Say you are given $10,000, perhaps from someone's estate. You already have a decent, well-balanced retirement portfolio, so this money is really the frosting on the cake. How would you invest it?
Last September we published a range of opinions on this question. We contacted a different group this time around, and here are some of the most interesting responses.
Andy Nasr, vice-president, capital markets, and investment strategist, Sentry Investments
Mr. Nasr favours "going international" with the windfall. He notes that valuation risk, policy risk and political risk – issues that every investor faces – can be mitigated through diversification by asset class and geography. His firm has increased its international weighting as it sees diminished political risk and an improvement in European economic growth.
Mr. Nasr notes, however, that most international indices are dominated by "old economy" stocks and sectors, such as financials, materials, energy and industrials, with elevated debt and cost structures. Therefore he recommends an actively managed portfolio of large multinationals with strong balance sheets, preferably with little North American exposure, to maximize the benefits of diversification.
His first pick is Shenzhou International Group Holdings Ltd., which specializes in manufacturing high-end Flyknit materials used in sneakers. He also likes Kering SA, a French luxury-goods holding company that owns well-known brands such as Gucci, Puma and Saint Laurent. A third choice is Cap Gemini Sogeti SA, the management and consulting firm that is becoming a leader in providing its services through cloud computing.
Jeff Hull, senior financial advisor, Manulife Securities
Mr. Hull took a different approach to the $10,000 windfall question, using it as a lesson in the power of a "kinetic chain," which "can accelerate and compound the benefits and the rates of return," he says.
Here's his example. First, if you can take advantage of a one-for-one employee stock-matching program at your company, your $10,000 to invest suddenly becomes $20,000. Then you can slide those shares over into your RRSP as an in-kind contribution and generate a tax deduction on the full $20,000 amount. Then, if you happen to have children, you can continue the kinetic chain by contributing part of that tax refund to your children's registered education savings plan (RESP).
"You started with $10,000 and now you have $28,400 working for you, which is a known gain in advance of almost 200 per cent – and you haven't even calculated any gains on the actual investments yet," says Mr. Hull.
He also notes that even without the initial benefit of an employee share-ownership plan, the benefits of the other steps still apply. "People forget to capture these types of opportunities," he says. "Tactically utilize opportunities and loopholes, and line them up like dominoes in order to take advantage of the momentum of a kinetic chain to accelerate and maximize your money."
Darren Sissons, vice-president and portfolio manager, Campbell Lee & Ross Investment Management
Considering the person in this example already has a healthy portfolio, Mr. Sissons recommends considering spending the new funds on travel or other meaningful enjoyment, or donating to charity. But he also has investment options. His first is a long-term dividend growth strategy – that is, investing in market-leading, safe and secure companies that can be held for a long time. This would include firms with a history of dividend growth, such as Enbridge Inc., Nestlé SA or Procter & Gamble Co.
Mr. Sissons calls his second option "cyclical alpha trades." By that he means market-leading cyclical growth companies experiencing the lows of their industries' economic cycle. He cites oil-field services companies such as Halliburton Co. or companies set to benefit from a rise in mining development, such as Atlas Copco AB.
Mr. Sissons has a third investing option for those with a deeper appetite for risk and the ability to actively trade. "Distressed debt and turnaround equity investments would be an interesting segment to target," he says. He points to the significant rallies in the debt and equity of Home Capital Group Inc. as the company recovered from a serious crisis of confidence.
Jennifer Radman, head of North American equities and senior portfolio manager, Caldwell Investment Management
Ms. Radman recommends the recipient of the $10,000 windfall use it to invest in a fund that has outperformed the TSX composite index across all major time frames, such as the Caldwell Canadian Value Momentum Fund, which she manages. She says her firm's proprietary process helps it identify the most attractive stocks to own, while its quantitative analysis points out which stocks to sell. These signals provide discipline to the investment process.
Two of the fund's top performers in April were Calian Group Ltd. and AG Growth International Inc. Two stocks that were added to the portfolio were Martinrea International Inc. and BRP Inc.
Greg Newman, senior wealth advisor and portfolio manager, Scotia Wealth Management
Mr. Newman chose to take a philosophical approach. "For me it is both permissible and obligatory to try to 'shoot out the lights' – but if and only if one actually 'sees the trade,'" by which he means being completely convinced of the tremendous opportunity of the investment.
He notes examples where he has done this, such as recommending Facebook Inc. shares when they were in the range of $20 (U.S.) a share, Apple Inc. in the $70s, and, more recently, Shopify Inc. before it hit $30. Finding these big opportunities is usually a function of experience, hard work and the strength to stay the course through all the ups and downs, he notes.
"So if one is looking for the frosting on the cake, I say keep it in cash until the right idea comes along."