The majority of asset classes – government bonds, corporate bonds, developed world equities – are at extremely expensive levels relative to history, indicating low future returns. At the same time, we're also aware that attempting to pick market peaks in any broad sector is a fool's game that no one has been able to play successfully.
This makes strategy difficult. Investors are faced with two broad credible options, the first of which is to just stand pat and ride out whatever happens next.
The 'do nothing' strategy has more advantages than its passivity suggests at first. It dodges any attempt to time the market and history shows this is the most profitable practice. It also allows for the happy possibility that equity markets will become cheaper and more attractive in the best way, a rise in earnings growth that pushes price-to-earnings levels lower.
The second investor option is to de-risk portfolios – taking some amount of profits on expensive stocks and longer duration bonds – and raising cash. This strategy has one distinct disadvantage in that it likely ensures short-term underperformance of relevant benchmarks.
De-risking does, however, offer the possibility of longer term outperformance in a Warren Buffett-like way. The Oracle of Omaha always carries a huge cash hoard, and this gives him the flexibility to pounce on undervalued investments during periods of market weakness. Patient investors who raise cash levels will have the same chance, although they can't expect to have Mr. Buffett's magic timing.
This is a bit of a cop-out but I don't have any kind of prediction as to which of these strategies will be more successful. By temperament, I'm personally more comfortable carrying extra cash, developing a shopping list (Telus Corp., Red Hat Inc. and Stryker Corp. are already on this list by the way) and waiting as long as it takes.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Chorus Aviation Inc. Just days ago this stock closed at its highest level in over a decade. The stock offers investors an attractive dividend yield of roughly 6 per cent. The company is covered by nine analysts and has a unanimous buy call. Halifax-based Chorus Aviation owns Jazz Aviation LP, Air Canada's regional airline that provides services to many smaller communities. Jennifer Dowty has the details.
Imperial Oil Ltd. In the Canadian energy sector, where it has sometimes been difficult to recommend stocks, one in particular stands out for its lack of analyst enthusiasm: Imperial Oil Ltd., the oil and gas company majority owned by international giant Exxon Mobil Corp. Of the 21 analysts who cover Calgary-based Imperial Oil, just two have buy ratings, while 13 have holds and six have sells, according to Thomson Reuters' Eikon database. No other energy stock in the S&P/TSX composite currently has more than two sell ratings. David Milstead explains why investors should listen to the analysts this time.
Inovalis Real Estate Investment Trust. This REIT is just 3 per cent shy of appearing on the positive breakout list. The REIT has a forecast total return of over 14 per cent (including its 8 per cent yield). In the near-term, the unit price could retreat and fall below the $10 price level, trading back into its historical trading band. From 2013, until recent months, the unit price has been locked in a trading range, trading largely between $8.70 and $10. This is a REIT to watch, writes Jennifer Dowty.
Brick Brewing Co. Ltd. The Contra Guys are watching this beer stock very closely. In July, 2015, they wrote about Brick Brewing, which was trading at $1.65 and appeared to have some gusto left. This was a stock that they knew well, as way back in 2003 Benj Gallander purchased it at 67 cents. He sold less than a year and a half later at $2.34. After that, the stock crashed, with bankruptcy a real possibility. Undeterred, he bought in at 25 cents in 2008, keying on the fact that George Croft arrived as the chief executive and president. Mr. Croft had recently participated in a turnaround as president of Lakeport Brewery Income Fund, with the company being sold at a lovely premium to Labatt. Could lightning strike twice? Contra Guys Benj Gallander and Ben Stadelmann explain their rationale.
Home Capital's Oaken Financial announces major cuts in GIC rates
The attractive yields that Home Capital Group Inc. has been offering on its suite of guaranteed investment certificates will soon be no more: The alternative mortgage lender is dialling back its GIC rates next week, in a sign of improving confidence for the company. Its Oaken Financial division has been tantalizing investors with GIC rates that were well-above most other Canadian GIC issuers, especially the large banks, after Home Capital investors and depositors lost confidence in the lender earlier this year. David Berman gives all the details.
Gordon Pape: These ETFs offer ways to diversify your bond portfolio beyond Canada
Gordon Pape looks at two ETFs that can help investors achieve more global bond diversification outside of Canada: the iShares Core Total USD Bond Market ETF (IUSB) and the iShares Core International Aggregate Bond ETF (IAGG).
Take our back-to-school investing quiz – if you dare!
You've been waiting all summer and finally it's here: Investor Clinic's seventh annual back-to-school investing and money quiz. John Heinzl tests your investing mettle. So sharpen your pencil, pull out your calculator, and see how you do.
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What's up in the days ahead
There's no hiding from a strong loonie. Even the most domestically focused investor has little hope of entirely dodging foreign exchange movements, which can prove to be powerful determinants of equity returns. But there are ways of dulling the impact of this year's rise in the Canadian dollar. Tim Shufelt will explain how in Wednesday's Globe Investor. Also, look for John Heinzl's five-year recap of his Strategy Lab dividend portfolio and there will be more helpful number crunching for the best TSX value stocks courtesy of Norman Rothery.
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Compiled by Gillian Livingston