.23.19 at 10:18 pm

Sounds like your investment advice is buy high. Low volatility has done well but that was last years trade.

#43 sdvg on 11.23.19 at 10:19 pm

#36 Sail Away on 11.23.19 at 7:11 pm #24 Shawn Allen on 11.23.19 at 4:20 pm Reitman’s ************************************* Sorry, but it would not be appropriate for me to try to answer that question on this blog or offer any thoughts. ——————————————- Interesting. Are you on the board? You haven’t been reticent to delve into other stocks- Home Capital being one. Maybe Garth disapproves of this discussion on his blog? Thanks for the response in any case. I’ll continue researching.

That just means that he is furiously researching your idea and getting ready to move on it. :)

#44 NoName on 11.23.19 at 10:49 pm

#41 SoggyShorts on 11.23.19 at 9:58 pm
#6 Stan Brooks on 11.23.19 at 1:10 pm

How come you didn’t mention
Hotels,
Clothing,
e-readers,
TVs,
tablets,
laptops
Apples (the fruit)or
smart phones and plans?

Is it because they all have dropped in price and contradict your “inflation is over 10%” position?

BTW, do you still feel good about your guarantee of $2 gas? I think there’s just 18 months left to see if you called that one…

I have to come in defense of stanly, not that he needs, but about that thing called inflation, is 2% real or not doesnt mater.

Here is a list of items in cpi, and you before descide to riducule anyone be a sport and live of the list for few months 6 preferably and let us know how is you weight and health doing.

I am thinking you were be better of on fast food diet… So here is a list.

Round steak, 1 kilogram
Sirloin steak, 1 kilogram
Prime rib roast, 1 kilogram
Blade roast, 1 kilogram
Stewing beef, 1 kilogram
Ground beef, 1 kilogram
Pork chops, 1 kilogram
Chicken, 1 kilogram
Bacon, 500 grams
Wieners, 450 grams
Canned salmon, 213 grams

Homogenized milk, 4 litres
Partly skimmed milk, 4 litres
Butter, 454 grams
Processed cheese slices, 250 grams
Evaporated milk, 385 millilitres
Eggs, 1 dozen

Bread, 675 grams
Soda crackers, 450 grams
Macaroni, 500 grams
Flour, 2.5 kilograms
Corn flakes, 675 grams

Apples, 1 kilogram
Bananas, 1 kilogram
Oranges, 1 kilogram

Apple juice, 1.36 litres
Orange juice, 1 litre

Carrots, 1 kilogram
Mushrooms, 1 kilogram
Onions, 1 kilogram
Potatoes, 4.54 kilograms
French fried potatoes, frozen, 1 kilogram

Baked beans, canned, 398 millilitres
Tomatoes, canned, 796 millilitres
Tomato juice, 1.36 litres

Ketchup, 1 litre
Sugar, white, 2 kilograms
Coffee, roasted, 300 grams
Coffee, instant, 200 grams
Tea (72 bags)

Cooking or salad oil, 1 litre
Soup, canned, 284 millilitres
Baby food, 128 millilitres
Peanut butter, 500 grams

Paper towels (2 rolls)
Facial tissue (200 tissues)
Bathroom tissue (4 rolls)

Shampoo, 300 millilitres
Deodorant, 60 grams
Toothpaste, 100 millilitres
Cigarettes (200)

Gas is a bonus item.
Regular, unleaded gasoline at self-service stations, cents per litre

#45 Dumb Wealth on 11.23.19 at 11:20 pm

Why no corporate bonds? Bit of a different risk profile than equities, if that’s what you’re into.

I’d take a REIT any-day over investing in physical real estate. Who wants to fix toilets at 3am? And the performance comparison vs. Toronto homes and TSX is interesting. https://dumbwealth.com/toronto-homes-not-best-investment-2008-2018/

#46 Spectacle on 11.24.19 at 12:06 am

Yes, Great article tonight, fundamentals .

Since we’re on acronyms of meaning tonight there is one relevant one ; TINA.

There Is No Alternative, TINA, to the U.S. market exposure.

Your ETF ( Low Volatility ) risk aversion is nicely explained.

Nite

#47 Tccontrarian on 11.24.19 at 1:08 am

Everyone (almost), is waiting for the next bear market- when we’re well into one! Go figure!
My ‘defense’ is going short the most overpriced sectors. I don’t merely strive to ‘lose less’ than most. . . I strive to perhaps even profit. It’s hard but definitely doable.

TCC

#48 Steve French on 11.24.19 at 1:21 am

Here’s my balanced and diversified ETF portfolio.

What say you– Ryan L. and other Blog Dogs?

SteveO (based in Australia).

—————-

Growth Oriented

($AUD-listed)
VAS (ASX 200): 13%
VAP (Aus REITs): 3%
VEQ (FTSE Europe): 13%
VGE (Emerging Markets): 8%

($USD listed)
VOO (S&P): 13%
VO (US Mid Cap): 4%
VHT (US Health Care): 3%
VIG (US Dividend): 8%

Total Growth Oriented 65%

Safer/Defensive Stuff

GDX (Gold Miners): 5%
VGB (Aus Govt Bonds): 13%
VACF (Aus Corp. Bonds): 5%
VAF (Aus Fixed Income): 5%
VBND (Global Bonds):4%
HYG (US High Yield Corp. Bonds): 3%

Total Defensive: 35%

Total Portfolio $250K Australian
Add/rebalance twice per year (give or take).

Total Avg. Annual Returns (incl. dividends, pre-tax):
8.8% over last 3 years.

———

#49 Nonplused on 11.24.19 at 2:13 am

Volatility only really sucks if you are highly leveraged. Or if the volatility is being created by a stock headed to zero. Using statistical calculations of which stock is less volatile than another is no more than reading the tape, it doesn’t mean anything. It is just applying math to an area that math does not apply to.

Volatility has it’s place in risk management, where trading firms use it to decide how much leverage they can risk in certain positions. In the world of investing without leverage, it is of little use. In the same way Garth says don’t sell out when the market reverses, you don’t avoid good companies because they are volatile. What goes up comes down, and vice-versa. Unless they are highly leveraged of course. Leverage means you can’t stay in the game even if you have a winning hand.

#50 Stan Brooks on 11.24.19 at 2:16 am

#41 SoggyShorts on 11.23.19 at 9:58 pm
#6 Stan Brooks on 11.23.19 at 1:10 pm

How come you didn’t mention
Hotels,
Clothing,
e-readers,
TVs,
tablets,
laptops
Apples (the fruit)or
smart phones and plans?

Is it because they all have dropped in price and contradict your “inflation is over 10%” position?

BTW, do you still feel good about your guarantee of $2 gas? I think there’s just 18 months left to see if you called that one…

If this is supposed to be a joke, I understand.

If you are serious, wake up.

Electronics makes 1-2 % of average Joe budget.

Which clothes exactly got cheaper? Underwear and socks/non organic.

Decent shoes at $ 150? Decent suit at $ 600? Brand jeans at $ 120?

Whatever gets cheaper in price is 2-5 % of your budget.

Housing, eating (increasingly lower quality GMO stuff),
energy, education, financial services/insurance comprises majority of one’s expenses and all of it is going up fast.

On gas prices:
https://604now.com/gas-prices-in-vancouver-history/

and I am hearing the carbon tax is to increase from 20 to $ 200 a ton. How is your electricity bill compared to 5 years ago? If in Ontario it most likely doubled with the same or lower consumption.

Official statistics stated veggies are up 18 % in 1 year.

Take that head out of your but and look around.

#51 Jenny Wang on 11.24.19 at 2:19 am

Trudeau killed agriculture. He hired radicals specifically to screw farmers. Now with demand soaring in China Canada sits in the penalty box while others score the goals. Mining, screwed. Energy, screwed, Banking gone south, Investment gone. Trudeau, the idiocy continues.

The Guardian: ‘Not enough pork in the world’ to deal with China’s demand for meat.
https://www.theguardian.com/business/2019/nov/23/china-pigs-african-swine-fever-pork-shortage-inflation

#52 Hana on 11.24.19 at 7:47 am

Can anyone recommend low volatility and US value ETFs?
Thanks in advance.
Hana

#53 crowdedelevatorfartz on 11.24.19 at 9:53 am

@#51 JW
“The Guardian: ‘Not enough pork in the world’ to deal with China’s demand for meat.”
++++

Yeah.
I wondered when China would capitulate on their boycott of Canadian Pork ( as well as the rest of the worlds pork).
The swine flu has decimated their pig population and pork is more popular than beef in China.
(Nothing like the Chinese govt seizing thousands of infected pigs and slaughtering them without compensating the farmers that may cause some farmers to hide or sell their infected pigs before financial ruin…..?)
Anywho.
The Summer and Fall had excellent , cheap meat in Canuck stores….not for much longer I’m afraid.

#54 crowdedelevatorfartz on 11.24.19 at 10:09 am

@#52 Hana
“Can anyone recommend low volatility and US value ETFs?
+++++

Pork Bellies?

#55 PastThePeak on 11.24.19 at 10:18 am

Thanks Ryan! Always good information.

#56 Flop... on 11.24.19 at 10:28 am

NoName, I found the only item that matters to track inflation properly.

Ice-cream.

Currently my Ice cream inflation meter is sitting at 6% per year.

Am I a cool guy?

Do I buckle under pressure?

Nah, I’ve got ice cream in my veins…

M45BC

#57 Ryan Lewenza on 11.24.19 at 10:52 am

Dumb Wealth “Why no corporate bonds? Bit of a different risk profile than equities, if that’s what you’re into.”

We hold these too. I was just focusing on the equity component in the post. – Ryan L

#58 Ryan Lewenza on 11.24.19 at 10:54 am

BS “Sounds like your investment advice is buy high. Low volatility has done well but that was last years trade.”

Our Low Vol position is up over 20% this year, so I don’t see it as last years trade. – Ryan L

#59 Steven Rowlandson on 11.24.19 at 6:44 pm

The context: the property is owned by a company which buys distressed and foreclosed homes, repairs and flips them, or waits for market conditions to improve before selling. It’s a business. Greg Geiser runs the real estate investment outfit called Wedgewood.

It’s a business. No! It is genocide under article 2 section c and d of the UN convention on the prevention and punishment of genocide. Genocide by a business deal that makes a necessity of life too expensive for those who need it. The goal is to profit and without the restraint of morality or conscience even if people have to die in the streets and or without progeny. That is the equivalent to the intent to destroy via the imposition of extreme debt slavery, extreme rents and taking advantage of the legal requirements to have residence.
There are less cowardly and criminal ways to invest and profit.

#60 Tony on 11.24.19 at 11:37 pm

Re: #25 Sail Away on 11.23.19 at 4:26 pm

It means the banks are insolvent.

#61 Hello on 11.25.19 at 11:08 am

DELETED

#62 Mr Fundamental on 11.25.19 at 3:11 pm

Here’s a hot tip: Buy equity index funds. Always buy, and never sell. Forget all of the other rubbish people try to tell you.