special issue: 5i research talks stocks & investing · • future proofing your portfolio:...

SPECIAL EDITION

Presents A Special Edition Featuring

• 40 Of The Most Important Lessons LearnedOver 33 Years Of Investing

• Future Proofing Your Portfolio:Blockchain, AI, and 3D Printing

• Pot Stocks Reach New 'Highs' On The TSX

SPECIAL ISSUE:

5i Research Talks Stocks & Investing

MONEYCANADIAN CANADIANMONEYSAVER.CA

SAVER

The Stars Group (TSGI.TO)

Boyd Group Income Fund (BYD_un.TO)

Constellation Software (CSU.TO)

$4.95

PM40

0354

85 R

0990

4

5i RESEARCH PROVIDES INDEPENDENT, CONFLICT-FREE INVESTMENT RESEARCH FOR REGULAR PEOPLE

FREE 1-YEAR

SUBSCRIPTION &

SAVE 25%

Details on Page 2

Now, during our limited time offer, Canadian MoneySaver readers new to 5i Research can gain access to:

Over 70 Research Reports Covering a range of sizes, styles and industries written in an easy-to-understand format.

Three Model PortfoliosTailored to all types of investors; balanced equity, income and growth portfolios.

Question and Answer SectionAsk Peter Hodson and team what they think of a stock, markets, or just make general queries!

Join now and don’t miss the latest stock research or model portfolio changes!

Over 75,369 investment questions

answered

* For new members of 5i Research only. Does not apply to existing members or renewals. Discounts cannot be applied retroactively. Offer valid until December 31st, 2018.

25%OffA One-Year Subscription to 5i Research

+Receive 1-Year FREE of

Canadian Moneysaver Magazine Digital Edition

To take advantage of this limited time offer visit:www.CanadianMoneySaver.ca/5i and click ‘Join Now’

Access all of the above with 25% off for a limited time*

Peter Hodson, CFAFounder of 5i Research Former Chairman of Sprott Asset Management L.P.

CANADIAN CANADIANMONEYSAVER.CA

SAVERIndependent Financial Advice For Everyday Use - Since 1981

MONEY

http://www.CanadianMoneySaver.ca/5i

5i RESEARCH SPECIAL EDITION

EDITOR-IN-CHIEF: Lana SanicharEDITOR: Peter HodsonCONTRIBUTING EDITORS:Ed Arbuckle, Margot Bai, Robert Barney, Isabelle Beaudoin, Dan Bortolotti, Bruce Cappon, John De Goey, Donald Dony, David Ensor, Ken Finkelstein, Derek Foster, Benj Gallander, Robert Gibb, Andrew Hepburn, Robert Keats, Cynthia Kett, Ken Kivenko, Camillo Lento, Marie-Josée Loiselle, Alan MacDonald, Brenda MacDonald, Gina Macdonald, Robert MacKenzie, Nick McCallum, Ross McShane, Ryan Modesto, Caroline Nalbantoglu, John Prescott, Kyle Prevost, Brian Quinlan, Wynn Quon, Rino Racanelli, Barkha Rani, Ed Rempel, Colin Ritchie, Scott Ronalds, Norm Rothery, Allan Small, David Stanley, John Stephenson, Kornel Szrejber, Brian Tang, Becky Wong.

MEMBERSHIP RATES: All rates for Canadian residents are printed on the inside back cover. Non-residents of Canada may purchase the online edition only – at $26.95 for one year’s service.

Canadian MoneySaver (CMS) is published by The Cana-dian Money Saver Inc., 470 Weber St North, Suite #104, Waterloo, ON N2L 6J2 Tel: 519-772-7632. Office hours: 9:30 am to 1:30 pm EST Website: http://www.canadianmoneysaver.ca E-mail: [email protected]

PRIVACY POLICY: CMS may make its members’ mailing list or e-mail addresses available to carefully screened compa-nies or organizations offering products or services that may be of interest to you. If you prefer not to receive these offers, send us your mailing label with “Do Not Rent” written on it. (Required statement. We do not rent addresses.)

Canadian MoneySaver publishes monthly with three double issues (July/Aug, Nov/Dec and March/April). Canadian MoneySaver is an independent, totally membership-funded magazine.

The information contained in Canadian MoneySaver is obtained from sources believed to be reliable. However, we cannot represent that it is accurate or complete. The views expressed are those of the writers and not necessarily those of The Canadian Money Saver Inc. Neither the information nor any opinion expressed constitutes a solicitation by us for the purchase or sale of any securities or commodities. Canadian MoneySaver is distributed with the explicit understanding that Canadian MoneySaver, its publisher or writers cannot be held responsible for errors or omissions. Shareholders of The Canadian Money Saver Inc, editors and contributors may at times have positions in mentioned investments/securities.

Copyright © 2018. All rights reserved.

No reproduction, transmission or publication of any of the contents of Canadian MoneySaver is permitted without the express prior consent of the copyright owner. To obtain permission to use any part of Canadian MoneySaver, contact Peter Hodson.

® – Canadian MoneySaver is a Registered Canadian Trade Mark of The Canadian Money Saver Inc. Printed in Canada ISSN: 0713-3286

We acknowledge the financial support of the Government of Canada.

Canada Post Publication No. 40035485

OCTOBER 2018 SPECIAL EDITION

SPECIAL FEATURES

40 Lessons Learned After 33 Years Peter Hodson 6

Future Proofing Your Portfolio Blockchain, 3D Printing, Energy Storage And Artificial Intelligence Moez Mahrez 9

Five Key Principles To Build A Portfolio Ryan Modesto 13

Management Fees And Expenses Can Greatly AffectYour Retirement Lifestyle Lana Sanichar 18

New Highs In The Cannabis Market: High Past Returns High Hopes, And High Valuation Barkha Rani 21

Saving Strategies You Can't Afford To Ignore (Over $110,800 In Savings!) Kornel Szrejber 23

Finding The Next Great Stock To Cover Ryan Modesto 26

25%Off


REGULAR FEATURES Testimonials 4

Sharing With You 4

Dividend & Company News 5

Model ETF Portfolio 5

Conflicts 14

Writer's Spolight 29

Q & A 33

Canadian DRIPs with SPPs 35

Model Portfolios 36

Specialty ETFs 38

http://www.canadianmoneysaver.ca

mailto:[email protected]

4 z Canadian MoneySaver z https://www.canadianmoneysaver.ca z 5i RESEARCH SPECIAL EDITION

TESTIMONIALS

After years of dealing with financial advisors who were making large amounts

of commission from my accounts, I finally found 5i Research! 5i Research provides exactly what they promise, Independence with Insight and Integrity! I have been a very satisfied client for the last 5 years, averaging 15% (balance fund). I find peace of mind knowing that 5i will provide investment views from years of experience at the highest levels. This company is truly for the individual investor, providing daily answers to member’s questions, weekly articles, semi-monthly company reports and monthly portfolio updates at a very reasonable price!

Jim R.

I’m a teacher in B.C. and I’ve been a 5i member since August 2012. Since I joined,

the 5i team has constantly provided me with valuable services such as answering my company specific questions, useful company reports and their three model portfolios. I’ve also heightened my investor IQ by following the question section and reading what other investors are interested in or doing. Without a doubt you’ve guided me to profitable companies that I have benefited greatly from. I truly appreciate the 5i team for their time and effort and moving me towards the right investing path.

Brent L.

5i Research is the best Canadian website I know of for do it yourself investors. I've

been a member since early 2012 and I still visit the site several times a week. It is great for beginners and more advanced investors alike. The model portfolios make it easy to follow along and learn how to invest in the markets with minimum knowledge or effort. I find the members questions very useful to track what's going on at most Canadian companies and find new investment ideas while improving my knowledge. There is a blog where you'll find trendy financial or stock market related articles picked or written by 5i's staff and a forum has recently been added where members can discuss various companies. I'll be forever a member and if you can only afford one paid subscription it should be this one.

Dominic T.

SHARING With You

Personal finance and investing go hand in hand. Without one, it is difficult to have the other. You cannot invest

without the right savings strategy (or savings for that matter) and investing is much tougher if you do not consider after tax returns, investor comfort, or how to best utilize tax-advantaged accounts. Canadian MoneySaver covers these topics extensively but for some time now we have been wanting to provide an issue that is more stock and investing focused. What’s more, we did not want it to cut into any of the great content from our ‘regularly scheduled programming’. So, this one is a bonus issue for all of our loyal readers. 5i Research has been around for over six years now and if you are not familiar with the company founded by Peter Hodson (owner of Canadian MoneySaver), we hope you take the chance to get to know us through this issue.

While it has never been easier to become a do-it-yourself (DIY) investor, the landscape in Canada has been less than supportive. The number of independent firms out there are dwindling, those without conflicts are likely close to zero, financial news, media and education providers such as other magazines are either seeing cuts or outright being shut down. Meanwhile, many financial institutions are coming under scrutiny for questionable sales practices and incentive systems when serving you, the end customer. Add in that Canada is home to some of the highest mutual fund fees in the world and it quickly becomes apparent that if you do not take steps to learn more about investing, the costs can be high.

While there are plenty of people who would be happy to help an investor for a 1% to 2% fee, there is nothing out there to encourage the individual to gain control of their finances or to provide a simple second opinion or to just bounce a few ideas off of. This is what we try to solve at 5i Research and Canadian MoneySaver. Through this special issue, we are going to look at some priceless tips that Peter has learned over his 33-year career, things to focus on when building a portfolio and how we find great Canadian companies. Then we turn to the more ‘fun’ side of investing and look at some new emerging trends in the investment landscape. Finally, in classic MoneySaver fashion, we take an in-depth look at savings strategies and the power of compounding over the long-term. Our hope is that readers learn something new about stocks and investing and even start to consider taking their finances into their own hands. If you found this issue helpful and decide to give 5i Research a chance, then thank-you in advance.

A final big thank-you to all of our readers and members at 5i Research and Canadian MoneySaver as well as the team that put this all together. Without all of you, neither of these great resources for the Canadian saver and investor would exist.

Ryan ModestoRyan Modesto CFA, CEO at 5i Research Inc.

https://www.canadianmoneysaver.ca

Canadian MoneySaver z https://www.canadianmoneysaver.ca z 5i RESEARCH SPECIAL EDITION z 5

MoneySaver DIVIDEND& COMPANY NEWSIn this column we list recent news, events, dividend income news and any other relevant information for

MoneySavers. News items are those received after our last publication date.

Canadian MoneySaver MODEL ETF PORTFOLIOETF SYMBOL CATEGORY PRICE # OF

UNITS TOTAL % OF PORTFOLIO

iShares 1-5 Year Laddered Corporate Bond CBO Fixed Income 18.30 506 9,259.80 6.3%

iShares DEX Universe Bond XBB Fixed Income 30.57 166 5,074.62 3.5%

iShares S&P/TSX Canadian Preferreds CPD Fixed Income 14.30 460 6,578.00 4.5%

iShares S&P/TSX Capped Composite XIC Equity: Canada 25.93 980 25,411.40 17.4%

iShares S&P/TSX Cdn. Div Aristocrats CDZ Equity: Canada Div. 26.63 613 16,324.19 11.2%

iShares U.S. High Yield Bond Index ETF XHY Fixed Income 19.28 350 6,748.00 4.6%

Vanguard FTSE Emerging Markets Index VEE Equity: Emerging 32.97 194 6,396.18 4.4%

Vanguard FTSE Developed Europe All Cap VE Equity: Interntional 29.03 304 8,825.12 6.0%

SPDR S&P 500 SPY Equity: U.S. 290.31 29 10,975.84 7.5%

Vanguard Div. Appreciation Index VIG Equity: U.S. Div. 109.36 74 10,550.37 7.2%

iShares Russell 2000 Growth IWO Equity: U.S. Growth 220.33 45 12,925.99 8.8%

BMO Covered Call Utilities ZWU Equity: N.A. Div 12.75 437 5,571.75 3.8%

Vanguard Information Technology Index VGT Equity: U.S 202.80 27 7,138.54 4.9%

Consumer Discretionary Select Sector SPDR XLY Equity: U.S 116.93 43 6,554.99 4.5%

Cash Cash Cash 7,938.59 5.4%

Total Portfolio 146,273.39

Exchange Rate 1.30 $ Gain/(Loss): 46,273.39

Inception value: 100,000.00 % Gain/(Loss): 46.27%

Inception date: October 18, 2013 % Annualized: 9.46%

Prices are at market close on August 31, 2018. Individual prices are in USD$. Portfolio values, $Gain/(Loss), % Gain/(Loss), % Annualized all reflect USD$ values are converted to CAD$

CURRENT NOTES: none

OTHER NOTES: Keep in mind all investors are different. This portfolio is designed as a guide in setting up your own personal portfolio. Unique considerations and adjustments need to be made to reflect your personal situation. Please perform your own due diligence before making investment decisions. For use by Canadian MoneySaver subscribers only. Not for redistribution.

Please direct portfolio questions to [email protected]

• Hardwoods Distribution (HDI) raises dividend by

10.3%

• Keyera (KEY) raises dividend 7%

• Stingray Digital (RAY.A) raises dividend by 9%

• Saputo Inc (SAP) raises dividend by 3.1%

• Royal Bank (RY) boosts dividend by 4.2%

• CAE Inc. (CAE) raises dividend by 11%

• Fiera Capital (FSZ) raises dividend by 5.2%

• CI Financial (CIX) cuts dividend nearly in half




40 Lessons Learned After 33 Years

Peter Hodson

If you count actual jobs, I have now spent more than 33 years in the investment industry. If you start from my first stock trade, I have spent 44 years watching, analyzing and trading stocks.

Even after so long, there is still lots to learn. That’s why I love the market—every day is different; every day creates an opportunity to either make—or lose—money. My goal—and yours—is to be on the right side of that equation.

While you will never know everything there is to know about the market, and in fact, when investors think they know everything, they are clearly destined for trouble, experience does help. Over the past 44 years, I have picked up a few pointers and guidelines. They don’t always work, but they tend to work more often than not.

With this special issue of Canadian MoneySaver, I am going to share with you some of my favourite investment/trading guidelines. Remember, these are just for you. We don’t manage money, and don’t benefit from anything you do. It is simply our way of trying to help you, the individual investor, get better long-term investment performance.

Investor Rules To Live By:1. Never sell a stock JUST because it is up. You

will never get a triple if you sell a double. You will never own a stock that goes up 3,000% if you sell after it rises 100%. The key here is to ask yourself: “Why is this stock up?” and “Why are others buying it, if I am thinking of selling it?”. The answer is usually, the stock is up because the company is doing fabulously well. Others want in. With strong demand confirming it is a good stock, maybe selling is not the best move.

2. New highs are a great way to find new stocks. I go through the new high list every single day. When a stock hits a new high, I ask myself: “Why are investors paying more for this company than they ever have? What’s going on here?” Generally, what’s going on is that you have found a fabulous new company to investigate further.

3. A diamond in the garbage is still a diamond. Sometimes, you will have a great company that no one else seems to like. That doesn’t mean it is not great. If you found a 15 carat diamond in the trash, would you throw it out? Of course not: it is still a diamond. Sometimes, you need patience with your stocks.

4. The Toronto Stock Exchange (TSX) should not be followed. The TSX is a market cap-weighted index, which means bigger companies get more representation in the index. Remember Nortel? At one time, it was 56% of the TSX Index. Right now, the TSX is made up mostly of financials and resources. You can’t “spend” an index so why do you even look at one? Make sure your own portfolio is properly diversified. The TSX Index is not.

5. Doing nothing in a crisis is usually the best plan. When the market corrects, or even crashes, there will be no shortage of doomsayers and brokers who will advise you to sell. They want you to panic, so that their “expertise” will be more valuable to you. But smart investors know they do not NEED to do anything. Doing nothing is almost always the best response. Buying into a downturn usually works, but you cannot time the actual market bottom, so doing nothing is even less risky.



6. “Initial” dividends are awesome: When a company declares its first-ever dividend, pay attention. A very first dividend is a huge sign from a company that business is going well.

7. Avoid companies below a $25 million market cap: These are often just lottery tickets. Even if it is a “good” company, very high public listing fees simply eat away at a company’s capital, every single year. Let someone else take all the microcap risk. You can buy later, when the company has proven itself and risks are dramatically lower.

8. Greed will kill your portfolio. Do not use excessive leverage, speculate, or take a flyer. This is not investing; it is gambling.

9. High fees will destroy your portfolio performance. We think all mutual funds with fees of more than 1.5% should be banned from existence.

10. Corporations think differently than investors. The worst investors are the ones who focus too much on quarterly results. The best companies are the ones that ignore them.

11. Sector selection is more important than stock selection. Your sector allocation decision should be key. When a sector “moves”, even the “bad” companies show great returns. If your portfolio is invested in the wrong sectors you are going to have a tough time getting good investment returns. Having some exposure to all sectors is often better than trying to time a single sector.

12. Water the flowers: You should be willing to buy MORE of a company after it has done well. Keep concentration limits and portfolio weights in mind, but a company doing well deserves more of your money.

13. You are going to have loser companies: SELL THEM. If you don’t have losing investments you are not trying hard enough to find winners.

14. Math works for you: You can have a stock go up 10,000%, but you can only lose 100% on a stock. You just need a few giant winners to make up for dozens of losers.

15. “Hope” is not an investment strategy.

16. Selling “when I break even” is a horrible investment plan.

17. Doubling down rarely works: Just because you were wrong at $25 per share does not make you more right at $10 per share.

18. There’s this sweet section of companies that go from $50 million to $100 million in market cap value. At $100 million, people care. At $50 million, they don’t care, but it’s exactly the same company.

19. You must believe in your stock selections. If you have no confidence, why do you own them?

20. Insider ownership is very important: You want executives of the company you buy committed to the company, and not with options, with shares. If they are going to lose you money you want them to hurt personally.

21. Assume any stock could drop by 50% tomorrow. What would your reaction be? Make sure your portfolio matches your risk profile.

22. Good companies tend to continue to do well. The market will always gyrate, but quality will outperform, longer-term.

23. When one of your stocks decline ask: “Are people selling because of earnings? Are they selling because they’re worried about the market? Or are they selling because it’s down?” Often, selling begets more selling. This can create some good opportunities.

24. If you have set up your portfolio properly, you should see the need to make very few changes over time.

25. Companies that grow their dividends are vastly superior to companies with high-dividend yields. Don’t get sucked into the 8% yield. Buy the 1% yield that’s going to go to 2%, 3%, 4%, 5%, etc.

26. If you consistently invest then it really doesn’t matter if the market goes up or down. At the end of 10 years you’ll have a good average price.

27. There is always a crisis somewhere: Investors like to worry, and there is always something to



worry about. This prevents them from seeing the good things out there. In 44 years, we have seen everything from war to pestilence. Guess what? The market is still here and has done exceptionally well in that time.

28. Fear always results in greater volatility than greed. Sure, most investors know that the market runs on greed and falls on fear. But when investors get scared they are far more reactive than when they get greedy. When a company misses earnings estimates it almost always falls more than companies that beat earnings estimates. As they say, the market “takes the stairs up, and the elevator down”. When there is bad news at one of the companies you own, take a deep breath. The stock may be down a lot, but is the news really that bad? Investors, as a herd, tend to shoot first and ask questions later. Be careful not to get shaken out of a good stock just because of a bad headline.

29. Hostile takeovers almost never succeed at the first bid: In the majority of cases a higher bid emerges, either from the first buyer or a third party.

30. Investors still focus too much on the short term.

31. Momentum is an investor’s best friend.

32. Buy companies that are doing better than their peers. You are looking for leadership, not also-rans.

33. Always be willing to pay for quality. It is better to pay a premium for a great company than to get a so-so company at a discount.

34. Avoid companies with a lot of debt. Debt can kill a company, especially in a recession. It is very hard for a company to go bankrupt if it has no debt (it is not impossible, just harder!).

35. Do not be afraid to invest. We recently heard an investor say they were not going to invest until the 'market was on a firmer footing'. We don't even know what this means. Will they invest when the market has gone up more? Or when it crashes? As surely a crash would not be 'firmer' footing. There will ALWAYS be something for an investor to worry about.

If you look for reasons not to invest you will find them and never invest in anything. The best time to invest is yesterday. The second best time is today.

36. Don’t get emotionally attached to a stock. Bad decisions are made when this happens. What stocks you own and how they perform does not and should not define you.

37. You can’t time the markets. Accepting this can alleviate a lot of stress and worry about “if this is the top”. Downturns, recessions and depressions will occur many times in the future and should be expected, so act accordingly. Keep your portfolio allocated in a way that meets your needs and risk profile and stay diversified. When markets go down, stick to your plan and rebalance accordingly.

38. Don’t define yourself as a type of investor (value or growth) as this limits your investable universe and can make you pass on great investments you would have owned otherwise. You can lean more toward one style or another but totally ignoring the other side can have opportunity costs.

39. “Perfection is the enemy of progress”. So many times, we see investors diving into nitty gritty accounting metrics or minute details before they want to own a stock. By the time they have developed the perfect analysis, they have missed out on a large deal of returns or the whole opportunity. You will never know everything about a company or a stock. Embrace this and know the difference between knowing enough to make an informed decision while understanding the risks and the declining marginal benefit of knowing more.

40. Valuation is not the be all and end all. Yes, it needs to be considered but I cannot count the number of times some of the best stocks in North America were called too expensive only to double or triple from those levels. Focus on finding great, growing companies with great fundamentals first. With these companies, whether a stock is at 15 or 20 times earnings will not matter five years from now.

Peter Hodson CFA, Founder of 5i Research , Former Chairman of Sprott Asset Management L.P.



Future Proofing Your Portfolio Blockchain, 3D Printing, Energy Storage And Artificial Intelligence

Moez Mahrez, cfa

Before investing in a ‘trend’, it is crucial to know what one owns and the risks involved, especially if you are investing long-term. Unfortunately, many investors get blinded

by recent trends and hot themes and invest based only on the basis that others are investing in something (some may recognize this as the fear of missing out or ‘FOMO’). While some of these spaces can surely become overhyped and outright speculative, they should not be ignored outright. We think an investor should once in a while take some time to philosophize on where the future is headed and ensure that their portfolio is protected from future developments and even stands to benefit from them. We call this future-proofing your portfolio. For investors that may have missed out on say the social media stocks over the last few years, the opportunity costs here can be real but avoided even with a small sprinkling of exposure to some of these potential high growth (but high risk) areas of the economy. Let’s take a look at some of the trends and ways an investor can gain exposure through ETFs while starting with one broad warning, most of these technologies we are looking at remain high risk and in some cases speculative for many investors, so use this as a starting point on these types of industries and if they may fit into your portfolio.

Why Invest Through An ETF?ETFs are a great way to get your feet wet with a space

that is unfamiliar. For example, if you are interested in prospects for an industrial sector in Germany but are unfamiliar with the market, it is instead wiser to lower your risk of the unknown and find an ETF with diversified exposure to industrials in Germany. Similarly, when investing in the future, the ‘unknown’ is determining which company is going to be the next super stock in these early stages of adoption, so it is often best to spread out, or diversify, your investments among

various companies in these spaces. This allows an investor to have more general exposure to a developing theme or industry opposed to trying to guess which companies will be around ten years from now.

Blockchain TechnologyBlock chain technology and Bitcoin are words often

used interchangeably. This may be due to the fact that they both arose into public awareness around the same time and that blockchain is the technology used for Bitcoin. However, investing in a blockchain technology is entirely different than investing in cryptocurrencies. Cryptocurrencies are more of an asset class (some would say a commodity) whereas blockchain is a shared ledger system that can have an array of applications for many different industries. Many large-cap companies like IBM have not only dabbled with blockchain technology but have begun significant investments related to its application and development for businesses, resulting in greater efficiencies. Blockchain has the potential to transform industries and bring huge costs savings. We are still in the early stages of blockchain development and are likely to see rapid developments in the coming years. According to Netscribes1, it is estimated that there will be a 42% expansion per year on average until the year 2022 in the blockchain space. According to Gartner group, blockchain is estimated to add $3.1 trillion in business value by 20302.

A Fund For Blockchain ExposureAmplify Transformational Data Sharing ETF (BLOK)

is actively managed which will serve it well in a rapidly changing industry compared to passive peer ETFs and for not that much more of a cost (0.7% MER). BLOK also has the highest AUM of $167M compared to peers. In general, we prefer to avoid funds under $100M in



assets under management (AUM) to avoid high price fluctuations due to lack of volume and liquidity and potential closing of funds. Looking at Table 1, we can see that compared to its peers, a decent portion of BLOK is invested in small and micro-cap companies (~20%), which is desirable for investors seeking to capture potential growth of the blockchain industry through smaller companies that emerge as winners. BLOK’s large cap holdings provide some stability to the fund and are some familiar tech names such as Intel, Square, AMD, Overstock, Yahoo!, Alphabet, Microsoft and IBM. Since we are at the very early stages of blockchain technology, performance results of ETFs in the space will provide little insight. Therefore, it becomes very important to look at not only the creditability of the ETF issuer but also the methodology by which the securities in the fund are selected. What stands out with BLOK is the focus on selection of companies that will likely have the most impact to their revenue by incorporating blockchain technology. This is sound investing rationale as it will more likely reflect direct gains in the fund itself, whereas other blockchain funds tend to focus on how much blockchain integration will take place in a company.

Table 13

Artificial Intelligence And 3D-Printing

Whether it is asking Siri what movie is playing tonight, adding a friend on social media from the “suggested friends” section or conducting a google search, you’ve encountered some form of Artificial Intelligence (AI) in your day to day life. AI has also branched out into other fields including applications of language processing, robotics in assembly lines, 3D-printing, self-driving cars and much more. AI is also helping businesses. According to Statista, 84% of enterprises believe investing in AI will lead to greater competitive advantages, and global revenues from AI for enterprise applications are projected to grow from $1.62 billion in 2018 to $31.2 billion in

BLOK BENCHMARK COMPARISON MARKET CAP

SIZE

BLOKSegment

Benchmark

Large (>12.9B) 72.62% 73.05%

Mid (>2.7B) 5.6% 19.57%

Small (>600M) 18.89% 6.60%

Micro (>600M) 2.89% 0.79%

2025 attaining a 52.59% Compound Annual Growth Rate (CAGR) in the forecast period4. We think both of these spaces are very interesting because on one hand it is very difficult to imagine where and how far these technologies can go but on the other hand it should be clear that they have the potential to upend current industries and create brand new ones. As noted earlier, not taking some time to think about how these areas could impact a portfolio longer-term could be a risk in itself.

Global X Robotics And Artificial Intelligence ETF (BOTZ)

If you’re looking for pure exposure to the AI industry, the Global X Robotics & Artificial Intelligence ETF (BOTZ) is probably your go-to. With Assets under Management (AUM) of $2.5 billion this fund has managed to gain significant attention in a span of just under 2 years. This fund contains industry leading and high-quality companies that are not new to the business and have either robotics or AI as a central focus of their business. The combination of robotics and artificial intelligence will likely serve investors well as these two industries go hand in hand. Companies like Nvidia, Mitsubishi Electric, and Intuitive Surgical can be found in the top ten holdings. The number of holdings is relatively low at 37 companies in total, with the top ten occupying 56% of the fund. This means less diversification and more concentration risk, but that is not a “bad” thing as a satellite holding in a portfolio. The market capitalization breakdown looks healthy with 56% in large-cap, 20% small-cap, 15% mid-cap and 9% micro-cap. Large-caps are always great for a portfolio, but small and mid-caps are important for capturing growth. The 9% in micro-caps is not surprising to see given that there has been a 14X increase in the number of start-ups developing AI systems and a 6X increase in annual venture capital investment in U.S-based AI start-ups as per Forbes5. The country breakdown of this ETF reflects the global nature of the robotics and AI industries, with Japan leading the pack at 43%, followed by the U.S. at 35%. Japan has undoubtedly shown its determination of being at the forefront of technological innovation even ahead of the U.S.

3D-Printing ETF ExposureGlobal spending for 3D-printing is projected to

grow at a 5-year compounded annual growth rate of 18.4% and is expected to reach $23 billion6. The 3D printing industry has exceeded $7.3 billion according to Wohlers Associates7 and is projected to reach between



$180 billion to $429 billion by 20258. What makes 3D-printing a compelling investment idea is the far reach and penetration of industries. Industries that benefit from 3D-printing range from automotive, pharmaceutical, medical, industrials, electronics, to jewelry and manufacturing. Due to the technology of being able to print raw materials, tools and manufacturing components (i.e. nuts, bolts, rubber, complex parts of machines, and yes even body tissues and organs).

Currently the only ETF on the market with this type of exposure is the 3D-Printing ETF (PRNT). Although it may be too early to judge performance as inception was late 2016, the fund had a strong 2017 return of 15.96%. Investors should be aware that the fund’s small-to-medium-cap tilt means high volatility. Its AUM at $51 million is a bit low, but understandable for a relatively newer fund and volume can be low so an investor needs to be cognizant of the risks here. The MER at 0.66% is considered average. It is designed to track the Total 3D-Printing Index, which tracks companies in the 3D-printing industry. The companies found in PRNT are industry leaders like Stratasys Ltd, 3D Systems Corp, Ex One and HP. The top 10 companies in PRNT give investors good diversification in the 3D-printing industry. For example, Organovo is a medical research company which designs and develops functional, three-dimensional human tissues and Prodways provides 3D printing solutions such as printing machinery for industrial, consumer and automotive sectors.

Energy Storage And Smart GridsRenewable energy is another, but perhaps less

attention-grabbing technology of the future and there is little doubt that as innovations continue and costs gradually fall below that of fossil fuels, renewables will continue to occupy a larger share of energy consumption in the future. However, one of the concerns investors have investing with the clean energy industry is that many forms of clean energy are facing regulatory and adoption hurdles. Another concern is that traditional fossil fuels offer both energy harvesting and a way of storing that energy (such as a gas tank), whereas renewables only provide energy harvesting due to their intermittent nature (solar energy requiring the sun, wind energy requiring wind etc.) This is where energy storage like batteries and smart grids emerge as a way for renewables to be more efficient and competitive than fossil fuels. Energy storage solutions can be made compatible with any type of renewable energy whether it be solar, wind, biofuels, tidal or other forms. These factors make energy storage an integral part of the energy revolution taking place and

present a robust way to invest in clean energy.

The first thing that comes to mind when we think about energy storage is electric vehicles (EVs). However, EVs may only be a small portion of the massive changes we could see with the energy sector. Electric cars, of course, get more attention because of all of the hype around them, not to mention Tesla, its stock price and its CEO, of course. However, investors should not underestimate the potential for commercial applications of energy storage. We could argue that EVs that run only on batteries may have more economic barriers (i.e. replacing the standard engine combustion vehicle) than other commercial applications of energy storage such as utilities, home energy storage, and cost savings for companies.

Lithium is the primary mineral used in Li-ion batteries and is mined and refined for a variety of applications including cell phone batteries, nuclear weapons, medical uses and aircrafts. Where we will see its increased use is in lithium batteries for EVs, electronics, home energy storage, utilities and other energy storage applications. Lithium battery costs have had a close to threefold decrease in the past five years from about $400/kWh to $150/kWh.

A great ETF option for exposure to this space is the Global X Lithium & Battery Tech ETF (LIT) listed on the NYSE Arca. The strong point of LIT is that it exposes investors to the various companies involved in the mining, refining and production processes, allowing investors to reap the benefits of synergies that those companies achieve. LIT will also allow investors to benefit from increases in demand of the lithium metal itself, giving investors a unique clean energy and commodity exposure simultaneously. LIT holds 33 companies, however, the top 10 holdings occupy a whopping 80% of the fund, so there is not as much diversification and risk reduction as we would perhaps like to see. Finally, the MER is a little on the high side at 0.75%, so willing do-it-yourself investors may also consider constructing their own portfolio of these top 10 holdings to more or less replicate the performance of this fund.

Batteries are not the only thing that are essential for clean energy efficiency. Grid technology is important for establishing large spanning networks and distribution methods for electrical energy. For investors interested in grid technology, First Trust Nasdaq Clean Edge Smart GRID Infrastructure Index (GRID) is an ETF option. It tracks companies in the electric grid infrastructure sector and gives investors diversified exposure in the space.



Only about one quarter of this fund is invested in smart grids, which is a newer technology designed to distribute energy where it is needed in an efficient manner. The rest is invested in traditional electrical grid companies, transmission companies and other non-grid companies. Traditional grid is a more mature industry, so it should provide more stable returns. The transmission industry is another key component to renewable energy efficiency. This fund has been around since late 2009 with a since inception return of 6.97%. Although its AUM at $35 million is low from a liquidity and volatility perspective, it is also understandable given it is a niche ETF. This fund gives good global diversification with about 57% in the U.S. (a vital market) about 38% in Europe and the rest (5%) in Japan. Overall this ETF is worth its relatively high MER of 0.7% mostly for its diversified exposure to the grid space and relatively stable returns for a niche fund.

ETFs provide a great way for investors to venture into the unknown and the new without taking over-concentrated risks. In our fast-paced world, new technologies and investment opportunities arise a lot more frequently than they did in the past. If you told someone ten years ago that a social media company would be one of the largest and arguably most influential companies in the world, they would have called you

crazy. Blockchain, AI, 3D-Printing and energy storage are all trendy topics with many risks and uncertainties but ignoring them outright could be just as dangerous to a portfolio. It may be too early for many investors to dip a toe in these sectors but building up familiarity with these world changing technologies can make an investors job that much easier when these emerging spaces start to become more mainstream.

Moez Mahrez, CFA , Investment Analyst at 5i Research Inc., Waterloo

1 https://www.netscribes.com/about-us/media/press-releases/global-blockchain-technology-market-worth-usd-13-96-billion-2022/

2 https://www.gartner.com/doc/3627117/forecast-blockchain-business-value-worldwide

3 https://www.etf.com/BLOK#fit4 https://www.statista.com/statistics/607612/worldwide-artificial-

intelligence-for-enterprise-applications/).5 http://cdn.aiindex.org/2017-report.pdf6 https://www.idc.com/getdoc.jsp?containerId=prUS441944187 http://wohlersassociates.com/2018report.htm8 http://www.mckinsey.com/insights/business_technology/

disruptive_technologies

Growth Versus Value

We have seen the data get sliced in varying ways to show which investment strategy outperforms the other. The one thing an investor can be sure of is that any and all strategies will have their time in the sun and outperform only to be a laggard in another time-period.

Currently, value investors are experiencing lagging returns over the last ten years. It has not always been this way and it will not always

be this way going forward. Understanding that different styles will perform well in different periods though is a justification in itself for diversifying your investment strategies by style as well as by asset class, geography and sector.

You can read more here: 5iresearch.ca/growth-vs-value

Source Ryan Modesto


https://www.netscribes.com/about-us/media/press-releases/global-blockchain-technology-market-worth-usd-13-96-billion-2022/



https://www.gartner.com/doc/3627117/forecast-blockchain-business-value-worldwide

https://www.gartner.com/doc/3627117/forecast-blockchain-business-value-worldwide

https://www.etf.com/BLOK#fit

https://www.statista.com/statistics/607612/worldwide-artificial-intelligence-for-enterprise-applications/

https://www.statista.com/statistics/607612/worldwide-artificial-intelligence-for-enterprise-applications/

http://cdn.aiindex.org/2017-report.pdf

https://www.idc.com/getdoc.jsp?containerId=prUS44194418

http://wohlersassociates.com/2018report.htm

http://www.mckinsey.com/insights/business_technology/disruptive_technologies

http://www.mckinsey.com/insights/business_technology/disruptive_technologies


Five Key Principles To Build A Portfolio

Investing and managing your own portfolio can be hard but it doesn’t always have to be. We think if an investor can get a few of the big things right and think long-term, it can go a long way to

making their investing journey a smooth one. Of course, this means an investor needs to know what the most important aspects are: Diversification, Costs, Weighting/Positioning, Rebalancing and Tax Efficiency. In our view, if an investor can address these five key principles when setting up their portfolio, they will be well on their way to retirement. The below items assume we already know what an appropriate asset allocation is (i.e. conservative, balanced or growth). Once you know what the general asset allocation should be, you can then start to work at building up to these allocations.

DiversificationThis is the only aspect of finance where investors get

a “free lunch”. Everything else has an offset or a give and take. Diversification, however, is the one area where an investor can reduce risk while increasing returns. The basic idea behind diversification is that an investor should hold various assets that move in different ways, which reduces risk and increases returns. Risk reduction occurs from not having all of your eggs in a single basket. If one asset falls, there are ‘X’ others that can go up. The return enhancement comes from a few factors. On one hand, having more investments increases the likelihood an individual holds a winner, opposed to say holding a single stock that has a 50/50 chance of rising. Spreading your investments around should increase the chances that they are correct more often than not. The other benefit of diversification is that it allows an investor to rebalance (another key principle we discuss) and live to fight another day if they make a couple of bad investments.

Ryan Modesto, cfa

When we talk about diversification, we are talking about diversification across assets (stocks and bonds), geographies (USA, Canada, emerging markets, international), industries (Technology, Industrials, Financials, etc.) and even style (value and growth) although admittedly this last point may be getting a bit into the “weeds”. In general, a portfolio should have some exposure to all of these different areas. While the amount an individual allocates to a specific area will differ depending on the situation, having the various exposures helps to insulate investors from things out of their control such as a recession occurring in a specific geography, or tariffs impacting a single sector. Perhaps most importantly, diversification allows an investor to make some mistakes and not risk their retirement savings because of a few missteps.

The 5i Research Model Portfolio Approach: While the model portfolios focus on Canadian equities specifically, we design the portfolios so they are diversified across industries, company size (large and small-cap) and style (value, growth, dividends).

CostsWe discuss the importance of managing your cost

base and the impact it can have on portfolio values over the long-term in another article. The concept is an important one, especially in a portfolio, since those costs add up over time. What’s more, they are often unseen costs. Your mutual fund, Exchange Traded Funds (ETF) or investment advisor do not send you a receipt every time they bill you. The charges come out of your investments and are less noticeable in a portfolio that moves up and down any given day to begin with. The main reason we think costs deserve to be a key principle is primarily because it is something that is well within the individual’s control. You cannot predict or control



in Canada makes billions on you. They don't want this gravy train to stop.

But we do. No one cares about your money more than you, so we think YOU should be in charge of it.

Don't worry, it is not as hard as you think. The investment industry likes to create fear and worry, and uses complex terminology so you think you need an expert. That 'expert' of course is often nothing more than a glorified salesperson. You don't need an expert: you need some basic rules and some common sense. Your savings in fees alone will almost guarantee you better performance over the long term than your advisor.

When markets gyrate, brokers want you to 'do something'. Because when you do something, they make more money. But 'doing nothing' is almost always the best course of action when markets are volatile. But your highly-paid advisor can't do nothing and still justify their very high fees.

So investors pay more in fees, pay more in taxes, and own too many underperforming securities that are not right for their situation.

We have some goals at 5i Research. We want to help you become a better do-it-yourself investor. We want to eliminate mutual funds. We want to see all Investment Bankers disappear through lack of business.

We want YOU to be a better investor. We want YOU to have a better retirement. We want YOU to be in charge.

We want no conflicts.

The next time you are about to buy--or sell--any investment, ask yourself 'who is making money here?' Often, it won't be you.

IT'S TIME TO CHANGE THAT.

Source: Peter Hodson, Founder of 5i Research

When your financial advisor suggests you buy a stock, how do you know they are not just doing it to earn a commission?

When a stock analyst puts out a 'Strong Buy' on a company, how do you know they are not doing it just to score points with that company and get incremental investment banking business?

When a fund manager goes on TV and says he/she likes a company, how do you know they are not just trying to prop up the value of their fund?

When a stock broker gets you to buy a new issue, do they tell you that commissions on new issues are FAR HIGHER than they are on existing securities?

When an analyst puts out a target price on a stock, do they really think you should sell when it reaches that target, or do they just want to generate extra trading commissions?

When you buy a mutual fund from a financial planner, do they tell you that they are incentivized 1% a year to try and keep you invested in that fund?

These are all conflicts of interest within the investment industry today. Shockingly, investment advisors do not have a fiduciary duty to act in your best interests.

Everyone--and we mean everyone--in the investment business wants to make money off of you. They want to manage your money, sell you mutual funds, sell you new issues, sell you structured products, get you to trade too much, get you to 'react' to headlines, and get you to give them more of your money because they like to make you 'scared' of the market.

All of this, in our view, is wrong. The investment industry is so stacked against you, the individual investor, that it is designed to fail the individual investor. The industry doesn't want you to look after your own money. Why not? Well, the industry

CONFLICTS



what the Toronto Stock Exchange (TSX) is going to do any given year. You can buy low-cost ETFs or talk to an advisor about what value you are getting for your fees. If you can control your costs, which add up over the years, why wouldn’t you? It is important to note here that we are not necessarily saying low-cost is best (although in many cases it is.) Most important here is that an investor is getting value from what they are paying for and not paying for something they could do themselves with ease. Decreasing the costs structure of a portfolio can be immediately influenced by an investor and these changes have a defined and knowable 'return'. Returns like this are hard to come by if not impossible when investing so should be closely considered by all investors. Here are a few ways an investor can control their portfolio costs:

• FUND FEES: Switching from a high cost fund to a lower one or moving from a high cost active fund that is a closet indexer to an index fund.

• TRANSACTION COSTS: Using a low-cost investment broker to limit charges on trades or calling up the current broker and trying to negotiate lower fees.

• FOREIGN EXCHANGE (FX): Many investors utilize a technique called Norbert’s Gambit as a means to reduce FX conversion fees.

• TALK TO YOUR ADVISOR: If you have an advisor, you could always just ask about ways to reduce the fee. It does not have to be an adversarial conversation and the advisor should have your best interests in mind and should be happy to find ways to reduce the cost structure. If they balk at the request or shrug it off, this could simply be a red flag as to who the advisor is really looking out for.

The 5i Research Model Portfolio Approach: We are big fans of low-cost solutions and try to avoid high costs wherever possible. Fortunately, there is no ongoing fee for an investor to access and shadow the models in whichever form they like and the annual rate to gain access to all the 5i services is one of the lowest out there.

Weighting/PositioningThis is an important principle to grasp and maybe

the most difficult as there is no right answer on position weights. When we are discussing this topic, we are referring to the size of single positions in a portfolio. The key here is that no position is so large that if it does not work out, it puts your retirement goals or financial goals

at risk. Position sizes should be set in a way that they allow an investor to make a stumble and easily get back up and continue with the marathon. The other important aspect with position-sizing is that of investor comfort. If a weight is large enough that an individual is losing sleep or feeling stressed about it, then it needs to be reduced. Regardless of whether the positioning is appropriate at face value, investors make the worst decisions when feeling stressed or pressured. Also, investing is supposed to make your life better, not induce stress. So, if investors finds themselves worried about the size of a holding, that is usually a good sign that it is too large and something needs to be done.

We did mention how there is no single answer as to what is appropriate for weightings but there are a few guidelines we think an investor can follow. With an appropriate asset allocation set (60/40 stocks/bonds as an example), we think an investor can view position-sizing at three different levels (note we are taking a view relative to the equity portfolio at this stage, as opposed to relative to the total portfolio that would include fixed income and cash):

• GEOGRAPHIC: Ensure the portfolio is not a bet on a single economy or geography. We often see Canadian investors with a geographic concentration to Canada upwards of 80% of the equity portfolio. A good rule of thumb would be that if any single geography is over 65% of a portfolio, it is probably too much.

• INDUSTRY: Similar to geographic concentrations, a portfolio should not be a bet on a single industry. We often see energy and financial allocations in excess of 50% of a portfolio. This means where oil or financials go, so will your portfolio. As a general rule, we would typically aim to have no more than 25% of an equity portfolio allocated to a single sector (note there can be exceptions for edge cases.)

• INDIVIDUAL POSITIONS: If we are referring to stocks, we think a position weight of 2.5% to 5% is appropriate depending on the type of holding and risk tolerance of the investor. At less than 2.5%, the odds of a winning stock impacting a portfolio in a material manner is low and it gets closer to an index fund. Above 5% (but closer to 10%), the portfolio then becomes more of a bet on that single security. Again, there is no right answer here as there are many dependencies, but we think this range is a good starting point. One caveat here would be for fund investors. Depending on the fund, in some cases an investor could argue holding only one to five ETFs, so the weighting would obviously be much higher. In general, an investor sees



most of the benefits of diversification between 25 and 35 individual holdings. More holdings will not hurt a portfolio, simply the benefits of the additional holdings are greatly diminished at this stage.

The 5i Research Model Portfolio Approach: We typically define a “full position” as being 5% and a half position as being 2.5%. This way, when a stock we like does well, it helps to benefit the whole portfolio. If an investor is confident in the research they have done and remain diversified, they should let the hard work pay off and contribute to the portfolio through gains. Positions at 1% or less will do very little for most portfolios, even if they double. We aim to hold 20 to 30 positions in the model portfolios.

RebalancingRebalancing is a bit of a result from some of the above

principles but deserves its own section. The concept of rebalancing is that an investor sells a little bit of their winners and adds it to their losers. This allows some profits to be taken on the way up, manages position sizes (as stocks that are increasing are also getting bigger in the portfolio itself ), and moves money from what are likely holdings with higher valuations into names that are lower valuations. There are two main ways an individual can approach rebalancing:

• TIME BASED: This one is as simple as setting a date on your calendar (monthly, quarterly, semi-annually or annually) and rebalancing back to your target weights when this date occurs. Some judgement is needed here though; if a position only moves say 1%, it is likely not worth the effort and costs to rebalance it just because the calendar tells you so.

• WEIGHTING BASED: With this approach, an investor would decide a range they are comfortable with an asset to trade within. For a stock it could be a starting weight of 3% and a range of +/- 2%. So, if it hits 5%, it would be sold back to 3% or if it hits 2% it would be bought back to 3%. The hardest part with this approach is deciding what the appropriate range is but this comes down to a personal decision.

The 5i Research Model Portfolio Approach: At 5i, we like to let winners run. Trimming gains too early can get in the way of momentum and be a case of two steps forward and one step back. This, of course, needs to be balanced and watched closely as big winners can get out of hand if they continue to run. We are generally comfortable with letting a single stock drift to roughly

8% of a portfolio but will look to aggressively trim it back at this point. We continually monitor the portfolios and look for opportunities to rebalance through notifications to members on a bi-weekly basis.

Tax EfficiencySimilar to cost, we like this area because it is something

that an investor can impact on their own and see a definitive result from. This topic can get complicated depending on the individual but there are some easy things an investor can look at to ensure they are investing in a tax efficient manner. The first is to ensure you are utilizing all tax efficient accounts such as a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP) and an Registered Education Savings Plan (RESP). Having and funding these accounts is a big step in the right direction. The next step would be to ensure the appropriate holdings are within each account. There is no definitive way to do this, but the general rule of thumb is that items that have a higher tax base should be held in a tax efficient account. This means fixed income is likely the most appropriate asset to hold in an RRSP and TFSA as they are taxed as income. We do note, that if your situation is such that you don’t need/have much in the way of bonds, it does not mean you should not use these accounts. If there is idle cash in almost all cases we think it should be put to work in a tax efficient account. If you hold US dividend payers, these are likely most appropriate in an RRSP as the US recognizes the RRSP for dividends. Funds can get a bit more complicated. Regardless, utilizing the accounts and maximizing contributions to them is the most important thing. Investors can get very nuanced on how to best utilize these accounts but the most important aspect is simply that individuals use them in the first place.

One other area that is manageable for an investor is that of tax-loss selling. In a taxable account, an investor can sell investments with a loss and use that to offset any taxable gains they may have to help mitigate any tax liability year to year. Some caveats here are that there is a 30-day period where the asset cannot be repurchased. If it is purchased within that period, it is deemed superficial and cannot be used to offset capital gains elsewhere. The main risk with this strategy is not to be penny wise and pound foolish. Small losses are unlikely to be worth “harvesting” simply because after transaction costs, missed dividends, and foregone potential returns, the odds of coming out ahead quickly get smaller. Also pay attention to the type of company you are tax-loss selling. Large blue-chip dividend payers often make more sense,



as they are less likely to see a big move any given day or month. Smaller or higher-growth companies may be less appropriate to sell as something may happen, sending shares higher and leading to large opportunity costs in terms of foregone returns. One way to mitigate this risk is to tax-loss sell a single holding and purchase an ETF that has an exposure to that area/asset. While they will not move in the same way, it at least maintains the exposure in case the whole industry/asset class sees a move. One final mistake we often see when investors carry out this strategy is that they rush to do it at year-end. We prefer to do this actively throughout the year (maybe set a calendar to do it quarterly) so you are not racing against the clock, along with everyone else.

The 5i Research Model Portfolio Approach: The model portfolios take a “before-tax” approach simply because everyone’s tax situation is different. Regardless, we view after-tax returns as being just as important (and maybe more) as before tax returns.

While it was close, we managed to summarize five keys to portfolio creation and maintenance. Whether an investor uses ETFs, mutual funds, or individual stocks, keeping these principles in mind when structuring a portfolio can go a long way to reduce risks and still allow the portfolio to contribute to your financial independence. Getting the big things right like diversification and keeping costs low sets investors up for success while giving them some room for error when they try to get the smaller details in order over time. Our model portfolios (balanced, growth and income) take all of these principles into account and allow an investor to track, shadow or modify them as they see fit.

Ryan Modesto, CFA, is Chief Executive Officer at 5i Research Inc. in Waterloo, Ontario. He can be reached at [email protected]

When To Sell A Stock For Fundamental ReasonsOne of the toughest questions that Investors face is determining the appropriate time to sell a stock. Setting up some rules to help determine when to sell a stock can make sense since emotions and ego can often-times come into play.

When the fundamentals have changedYou could probably do a whole write-up on this section on its own but if an investment was initially made on the merits of the fundamentals, it stands to reason that once those fundamentals change, it is time to consider selling a stock.

ValuationSelling on valuation is a bit less of a straightforward discussion when it comes to selling. As a general rule, we think investors are a bit too quick to sell a stock just because it ‘looks’ expensive, without taking into consideration why a stock might be expensive.

There are limits to this where sometimes it is just too difficult to get to a place where a valuation can be justified. What we are more focused on here though in the context of a signal to sell, is when there is a transition in valuation. So if a stock that is typically at a valuation of 15 times earnings moves to 25 times for no apparent reason. A stock trading at 20 times earnings but has always done so worries us less.

Lost faith in managementIf an investor cannot trust the individuals that are steering the ship, why bother getting on? Indeed, there are cases of companies that will get carried with a trend or hype no matter how good or bad the management is (rising tides lift all boats), but in general terms, if you or the market lose faith in management, it is likely time to consider selling.

Read more here: 5iresearch.ca/when-to-sell

Source Ryan Modesto




Management Fees And Expenses Can Greatly Affect Your Retirement LifestyleLana Sanichar

Earlier this spring I was at a relative’s house for a few days of rest and relaxation and as it often does, the conversation drifted into the topic of investing.

I was dumbfounded to find out that not only did they rarely look at their investment statements to monitor its growth, but also did not keep track of the fees that were associated with it. As it turned out, they rarely checked in with their advisor or their investments.

They simply did not understand the impact of fees and management expenses and how this could affect the bottom line of their portfolio and they admitted that when they receive the statements they simply shove them in a drawer…unopened.

I thought that this would be a great time to help them understand the importance of fees and the impact management fees could have on their portfolio and ultimately, their retirement.

FeesUpwards of 62% of Canadians are not aware that

advisors actually charge a fee to manage their investment portfolios (https://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/investing-is-as-opaque-as-ever-for-canadians-studies-indicate/article37672353/). Fees and management expenses on actively managed funds can substantially erode a portfolio’s return by tens of thousands of dollars and depending on what amount you have invested, even hundreds of thousands of dollars. Think about that for a second and let it sink in: Over half of Canadians do not even realize that they are paying for something, let alone something that can potentially amount to six figures by the time they retire.

Some of the most common fees and expenses associated with investment portfolios include;

• Management Expense Ratio (MER): This is an annual fee associated with investment funds. It consists of a mix of management fees, operating expenses and trailing commissions. The MER associated with a fund can be found in the "fund facts" or prospectus. For example, the Scotia Canadian Blue-Chip Mutual Fund has an MER of 2.06% and a management fee of 1.75%. This means that with every $1000 invested, $20.60 will go towards fees. While that may not sound like a lot, if we consider a $100,000 portfolio, that amounts to $2,060 annually.

• Sales Commissions like a Front-End Load/Back-End Load also known as Initial and Deferred Sales Charges: These are fees that you pay to the advisor’s firm out of your investment when you buy or sell the investment. They can be upwards of 7% and usually in addition to the MER. These fees have been under scrutiny lately, and rightly so, as they can create incentives and conflicts for an advisor to sell funds with these charges opposed to lower cost funds that may be more appropriate.

• Trailing Commissions: These are an annual commission that you pay to the financial advisor by way of the investment firm. While they are usually embedded within the MER, they can often be upward of 1% of the mutual fund investment.

To illustrate how fees work, let’s assume that you are 30 years of age and have decided to begin investing for your retirement. As such, you have an initial investment of $10 000 in a mutual fund or Exchange Traded Fund (ETF) and you continue to contribute $100 per month into the fund for a period of 35 years.

Table 1 (next page) assumes that the management expenses and fees are 2.5%. By year 35, when you are likely thinking about retiring, you could be paying


https://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/investing-is-as-opaque-as-ever-for-canadians-studies-indicate/article37672353/






Let’s say you begin investing at 25 with an initial investment of $10 000 and you are also contributing $200 per month until age 65. Your friend also decides to begin investing at age 45 and contributes $400 per month into their investments until the age of 65. Although your friend has doubled his/her investment contributions, your investment is worth three times more because of compounding interest.

Putting It All TogetherWe have talked about fees and management expenses

and we now understand how compound interest works. Let’s now put it all together. Table 2 does not consider the effects that fees and management expenses have on the rate of return of a portfolio which can be extensive. So, let’s now look at how fees can erode that same portfolio over a 35-year period.

upwards of a whopping $169K+ in fees. If the total value of the portfolio is $392,313.75 after compounding interest/returns at 8%, then cumulative fees over the 35-year period amount to approximately 43% of the portfolio, or $169,193.72 .

The Power of Compounding – Get Your Money Working for You As Soon As Possible

As I have mentioned before, managing your finances is one of the most important jobs you will ever have after your health and family. Are you making your money work for you? Time is the single most powerful tool that has an overwhelming effect on your investment portfolio because it opens it up to the power of compounding interest.

The power of compounding interest can be hard to comprehend because it is not a linear relationship, but exponential. What looks like small gains in the early days lead to very big amounts longer down the road. Even Albert Einstein said that “compound interest is the eighth wonder of the world”. Interest that is earned in year one is added to the initial investment amount which then earns more interest. The investor accrues interest on the initial investment, any subsequent contributions as well as the interest already earned from the previous year. This continues to compound every year for as long as you are invested! So, it is always better to begin investing as soon as possible to achieve the maximum effect.

Remember the 30-year-old investor who decided to invest $10,000 and continued to contribute $100 per month into their investment portfolio over the period of 35 years? Let’s now look at how the power of compounding will affect the value of his/her portfolio.

Besides illustrating the power of compounding, this also illustrates the importance of starting your investment career as early as you can.

Table 1

Year 1 Year 2 Year 5 Year 10 Year 20 Year 35

Fees and Management Expenses 3%

$10,000 + add $100 each month $250.00 $5563.75 $2,104.86 $6,441.26 $30,504.37 $169,193.72

Table 2

Year 1 Year 2 Year 5 Year 10 Year 20 Year 35

Expected Rate of Return 6% 8% 10% 8% 8% 8%

$10,000 Initial Amount Invested $10,616.78 $11,728.88 $16,453.09 $22,196.40 $49,268.03 $162,925.50

$10,000 + add $100 each month $11,850.33 $14,322.20 $24,196.80 $40,491.01 $108,170.07 $392,313.75

Porfolio value: > $846,841

Porfolio value: > $256,388



Table 3 (above) assumes that the investor is paying 2.5% in fees and management expenses.

Fees can have a material impact on the benefits of compounding interest simply because there is less money in the value of the investment and so the amount of the interest accrued is not as great. If we look at Table 3 under the heading Year 35, the value of the investment before fees is $392,313 but becomes $223,120 after fees. Fees total 43% of the portfolio! If you were to consider dropping the management expenses to 1%, you would keep a further $87,210.18 in your portfolio. So, even a 1.5% drop in fees and management expenses would significantly increase your resulting portfolio value.

Fees are the number one reason why investors choose to begin investing for themselves. For example, a MER of 2.5% is substantial when you consider the average cost of an ETF averages around 0.20%. So, there are other options that can reduce fees and increase the returns in your portfolio.

Table 3

Expected Rate of ReturnYear 1

6%Year 2

8%Year 510%

Initial Amount Invested Before Fees After Fees* Before Fees After Fees* Before Fees After Fees*

$10,000 $10,616.78 $10,366.78 $11,728.88 $11,195.13 $16,453.09 $14,704.28

$10,000 + add $100 each month $11,850.33 $11,600.33 $14,322.20 $13,758.45 $24,196.80 $22,091.94

Expected Rate of ReturnYear 10

8%Year 20

8%Year 35

8%

Initial Amount Invested Before Fees After Fees* Before Fees After Fees* Before Fees After Fees*

$10,000 $22,196.40 $17,688.59 $49,268.03 $31,836.03 $162,925.50 $80,210.31

$10,000 + add $100 each month $40,491.01 $34,049.75 $108,170.07 $77,665.70 $392,313.75 $223,120.03

*assuming 2.5% fees and management expenses

Money is an important resource and once you begin to appreciate it and understand what it can do for you, you are ready to begin your investing journey. We all work hard for our money and want to keep as much of it as possible for the future of our family and hopefully our “family’s family”. Understanding how fees and management expenses can substantially impact your lifestyle is such a key piece to investing and personal finance but so rarely discussed. When you talk to your advisor next, be sure to ask them to explain the fees and expenses that you are paying within your portfolio. Fees in themselves are not necessarily “bad”, but be sure you know what you are paying for and you are getting value for what could be a six-figure cost over time. Besides managing your own investments, it is the single most important thing that you can ever do for your retirement.

Lana Sanichar Editor-in-Chief, Canadian MoneySaver Magazine, Co-Host MoneySaver Podcast, @lana_sanichar

"5i Research Rocks."

What a great idea to get access to stock recommendations, model portfolios and market reports from CFA charter holders with no hidden conflicts of interest. At less than $200 a year, the cost is reasonable and easily recovered by finding a few winners. Members of my share club keep telling me how they did well with picks such as Savaria Corp. (SIS-TSX), up more than 50% on the past year.

Ellen Roseman, Toronto Star personal finance columnist, FAIR Canada vice-chair, University of Toronto investing instructor and co-host of The Moneysaver podcast.



New Highs In The Cannabis Market: High Past Returns, High Hopes, And High ValuationsBarkha Rani

The marijuana industry recently saw its biggest ground-breaking deal when Constellation Brands (STZ traded in the U.S.) announced a $3.8 billion equity

investment in Canopy Growth to up their stake from 9.9% to 38%. The price Constellation paid per share was at a 51% premium to where Canopy had closed a day prior to the deal announcement. STZ also holds warrants in Canopy which could bring the stake to over 50%, if exercised. This deal followed Aurora Cannabis agreeing to acquire MedReleaf Corp for $2.9 billion in May and CanniMed Therapeutics in January for roughly $1 billion. These deals have shaken up the sector. Needless to say, activity in the cannabis sector is “high”.

With the anticipated legalization of recreational marijuana in Canada, the industry is seeing increased consolidation and financing activity to capitalize on this new, growing market. There are now 80 publicly listed Canadian cannabis companies with a total market value of about $25 billion. Canadian cannabis companies, with their industry knowledge, regulated production and cost of capital, are also set to expand internationally. Canada is the first of the G7 countries to legalize recreational marijuana, and it should translate into a jump-start for Canadian cannabis players compared to their global competitors.

Investors have yet to see much concrete data on what revenues and profits will look like and with retail sales in Ontario being pushed back to allow for private businesses to enter the market (albeit allowing for online sales), it will still take some time for these companies to really show their revenue generation potential. This risky appeal is still attracting many investors who are looking for “the next big thing”. The interest in this sector has been so much that the total market cap of Canadian cannabis companies has risen to be three times more than the

estimated size of the Canadian cannabis market. This kind of valuation can intimidate new investors and shake the confidence of current investors. Much of these valuations price in the ability to expand internationally, contracts with provinces, ability to diversify product offerings and increased production to a lower price per cost basis. However, the Canadian cannabis producers will have to show significant revenue growth and an ability to keep new entrants out to justify their market capitalizations. The largest players in terms of sales (or anticipated sales) include Canopy Growth (WEED), Aurora Cannabis (ACB), Aphria (APH), Cronos Group (CRON) and The Green Organic Dutchman Holdings (TGOD).

The Canadian federal government is yet to approve the sale of cannabis derivative products such as edibles and infused-beverages. Parliament is expected to discuss and pass amendments on the sale of edibles and beverages next year. Extension into other product categories will materially increase the market size and is likely the real gem that companies such as Constellation, Molson Coors and Diageo want a piece of.

Three Cannabis Investments To Keep On Your RadarCanopy Growth (TSX:WEED)

To summarize the last two weeks, Constellation Brands paid $5 billion dollars for 38% of Canopy, which had a market cap of $8 billion. Intriguing, right? Clearly, there’s more than what meets the eye. This investment is going to transform the industry and make Canopy the dominant player in not just flower sales, but also product derivatives. The proceeds of the investment, which means Canopy has more than three times cash than the next four largest competitors combined, are to be used for Mergers & Acquisitions (M&A) and product development. WEED



currently has a market cap of $12.3 billion, which puts it in line with companies such as Bombardier and Canadian Tire. Now the wait and see game for Canopy investors will include watching how the management executes on capital deployment and allocation decisions.

Regardless of the market potential, an investor needs to consider how much of that potential is already priced in. We think the answer in terms of Canopy is ‘a lot’. Looking forward 12 months, the company trades at 23 times enterprise value to sales. Given the growth potential, some premium is justified but we have little insight into what the profitability picture will look like. The industry does not have much operating history to look at and it’s hard to know what the competitive landscape will be, meaning investors really need to trust that Canopy can capture a lot of growth and recycle that into profits. For context, Alphabet (formerly Google) trades at five times sales, Facebook trades at seven times sales and Amazon trades at 3.5 times sales.

Where Canopy may make sense in a portfolio is for an investor who wants a large cannabis company that is likely to move in tandem with the overall market to some degree. Add in a strengthened balance sheet and a very interesting partner through Constellation and a case can be made but the risks need to be clear: This stock, and the space in general, is very volatile with 5% up or down moves a high probability any given day. Another strategy could be to own Constellation Brands in the US which effectively owns over half of Canopy at this stage while allowing an investor to also own a successful alcohol business.

Supreme Cannabis Company (TSX:FIRE.V)

Supreme primarily focuses on the cultivation of dried cannabis to target the premium flower segment. It currently operates in a portion of a 342,000 sq. ft hybrid greenhouse facility located on a 16-acre property in Kincardine, Ontario. FIRE has announced plans to shift its business model for the Canadian recreational market. It will now be working with a direct sales model to provincial distributors and retailers versus its former business-to-business strategy. FIRE has applied for retail listings in provinces across Canada. It will be positioning its brand 7-ACRES as a high-quality brand with premium pricing. With the current Kincardine facility in construction and expected to be completed by Dec. 2018, the company is expected to double its in-place capacity to ~10,000 kgs. FIRE has been executing well on its expansion and strategy focus. The expansion is likely to be after the first round of orders filled by the provinces.

While FIRE just started generating revenues in mid-2017, analysts expect this company to generate $53 million in sales by year-end 2019. The company carries $78 million in cash and total debt of $30 million. In contrast to Canopy, FIRE trades at a more agreeable valuation of 6 times forward sales.

Horizons Medical Life Sciences Index ETF (HMMJ)

HMMJ seeks to replicate, to the extent possible, the performance of the North American Medical Marijuana Index. The fund offers more of a passive exposure to the space and is likely the most investable fund focused on the space in terms of asset size, with assets under management of roughly $961 million. For an investor who wants some broad exposure to the space without trying to determine which companies will live up to the hype, this is probably the best option. The total expense ratio as of year-end 2017 was 0.94%. It is important to remember though that just because it is an Exchange Traded Fund (ETF), does not mean volatility will be low. An investor should still expect wild swings from this fund.

Most, including us, would agree that this space is trading at a very high and difficult to justify valuation. The industry is realistically a commodity one (low margins) with low barriers to entry and no apparent way to market a brand for differentiation. It would also appear that much of the value being awarded to these companies is not just for the flower itself but trying to price in the potential from derivative products. Of course, the further into the future we try to look, the more likely we are to be wrong, which adds uncertainty in a space with very little “knowns”. The space is not for everyone and a long, hard look should be taken before making any investment in the space. We believe that if you are not willing to hold on to a 50% decline in an investment, then the cannabis sector is not for you. Volatility aside though, it never hurts for an investor to sharpen their pencils and at least be informed on the investment opportunities out there. At some point the space will stabilize and if an investor understands the market, they can then act quickly. While the cannabis sector may not be appropriate for many investors at this time, it is also one that should not be ignored outright, and whether you like it or not, will become a part of everyday Canadian life more and more over the next few years.

Barkha Rani, Investment Analyst at 5i Research. [email protected], @5iBarkha




Saving Strategies You Can't Afford To Ignore (Over $110,800 In Savings!)Kornel Szrejber

W hile it’s always pleasant to save a few bucks during a sale or find a great deal on that item you’ve been craving, most, if not all of these

savings pale in comparison to the amount of money you can save and receive for free when it comes to investing.

Sure, $50 off a new phone might sound great, but what about a free $7,200 that you can receive right from the government? Not good enough? How about receiving a guaranteed 100% return on your money, coming directly from your employer?

Yes, I admit, when put that way it sounds too good to be true, but these are all legitimate benefits that the Canadian government and our employers want us to take advantage of!

So, do you want to spend your free time finding out how to save a few bucks on your next shopping excursion, or would you rather take advantage of some of these strategies and programs that can increase your net worth by the thousands (even hundreds of thousands in many cases)?

Here are some of my favourite strategies that can set you up for success when it comes to you and your family’s financial wellbeing and net worth:

The Easiest Way To Save $100,000Not only does Canada have some of the highest mutual

fund fees in the world (which can cost you hundreds of thousands of dollars over your lifetime), but it also has the distinction of being the world leader in closet indexing. What does this mean?

Closet indexing refers to mutual funds that you may be holding which were marketed to you as actively managed funds that will ‘hopefully’ beat the market, when in reality, they simply hold the market. The catch is that you can own the market yourself without them while paying a

small fraction of what they are charging you (over 40 times cheaper is not uncommon).

To put that in perspective, imagine paying 40 times more for a car, a house, or a TV. That would be unheard of in other industries. Yet, when it comes to the investment industry, this is a common occurrence that’s easy to miss and can be the key factor that will enable you to retire years earlier.

Let’s use some real numbers to help illustrate the point:

A typical mutual fund in Canada charges around 2.50% (this fee is referred to as the Management Expense Ratio (MER)). That’s a fee of $2,500 per year on a $100,000 portfolio. This fee is automatically deducted from the investments, so you never see the money physically leave your account which makes it so easy to miss.

Compare this to an Exchange-Traded Fund (ETF) that you can buy yourself which holds the Canadian market. For example, one such iShares Core S&P/TSX Capped Composite Index ETF (XIC) which has an MER of 0.06%. On that same $100,000, your fee would only be $60. In other words, with the mutual fund, you are paying $2,500 per year in fees instead of $60.

That’s a savings of $2,440 EVERY YEAR on that $100,000 portfolio. Keep in mind, too, that this $2,440 saved now automatically stays invested to further grow your portfolio and provide you with extra dividends.

In other words, this $2,440 continues to compound and grow, which never would have happened if it was given away as fees in the mutual fund.

How would you like to save $2,440 by making such a switch?

Keep in mind, too, that as your portfolio grows, the amount saved continues to get bigger, and the savings continue to compound. Over time, the savings can easily reach $100,000+ as shown in the table below:



While purchasing ETFs can be a great solution, the next quest ion becomes “What are the top ETFs to consider?” and “Is there a way to bypass the fees entirely?”

At 5i Research, w e ’ v e a n s w e r e d thousands of questions about the top ETFs in Canada, and as a member you can view all past answers, as well as ask your own to the 5i Research team.

Can you avoid fees entirely? Definitely. By buying stock directly, you bypass the fees that ETFs and mutual funds charge. While ETFs can be a great way to build a great

low cost and diversified portfolio, another option is to eliminate those fees completely by creating your portfolio using one of 5i’s 3 model portfolios. Our balanced portfolio, for example, has had an annualized return of 20.7% per year since inception. You can view it, as well as ask the 5i Research team your investing questions by trying out the membership risk-free for 60 days by going to www.canadianmoneysaver.ca/trial

A Guaranteed 100% Return On Your Money?

If anybody tells me that they can get me a 100% return on my money, I tend to run for the hills. “Too good to be true,” I say. “Nobody can guarantee returns that high!”.

Yet there is one exception: Have you taken full advantage of the Registered Retirement Savings Plan (RRSP) company match that your employer offers?

Many employers will match your RRSP contributions up to a certain limit every year. If you haven’t done so, ask your company’s Human Resources (HR) department about this now. It is literally free money; if, for example, you put in $1,000, the company will add another $1,000 to your account!

That’s a guaranteed 100% return on your money!

As you can see, by age 55, the amount of fees saved has reached $101,976. By age 62, the amount saved has climbed to $212,253.

What if your mutual fund isn’t doing closet indexing? Well, even if your mutual fund isn’t closet indexing, it is extremely difficult for any mutual fund to beat the market after including the high fees they charge.

How difficult? According to SPIVA® , 92% of actively managed funds underperformed the index over the last 10-year period in Canada. Since a mutual fund’s past performance is no indication of future results, how can you be sure that you have the skill to somehow be able to predict the top 8% of mutual funds every year? The best minds in the industry aren’t able to pick the best mutual funds consistently, so what chance do you and I have?

At a typical MER of 2.5%, that means the mutual fund must beat the market by 2.5% every year just to break even. That’s a tall order, and the data proves it with 92% of mutual funds failing to beat the market. It’s also worth noting that you pay this fee even if the mutual fund loses money. Why would you take on the risk of an extra 2.5% fee which you have to pay regardless of how the fund does, when the chances of the mutual fund beating the market are so slim?

*Chart assumes annual portfolio contribution of $10,000 with a 6% annual rate of return. For simplicity, the fees shown weren’t deducted from each year’s portfolio total which would actually amplify the savings even more. Also, savings were kept as cash (i.e. not reinvested back into the portfolio).


http://www.canadianmoneysaver.ca/trial


Even if they only match 80%, that’s still an 80% return on your money. Nowhere else can you get a guaranteed return that high.

The numbers vary from company to company so make sure to read the details in terms of the maximum allowable contribution per year, how much they match, and what the process is to receive the free funds. Nowhere else is there a guaranteed way to double your money like this, and the quicker you do this, the quicker your money and your employer’s contribution can start growing and compounding for you.

This isn’t one of those “We’ll get to it eventually” moments. It’s something you must act on now so you won’t lose your free company match for the year!

How much are you missing out on if you don’t do this? Employers typically match between 3% to 6% of your salary. At a salary of $60,000, that’s between a free $1,800 to $3,600 per year!

A Free $7,200 From The Government?Did you know that you can receive $7,200 for free, for

every child that you send to post-secondary education? Not only that, but the growth that you generate on that amount (plus your own contributions) will grow tax free until you are ready to take it out.

As an added bonus, when it finally does start to be withdrawn, it will be under your child’s income and not your own, meaning that the tax payable will be in the lowest tax bracket. How’s that for a good deal?

With a Registered Education Savings Plan (RESP), this is exactly what happens. Every year, the government will take what you contribute, and give you a free 20%, up to a maximum of a free $500 dollars per year! Do this for the years leading up to your child going for a post-secondary education, and you can receive up to $7,200 per child.

In other words, it’s like receiving a guaranteed 20% return on your money every year (i.e. If you put in $2,500 per year, you’ll receive a free $500 for that year). No stock, bond or Guaranteed Investment Certificate (GIC) is ever going to guarantee you a 20% return, making this a no-brainer.

Keep in mind, too, that over time, that free $500 is invested and continues to grow along with your contributions. Therefore, if we estimate a reasonable return of 6% per year on those investments, then over the course of one year, you would have received a “conservative” projected return of 27.2% ($3,180/$2,500). Now you’re actually earning a higher return than what credit cards charge! Not bad.

Too Busy for an Extra $100,000+?

I hope that you have found these money saving (and earning) strategies useful. It’s easy to get distracted by shopping for “hot sales” where we can save a nice $20 or even $50 on some consumer item that we may not even need. Or spending hours doing comparison shopping to save the $50-$100 on some new furniture, appliance, or electronic item. While these is nothing wrong with saving money in this way (heck, I do it too), remember to not miss the forest for the trees, and instead prioritize items like the ones mentioned here to add tens of thousands to your net worth, instead of a mere $50-$100.

In the investing space there is lots of easy low-hanging fruit like the strategies mentioned above, where with a bit of research and effort, your savings and earnings can be in the thousands (even hundreds of thousands as is the case when comparing low cost Do-it-Yourself investing to high-fee mutual funds).

Have questions about some of these strategies, or particular stocks or ETFs that you’re considering? Try 5i Research risk-free for 60 days to see all our past answers on these topics, along with the ability to ask our Research Team all your investing and personal finance questions.

The team does not sell ANY investments and does not take ANY payments from any companies that do sell investments. This makes their answers truly conflict-free, keeping your best interests at heart. We hope you give us a try and let us be your truly unbiased source for your investing questions.

You can try 5i risk-free for 60 days by going to

www.canadianmoneysaver.ca/trial

Kornel Szrejber, BBA, is a Contributing Editor at Canadian MoneySaver. [email protected]

Your Initial Investment $2,500.00

20% Government Contribution $500.00

Total $3,000.00

Ex. 6% growth on the $3,000 $180.00

New Total After 1 Year $3,180.00

% Return Based on Your Initial Investment 27%


http://www.canadianmoneysaver.ca/trial



Finding The Next Great Stock To Cover

Ryan Modesto, cfa

How do you decide which companies to cover? This is a question we get often from our members at 5i Research. Of the hundreds of companies out there, we have

worked our list down to roughly 70 stocks that we feel warrant attention for one reason or another. Deciding which 70 stocks this should be is the tough part, and we find that there are three “buckets” within which we find stocks that are worth covering. Not each bucket is as big as the other, but the following areas are typically the common factors that get us interested in a stock and end up being a company we view as worth an investor’s time and money. The three areas are: Special Situations, Businesses of the “Future” and “Fundamental Growth”.

There are a lot of “good” companies out there with good fundamentals such as high margins and strong balance sheets. Great companies are harder to find though, and while we can find the numerous companies out there that make the “good list” with relative ease (through tools like Bloomberg), there needs to be something extra that takes a good company to a great investment. The three areas we are outlining are the ones that make us more confident that if a good company falls into one of these categories, it has a chance to also be a great company for an investor to own. Of course, even if a stock falls into these three categories, there needs to be some sort of minimum test the company passes before it warrants a look.

While not a comprehensive list, here are some of the things we first want to see at a company before we dive into the research process:

• Growing revenues: No growth points to issues or a mature business.

• Low analyst coverage: Less eyes on the stocks mean less efficiencies in the market. Plenty of great

Canadian companies are publicly traded but get no attention simply because they are unlikely to bring the banks business through deals and financings.

• Market-capitalization greater than $100 million: Building a business is hard. Building a $100 million business is very hard but acts as a natural filter for quality companies that can rise to this level while keeping more speculative companies out.

• Strong balance sheet: Can be measured in various ways, but there needs to be flexibility to weather the hard times.

• Insider ownership: High levels of ownership or increased buying of shares by executives.

• Low/no share dilution: Issuing shares is a cost to current/loyal shareholders.

• Shareholder friendly: Dividends, increasing dividends, share buybacks.

• Good return on equity: Shows a company is generating returns on YOUR money.

• Momentum/new highs: Companies hit new highs for a reason, usually something good is happening that is worth paying attention to.

• Strong/Incentivized management teams: Good track records, history, and appropriate incentives that align interests with shareholders can go a long way.

Again, this is not a comprehensive list and not every aspect needs to be fulfilled to warrant interest, but some of these factors should be present in a 5i Research coverage company to make us consider a company in the first place. Of course, many companies may exhibit some or many of these above attributes. With our coverage list



of what we hope to be some of the best companies in Canada, we still need to be even more selective. This is where the ‘buckets’ come in for us. With these metrics present and if a company falls into the three categories below, in our view it is this combination that can take the good companies (fitting into the mould above) and make them great companies.

Special SituationsThis is the area we look at the least, often because it

can be one of the more speculative areas, or risks can be elevated at the time of the “situation” in question. Typically, a special situation arises when some sort of unique event occurs, and it creates some sort of mispricing in a stock. It could be an exaggerated reaction due to fears or a strategic move such as an acquisition that is not being understood. Two great examples of a special situation that catches our eye would be Photon Control and Transcontinental.

Photon Control had gone through some unusual headlines in 2017 when money went missing from the company bank account and the company ended up in litigation with the R&D subsidiary and it looked like it could have been a company ending event. Eventually, everything was settled in favour of Photon but markets (rightly so), were still slow to warm up to the name again. This situation created an opportunity in a name that was seeing growth and had the legal issues put behind it and more nimble investors were able to act quickly on the shares while the market took time to catch up to the story. Big company events like this often create some opportunity in the shares. Fortunately, since we added coverage of the name back in May 2017 at $1.35, the company has returned 67% and prospects look better than ever.

Transcontinental is a company recently added to one of our model portfolios and has undergone a large acquisition of a packaging company, helping them transition away from the slower growth printing business. Meanwhile, the valuation is still largely reflecting that of a printing company (cheap) vs. that of a packaging company that typically trades at a premium. The verdict is still out on this company but is another good example of a special situation that arises where our interest is piqued.

Businesses of the “Future”These are companies which are growing fast, have a

large addressable market and are essentially building out a new market on their own or are the first in a group to

build out a market. They are unique in the sense that most, if any, cannot foresee where these companies will be in five to ten years. Of course, these usually come with high valuations but often what look like a high valuation today can be cheap five years from now. Typically, these include companies that operate in cutting-edge sectors like gene editing or artificial intelligence but can also just be companies that are growing at blistering speeds. If a company has quality fundamentals (like cash on the balance sheet and growing revenues), is growing faster than everyone else because they are doing something different or have found a better way and/or is in a new field of technology, it catches our eye.

Similar to the Special Situations, these make up a smaller portion of our overall ideas and coverage names simply because they are higher risk and can be volatile. The FAANG (Facebook, Amazon, Apple, Netflix and Google) stocks are the easiest examples here but within Canada, companies like Kinaxis and Shopify fit the bill in our view as well. The important point here is that in very few instances, if at all, should a portfolio be dominated by names like this. We do believe though, that if an investor wants those big winners in a portfolio, they need to dabble a little in these areas and try to own some of those businesses of the future. Any portfolio that has not owned the FAANG stocks, or technology in general, has likely forgone some unprecedented returns over the last few years. Not all will work out but often if only one works out well, it will cover the costs and then some of the poor performers. Adding in some quality filters like we mentioned earlier, and this can go a long way to separating the speculative names from the ones with a real business showing potential. The important consideration here is to invest, think long-term, and not gamble for a quick win on names like these.

Fundamental GrowthThis area is where we find the majority of 5i Research

companies. These are the companies that have strong fundamentals and are simply doing something better than their peers, or everyone for that matter, which is borne out in the trend of the fundamentals. The longer-term trend of operations becomes important here. For a company to fall into this bucket, they cannot have a single good quarter, they have had to post a string of good quarters or years where the fundamentals continue to show improvement. This would include things like growing revenues, growing margins, continued insider buying or share buybacks, or declining leverage to name a few. The key here is not just the growth, but



the consistency in the growth. Metrics like this typically indicate that the company is on to something and is doing something better than their competition or doing something different that others have yet to catch on to.

Unfortunately, these companies can be some of the tougher ones to find as they are not “in your face” like a takeover or a flashy tech stock (these companies can also be boring names). It can take markets time to catch on to the improving fundamentals and to start to believe the improvements are sustainable versus a flash in the pan. So, this is where the digging needs to come in to discover what that “thing” is and why it is working well for the specific company. Of course, the factor that is leading to one company’s success can vary from scenario to scenario. So, these can be some of the harder investments to uncover but also offer less volatility and risk compared to the above items mentioned. Fortunately, while these can take time to find, this is exactly what we spend our time on at 5i Research.

We have three great examples of companies that fit into this bucket: A&W Income Fund (AW.UN), BRP Inc. (DOO) and Savaria (SIS).

A&W is the burger chain best known for their root beer. The stock AW.UN is a royalty income fund that takes a royalty on revenues of the A&W franchises and pays the royalties out in the form of a distribution to the shareholders. These restaurant royalty names tend to be slow growth and more boring names but something was leading to high same-store sales growth at A&W that other companies were not seeing. Digging into management commentary, they were pointing to two things: a marketing campaign focused on better ingredients as well as franchises that had a smaller footprint and allowed them to grow in urban areas. For whatever reason, markets were not believing the same-store sales growth numbers the company was posting, in the 3% to 6% range compared to peers that were largely flat. The high same-store growth number supported by management initiatives is a great example of a nugget that is hard to find without a bit of digging. Fortunately, AW.UN has returned 67% since we began coverage in February 2012, not including the distribution which has yielded 4% to 6% over the years.

BRP Inc. is the maker of Sea Doos and Ski Doos as well as ATVs. What made this name first jump on our radar was when it initiated its first dividend, which we view as a very strong signal to investors about the expected future of the company. Looking further into the name, it was apparent they were seeing plenty of opportunity through

markets in China as well as through improved digital marketing practices. Finally, the company has a bit of an unusual balance sheet due to its history with Bombardier making it less likely to ‘screen’ well for investors but was actually in pretty good shape. This was another case of a company that had strong and growing fundamentals as well as a large market they have just started entering. Since we started coverage of DOO back in July 2017, and added it to one of our model portfolios, the company has returned 85%.

Savaria, a seller of elevator lifts, adaptive vehicles and mobility products, is our final example and one of our favourite companies. It ticks almost all the boxes at 5i Research with a strong management team that has a large ownership stake, growing revenues, strong balance sheet, unique niche in a growing market (it serves boomers), low analyst coverage (initially), and shareholder friendly. So, the fundamentals lined up great but more importantly, they were growing quickly and it was getting no credit for this growth. Finally, after a few quarters and acquisitions, a company that was trading at 16 times earnings with strong growth in the fundamentals saw its valuation expand to 23 times forward earnings and has returned 184% (before dividends) since we began coverage back in February 2016. Savaria is another great example of a company that had not just good fundamentals but consistently growing fundamentals as well as clear plans to increase their market share over time.

Hindsight is always 20/20 and not every company we cover works out as well as we had hoped, and some are not intended to be high growth. Having a way to sort through the numerous opportunities out there and finding ways to focus in on quality companies that have high potential can go a long way towards tilting the odds in your favour. This is what we aim to do; be a part of the research process that helps investors find good companies they may have never heard about otherwise. So far, we are happy with the way our coverage “universe” has fared and are excited to continue to try to uncover the next great Canadian companies over the years.

Ryan Modesto, CFA, is Chief Executive Officer at 5i Research Inc. in Waterloo, Ontario. He can be reached at [email protected]



WRITER'S SPOTLIGHT

Peter Hodson, CFA, bought his first stock, Mitel Corp., 44 years ago. It worked out well. Then, for reasons only an 11-year old boy might know, he took all of his profits from that first stock and bought Vulcan Industrial Packaging. It went bankrupt. For the past 40+ years, he has tried to figure out what happened.

After getting an economics degree and CFA credentials, Peter spent a few years as an investment newsletter writer at MPL Communications. He got more formal analytical training at DBRS Ltd., a bond-rating agency. Then it was time to move into equities, with a portfolio manager job at Mutual Life (now Sun Life). He was a founding partner of Synergy Mutual Funds in1997, and Synergy became one of Canada's fastest-growing fund companies prior to its acquisition by CI Financial in 2003. Peter stayed at CI for a few years and then was recruited by one of Canada's top investment managers, Eric Sprott, of Sprott Asset Management. At Sprott, Peter was on the Board of Directors of the public company Sprott Inc. and became Chairman of Sprott Asset Management, helping oversee more than $11 billion in assets. In 2007 his mutual fund was the best-performing growth-focused fund in Canada.

But watching employees of the investment industry get rich at the expense of individual investors got to him. Fees were ridiculously high (for below-average performance from nearly 100% of fund managers), products were 'sold' with high commissions, investors got confused by stock recommendations and target prices, and most investors owned the wrong securities for their investment goals. They traded too much, paid too much in taxes, and had the wrong asset mix and the wrong securities. But the investment industry

didn't really care: it was a machine sucking in investors' money in fees.

Of course, Peter, as an senior executive within this lucrative industry, benefited from the industry. But he had a big change of heart and wanted to help investors instead of just making money off of them. Individual investors consistently did the wrong things. Peter, after 30 years in the business, could afford to leave his cushy job behind and try to set things right for investors.

He founded 5i Research in 2011, with a focus on Integrity, Independence, Insight, Individuals and Investments. 5i Research does not manage money. It does not have relationships with companies nor banks. It only offers opinions and model portfolios to help do-it-yourself investors do better.

Peter views 5i Research as an educational tool and as a way to make amends to investors for having worked in the investment industry for so long. He says if he can help even one investor save fees or set up a better retirement, he'll feel better than he ever did in the investment industry, which is so skewed against you, the investor. Of course, with the success of 5i Research he has been able to help thousands of investors. 5i has been a success because it is what the investment industry is not: conflict-free, independent, practically-free and focused on the long term.

Peter has four kids who are growing up, with the first off to university this year. In his spare time he likes to do triathlons, and has biked completely across Canada twice, each way (Westbound in 1986 and Eastbound in 2014) raising money for charities.

Peter Hodson CFAFounder of 5i Research , Former Chairman of Sprott Asset Management L.P.



Why Markets May Not Be ExpensiveOne of the more consistent themes that the markets

have seen over the last few years is the discussion on how overvalued the markets are. Meanwhile, markets seemed not to agree and have driven to all time highs. What is perhaps most interesting is that while there appears to be a consensus that markets are overvalued, they seem to continue to be strong. So what is going on here?

How can everyone agree that markets are overpriced yet markets still remain so? Below we take a look not at whether markets are or are not overvalued, but why a higher valuation than we have seen in the past may be justified.

1) Ease of market accessEven just ten years ago, investing in stocks was much

more difficult than it is today. Not everyone had access. Liquidity was lower, fees were higher and transaction costs were higher as well. All of these items add costs and risks that need to be justified with higher returns.

How does one get higher returns on average? By having a lower average valuation. As the frictional costs become smaller, valuations have more room to creep up over time. Access to information has also become cheaper which means that the returns needed to cover costs to access information have decreased.

2) Knowledge of equity premiumMuch research has been done on the merits of investing

in equities. As history of the stock market grows and markets seem to make it through one crisis after another, investors become more knowledgeable and aware of the benefits of investing in equities.

With more knowledge and comfort with the asset class, the less perceived risk exists. With less perceived risk, one can argue that less of a return is required for the risk being assumed. Looking past just North America, there are vast populations that are likely just at the early innings when it comes to understanding the benefits of investing, adding potentially substantial demand for stocks over the long-term.

3) Low rates and low inflationWhen interest rates are low, opportunity costs are also

low. Investors demand a rate above and beyond risk free rates. When these rates are low, the return required from stocks can be lower on an absolute basis (but still possibly be the same on a real basis). If lower returns are

acceptable due to the low rates and the case that investors have nowhere else to invest, then higher valuations could be justified.

The same argument goes for low inflation. In times of 3% inflation or more, a higher return would be needed than in times of 1% inflation in order to have the same return in real terms. A 7% return with 3% inflation means a 4% real return (7-3=4). With 1% inflation, an investor only needs a 5% return to end with the same amount of money/return in real terms (5-1=4).

While inflation is likely to be more volatile going forward, there is likely an argument that interest rates may not just be lower for longer, but they may be lower indefinitely, helping to justify higher average valuations.

4) More competitionWith more competition and more investors competing

for scarce dollars, it could be argued that investors are willing to accept smaller returns because that is all that is available. Right when an opportunity appears, stocks can quickly correct back to fair value and stock valuations on average may be higher just because there are more eyes and more perfection in pricing.

5) ETFsIn the past, with funds charging you 2% or more to

get exposure to a market, the returns required would have been higher. With ETFs now going for less than half a percentage point, there could be an argument that the average investor can deal with higher valuations on average (and in turn lower returns) because in real terms, after fees, they may be facing the same net return.

All of these above points could very well justify a regime change in market valuations. While it does not mean that current valuations are either under or overvalued, it could mean the degree of under or over valuation that investors look at is less severe than feared.

Instead of markets at 20 times earnings being expensive against the average of 15 or 16 times, maybe they are a bit more reasonable if that long-term average is justified as being 18 or 19 times earnings. Unfortunately, no one will know what that right average is until five or ten years down the road.

Read more at: 5iresearch.ca/markets-not-expensive

Source Ryan Modesto



Past Top PerformersName Symbol Recommended

PriceRecent Closing

PriceP&L

(2018)P&L

(Total)Sector

Stars Group Inc TSGI.TO 2.30 36.07 23.3% 1468.3% Technology

Boyd Group Income Fund BYD_u.TO 12.89 123.75 22.7% 860.0% Consumer Non-Cyclicals

Constellation Software Inc CSU.TO 103.78 925.00 21.4% 791.3% Technology

Sylogist Ltd SYZ.V 1.80 12.94 28.4% 618.9% Technology

goeasy Ltd GSY.TO 7.40 51.88 39.7% 601.1% Consumer Cyclicals

Enghouse Systems Ltd ENGH.TO 12.08 76.87 25.0% 536.3% Technology

Great Canadian Gaming Corp GC.TO 8.95 44.00 30.2% 391.6% Consumer Cyclicals

Richards Packaging Income Fund

RPI_u.TO 8.88 37.69 20.9% 324.4% Basic Materials

FirstService Corp FSV.TO 27.72 110.68 25.9% 299.3% Financials

Gildan Activewear Inc GIL.TO 9.85 38.87 -4.3% 294.6% Consumer Cyclicals

Badger Daylighting Ltd BAD.TO 8.68 30.55 12.4% 252.0% Industrials

Savaria Corp SIS.TO 5.16 18.00 -1.2% 248.8% Industrials

MTY Food Group Inc MTY.TO 17.45 59.68 6.4% 242.0% Consumer Cyclicals

Parkland Fuel Corp PKI.TO 12.97 40.90 52.3% 215.3% Energy

Winpak Ltd WPK.TO 16.96 49.88 6.6% 194.1% Basic Materials

Andrew Peller Ltd ADWa.TO 6.03 17.10 9.6% 183.4% Consumer Non-Cyclicals

Premium Brands Holdings Corp PBH.TO 37.82 98.94 -4.1% 161.6% Consumer Non-Cyclicals

CCL Industries Inc CCLb.TO 24.12 62.87 8.2% 160.7% Basic Materials

Descartes Systems Group Inc DSG.TO 17.11 43.11 20.6% 152.0% Technology

Stantec Inc STN.TO 15.08 33.52 -4.7% 122.4% Industrials

Fiera Capital Corp FSZ.TO 6.10 13.00 0.0% 113.1% Financials

InterRent Real Estate Investment Trust

IIP_u.TO 5.48 11.60 27.1% 111.7% Financials

WSP Global Inc WSP.TO 35.76 70.00 16.8% 95.7% Industrials

Magna International Inc MG.TO 38.58 71.87 0.9% 86.3% Consumer Cyclicals

Kinaxis Inc KXS.TO 51.62 95.91 24.9% 85.8% Technology

Ag Growth International Inc AFN.TO 32.50 60.02 12.5% 84.7% Consumer Non-Cyclicals

Exco Technologies Ltd XTC.TO 4.97 9.10 -10.3% 83.1% Industrials

AutoCanada Inc ACQ.TO 6.30 11.49 -49.2% 82.4% Consumer Cyclicals

A and W Revenue Royalties Income Fund

AW_u.TO 21.63 37.24 10.5% 72.2% Consumer Cyclicals

*Prices as of August 20, 2018



Your Source for Unbiased Investment ResearchHow Have We Done?

Over 75,369 investment questions

answered

* For new members of 5i Research only. Does not apply to existing members or renewals. Discounts cannot be applied retroactively. Offer valid until December 31st, 2018.

25%OffA One-Year Subscription to 5i Research

+ Receive 1-Year FREE of

Canadian Moneysaver Magazine Digital Edition


Access all of the above with 25% off for a limited time*

Join now and don’t miss the latest stock research or model portfolio changes!

Top Picks Include:

Stars Group: +1,782%

Boyd Group: +823%

Constellation Software: +796%

Sylogist: +569%

5i Portfolio vs Canadian Index:

• Return Since Inception: +168.42%• Five-year Annualized Return: +20.7%


http://www.CanadianMoneySaver.ca/5i


25%Off


Q When assessing a company's stock, how important are metrics such as price to earnings (P/E) and price to cash flow?

What is the most important metric for a retail investor to be aware of, or is there such a thing? Does it depend on the type of business or sector the company is involved in?

Finally, for P/E, is it more important to pay attention to 'current' P/E or 'forward' P/E? How reliable are the quoted ratios, since the value seems to vary a bit from site to site for some companies? Also, some sites will often not quote a current and/or forward P/E. Any reason for this?

Thanks as always for your valuable information and advice.

A FROM 5i RESEARCH

There is no single “most important” ratio. We certainly would prefer looking at forward ratios, and would prefer cash flow ratios over earnings ratios. Earnings can be very misleading, cash flow much less so.

The industry is also very important. Some industries require capital (manufacturing) and are mature. Others require no capital, really (software) and are growing fast. The ratios of each will be vastly different in each case.

We have found many errors in many sites looking at financial ratios. Some sites do not have access to earnings estimates, so would not quote forward ratios. Some sites might just not believe earnings estimates and prefer to quote only 'known' numbers.

We like to look at momentum in relation to ratios. Often, companies will do much better than expected, and it takes a while for investors to adjust and catch up with higher valuations (higher ratios). In general (you need to be careful) a company with accelerating results tends to continue on the same trend, at least for a period of time.

Q When looking at a company's ability to pay a dividend the common ratio people look at is the dividend payout ratio. However, from reading some of your information over the years I realize there is much more to it than that.

Can you please list the other important factors such as interest coverage, free cash flow etc. Listing them will be fine. I will search and come up with the calculations and then go to the financial statements.

A FROM 5i RESEARCH

We have done a thorough write-up on this topic which can likely dive into the issue best:

5iresearch.ca/dividend-payout-ratio

In general, we do prefer to look at cash flows when looking at the payout ratio as opposed to earnings. Other metrics to consider when evaluating the sustainability of a dividend include: asset coverage, interest coverage, cash flow, free cash flow, capital expenditures, stock buybacks, assets sales/acquisitions, preferred dividend expenses, debt/cash flow, debt maturity schedule.

Q CAD Hedged versus Non-CAD Hedged Exchange Traded Funds (ETFs). For US exposure ETFs, which is better to buy in my Tax-Free Savings Account (TFSA) –hedged or non-hedged, and what simple reasoning can I use to decide?

A FROM 5i RESEARCH

From a tax perspective, there is no additional impact due to a hedged vs. unhedged position. Either way, in a TFSA, US dividends will be subject to a 15% withholding tax. There is no question that hedging can protect investors from losses over periods of many years. However, over the long-term, currency fluctuations will go in both directions and no one can predict which will win out. For these reasons you may be better off keeping a portion of the portfolio unhedged. Given the long-term nature of currency

Q&ACOMMONLY ASKED QUESTIONS RECEIVED AT 5i RESEARCH



moves, it may then make sense to have your unhedged allocation in the TFSA, assuming the TFSA is a lower priority account for withdrawals.

Q I am in the process of copying your Balanced Equity Model Portfolio.

So far I have purchased 9 items, but before I go too far, I wonder if perhaps you have some suggestions for me how to go about it the best way ? Any tips and suggestions are appreciated. Thanks for your service and keep it up, I like it.

A FROM 5i RESEARCH

We are comfortable with the holdings in the portfolios in general, so would be fine with owning the full basket. Studies have shown that the best strategy is often to invest funds “sooner than later” to allow the maximum amount of time for compounding and not miss out on dividends. Psychologically, we think the best approach is to set a final date to be fully invested (say 3 months’ time) and at the end of each month have a portion of the full amount that you force yourself to invest. In the interim, an investor can then pick away at the stocks they feel are showing an opportunity. This allows an investor to average into the market while trying to get the best price but ensures they eventually invest the funds as opposed to continually waiting for a better price that never comes. We would simply take transaction costs in mind when following this strategy.

Q Is there a rule(s) that you use to determine when to sell a losing position? I seem to always let certain positions drop and end up getting frustrated and selling.

A FROM 5i RESEARCH

We like to look to see if the fundamentals have changed at the company. Has something changed with operations that maybe makes it less profitable? Have they taken on a large amount of debt, changed strategies or are no longer experiencing growth? If changes like these have occurred, then we consider selling a stock. We do not like to sell just because the stock price is down because the reasons for originally investing may very well still be intact.

We look at the same thing for selling a winning position. Often when a stock is up, something positive at the company is occurring. If this is the case, the investment prospects may be better today than they were yesterday, so just because the stock is up, does not mean it will not continue to rise. We usually like to make sell decisions on a rising stock primarily based on portfolio weighting decisions to ensure it does not become too large of a position in a portfolio.

We have some further thoughts on this topic here: 5iresearch.ca/portfolio-optimization

Q Quantitative, Fundamental and Technical Analysis are the three basic disciplines used to analyze stocks. What is 5i's preferred method and why?

A FROM 5i RESEARCH

We would be fundamental investors at the core. Quite simply we believe that over time, companies that have good underlying results and prospects will do well over time and be recognized in the market through higher share prices. Companies that have well managed financials and operations are also more likely to have well managed operations in the future and allows them to be more competitive in good and bad times. All three methods have their pros and cons but we would be in the fundamental 'camp'.

5i Research FORUMS!Are you looking for more discussion on markets,

stocks and investment strategies?

Join our forums to discuss with other like-minded investors.

Visit the forum at www.5iresearch.ca/forums



CANADIAN MONEYSAVER SUGGESTED CANADIAN DIVIDEND REINVESTMENT PLANS (DRIPS) Ca

nadi

an M

oney

Save

r SU

GG

ESTE

D C

AN

AD

IAN

DIV

IDEN

D R

EIN

VEST

MEN

T PL

AN

S (D

RIPs

)

TSX

Com

pani

es S

ymbo

l52

-Wee

kCl

osin

gPr

ice

Div

Yiel

dEP

SP/

EPa

yout

Rati

o %

5-Yr

Div

iden

d G

row

thH

igh

Low

Agni

co E

agle

Min

esAE

M64

.18

$44.

85$4

4.98

$0.5

81.

28%

$0.4

410

2.2

130.

9%-9

.3%

Algo

nqui

n Po

wer

AQN

14.4

$12.

18$1

3.52

$0.6

74.

96%

$0.8

715

.677

.5%

14.5

%

Alta

Gas

ALA

30.0

6$2

2.82

$24.

25$2

.19

9.03

%$0

.94

25.8

233.

0%8.

6%

BCE

Inc

BCE

62.9

$52.

90$5

3.23

$3.0

25.

67%

$3.4

815

.386

.8%

5.2%

Bk o

f Mon

trea

lBM

O10

7.93

$88.

63$1

06.9

7$3

.84

3.59

%$8

.95

11.9

42.9

%5.

0%

Bk o

f Nov

a Sc

otia

BNS

85.5

$73.

91$7

5.53

$3.4

04.

50%

$7.0

110

.848

.5%

6.5%

Cana

dian

Tir

eCT

C.A

183.

93$1

43.6

2$1

63.2

7$3

.60

2.20

%$1

1.13

14.7

32.3

%20

.8%

Cana

dian

Uti

litie

sCU

39.8

8$3

0.80

$31.

75$1

.57

4.95

%$2

.10

15.1

75.1

%10

.1%

Cdn

Impe

rial

Bk

(CIB

C)

CM12

4.37

$103

.84

$122

.30

$5.4

44.

45%

$12.

2210

.044

.5%

7.0%

Cons

tella

tion

Sof

twar

eCS

U11

34.3

$669

.19

$995

.09

$5.2

40.

53%

$35.

1228

.314

.9%

6.1%

Emer

aEM

A49

.48

$39.

08$4

1.29

$2.3

55.

69%

$2.7

315

.186

.2%

9.4%

Enbr

idge

EN

B52

.59

$37.

36$4

4.51

$2.6

86.

03%

$2.7

316

.31

98.4

%16

.4%

Exch

ange

Inc

ome

Corp

EIF

37.6

$29.

58$3

2.33

$2.1

96.

77%

$2.7

811

.63

78.8

%5.

3%

Fort

is

FTS

48.7

3$3

9.38

$42.

72$1

.70

3.98

%$2

.54

16.8

567

.0%

6.3%

Hyd

ro O

neH

23.2

7$1

8.57

$19.

28$0

.92

4.77

%$1

.31

14.7

270

.2%

N/A

Impe

rial

Oil

IMO

44.9

1$3

3.43

$40.

67$0

.76

1.87

%$2

.53

16.0

730

.0%

7.8%

Inte

rPip

elin

eIP

L27

.915

$21.

36$2

3.98

$1.6

87.

01%

$1.4

816

.17

113.

3%9.

1%

Keye

ra C

orp

KEY

39.4

4$3

1.20

$35.

96$1

.80

5.01

%$1

.82

19.7

598

.9%

9.9%

Man

ulif

e M

FC27

.77

$23.

11$2

3.88

$0.8

83.

69%

$2.6

88.

9232

.9%

9.5%

Nat

iona

l Ban

kN

A65

.95

$56.

31$6

5.31

$2.4

83.

80%

$5.9

710

.94

41.5

%7.

3%

Pem

bina

Pip

elin

esPP

L47

.84

$37.

60$4

4.51

$2.2

85.

12%

$2.0

122

.16

113.

5%4.

8%

Roya

l Ban

kRY

108.

52$9

0.13

$103

.66

$3.9

23.

78%

$8.4

812

.22

46.2

%8.

5%

Sun

Life

Fin

anci

alSL

F56

.09

$46.

19$5

1.87

$1.9

03.

66%

$4.7

910

.82

39.6

%3.

9%

Sunc

or E

nerg

ySU

55.4

7$3

8.88

$53.

72$1

.44

2.68

%$3

.15

17.0

845

.8%

20.7

%

Supe

rior

Plu

sSP

B13

.56

$11.

26$1

2.94

$0.7

25.

56%

$0.6

021

.71

120.

8%3.

7%

TD B

ank

TD79

.54

$66.

10$7

8.65

$2.6

83.

41%

$6.4

412

.20

41.6

%10

.0%

Telu

s T

49.1

5$4

3.30

$48.

39$2

.10

4.34

%$2

.85

16.9

873

.7%

9.3%

Tran

sCan

ada

Corp

TR

P65

.18

$50.

28$5

5.58

$2.7

64.

97%

$3.5

015

.89

78.9

%7.

5%

WSP

Glo

bal

WSP

75.4

2$5

0.92

$70.

26$1

.50

2.13

%$3

.12

22.5

348

.1%

0.0%

CHA

RT N

OTE

- P

rice

s as

of

Augu

st 3

1, 2

018.

Sou

rce:

TD

Wat

erho

use/

Bloo

mbe

rg L

P. S

tock

pri

ces

chan

ge d

aily

. Ch

eck

for

curr

ent

pric

es.

Thes

e Ca

nadi

an c

ompa

nies

list

ed o

n th

e TS

X ar

e ou

r re

com

men

ded

com

pani

es a

DRI

P. W

ith

the

DRIP

, you

can

rein

vest

all

your

div

iden

ds t

o pu

rcha

se a

ddit

iona

l sha

res

at n

o co

st. S

ome

DRIP

S of

fer a

dis

coun

t so

tha

t ad

diti

onal

sha

res

are

boug

ht a

t a

disc

ount

to

the

aver

age

mar

ket

pric

e. S

ome

divi

dend

s ar

e pa

id in

US

dolla

rs a

nd w

e ha

ve a

djus

ted

num

bers

and

rati

os a

ccor

ding

to

rece

nt e

xcha

nge

rate

s.

Div.

5yr

gr:

We

have

add

ed t

he fi

ve-y

ear d

ivid

end

grow

th ra

te t

o ou

r cha

rt, i

nfor

mat

ion

obta

ined

from

Blo

ombe

rg L

P.Ea

rnin

gs a

re fo

rwar

d ea

rnin

gs e

stim

ates

. Yi

eld

= Di

vide

nd d

ivid

ed b

y cu

rren

t pr

ice.

Pay

out

rati

o =

divi

dend

div

ided

by

earn

ings

per

sha

re (

EPS)

. Th

e di

vide

nd p

ayou

t ra

tio

is s

impl

y ca

lcul

ated

by

divi

ding

the

com

pany

’s d

ivid

end

by i

ts f

orw

ard

(est

imat

ed)

earn

ings

. If

a c

ompa

ny w

ith

a lo

w p

aym

ent

rati

o ex

peri

ence

s an

ear

ning

s de

clin

e, i

t m

ay c

onti

nue

to p

ay t

he s

ame

divi

dend

. Or

, at

leas

t, it

may

wea

ther

the

dow

ntur

n w

itho

ut c

utti

ng t

he

divi

dend

. A h

igh

divi

dend

pay

out

rati

o of

100

% in

dica

tes

that

the

div

iden

d pa

yout

is e

qual

or a

bove

the

com

pany

’s e

arni

ngs.

The

refo

re, o

ne s

houl

d be

ver

y vi

gila

nt a

nd p

lace

the

sto

ck o

n yo

ur “

wat

ch”

list.

Calc

ulat

ion

for

inte

rest

equ

ival

ent

of d

ivid

end

yiel

d fo

r el

igib

le s

hare

s: (

100

- m

argi

nal r

ate

for

divi

dend

s) d

ivid

ed b

y (1

00 -

mar

gina

l tax

rat

e on

reg

ular

inco

me)

. Fo

r ex

ampl

e, a

n On

tari

o ta

xpay

er w

ith

ordi

nary

inco

me

of $

65,5

14 u

ses:

(10

0 –

11.7

2) d

ivid

ed b

y (1

00 –

31.

15)

is a

ppro

xim

atel

y 1.

2822

. The

refo

re, a

sto

ck w

ith

a Ca

nadi

an d

ivid

end

yiel

d of

5.0

% h

as a

n eq

uiva

lent

inte

rest

retu

rn o

f 5.0

x 1

.282

2,

whi

ch is

app

roxi

mat

ely

6.41

%.

Divi

dend

incr

ease

s: B

MO

(+$0

.03)

, H (

+$0.

01),

NA

(+$0

.02)

.



Income Model PortfolioAs of Jul 31, 2018

Investment StrategyThe 5i Research Income portfolio targets an average portfolio yield in the 4% to 5% range with a total return target in the 6% to 8% range. While the portfolio is still higher risk from an 'income portfolio' perspective, it attempts to hold higher yielding equities in order to offer enhanced yield while managing risks through asset class, sector and market-cap diversification and security selection.

Investment SuitabilityThe Income portfolio offers the lowest risk exposure of the three model portfolios and would be appropriate for a dividend investor.

Trade UpdatesECI: Taken over by BIP.u at $29

Best PerformersThis Month: AW.UN 10.31%Overall: WSP 106.94%

Inception Date Total Portfolio Yield March 31, 2014 4.71%

Annualized Calendar

1-year 0.47% Month 1.67%

2-year 4.29% YTD -2.31%

3-year 4.51% 2017 9.28%

5-year N/A 2016 15.07%

Inception 5.01% 2015 -5.53%

2014 6.51%

Total 23.60%

Portfolio Returns

Asset Allocation & Other Statistics

Asset Class Portfolio Benchmark Active

Equity 86.48% 43.57% 42.91%

Fixed Income 6.84% 55.86% -49.02%

Cash 6.67% 0.57% 6.11%

Other N/A N/A N/A

Portfolio Benchmark Active

Benchmark Holdings 100.00% 59.18% -40.82%

Top 15 Holdings 68.42% 15.78% 52.65%

Top 25 Holdings 84.69% 20.44% 64.26%

Max Drawdown -8.59% -9.23% 0.65%

Profitable Periods 62.79% 62.79% 0.00%

Losing Periods 37.21% 37.21% 0.00%

Upside Capture 1.41 1.00 0.41

Downside Capture 1.31 1.00 0.31

Up Semi-Std Dev 1.78% 1.28% 0.50%

Down Semi-Std Dev. 1.74% 1.20% 0.54%

Upside Semi-Var 3.16 1.64 1.51

Downside Semi-Var 3.04 1.44 1.60

5i Research Members get access to inidividual holdings. 5i Research does not manage money, this is a no fee model portfolio.



Balanced Equity Model PortfolioAs of Jul 31, 2018

Investment StrategyThe 5i Research Balanced Equity portfolio offers a more balanced approach to an all equity portfolio. Targeting 10% annualized returns, the BE portfolio applies sector, style and market-capitalization diversification. The portfolio aims to hold a more concentrated set of holdings that does not mirror a broad equity index.

Investment SuitabilityThe Balanced Equity portfolio is meant to offer a risk exposure in between that of the income portfolio and growth portfolio.

Trade UpdatesECI: Taken over by BIP.u at $29

Best PerformersThis Month: PKI 8.92% Overall: CSU 682.14%

Inception Date Total Portfolio Yield March 18, 2013 1.49%

Annualized Calendar

1-year 17.41% Month -1.25%

2-year 15.25% YTD 6.13%

3-year 12.95% 2017 14.90%

5-year 19.48% 2016 19.26%

Inception 20.80% 2015 9.52%

2014 29.29%

2013 34.05%

Total 176.04%

Portfolio Returns

Asset Allocation & Other Statistics

Asset Class Portfolio Benchmark Active

Equity 91.83% 99.71% -7.89%

Fixed Income 0.00% 0.00% 0.00%

Cash 8.17% 0.29% 7.89%

Other N/A N/A N/A

Portfolio Benchmark Active

Benchmark Holdings 100.00% 90.37% -9.63%

Top 15 Holdings 71.19% 47.70% 23.49%

Top 25 Holdings 96.25% 58.69% 37.56%

Max Drawdown -6.80% -13.77% 6.97%

Profitable Periods 69.77% 65.12% 4.65%

Losing Periods 30.23% 34.88% -4.65%

Upside Capture 1.21 1.00 0.21

Downside Capture 0.27 1.00 -0.73

Up Semi-Std Dev 2.34% 2.05% 0.29%

Down Semi-Std Dev. 2.63% 2.21% 0.42%

Upside Semi-Var 5.49 4.21 1.28

Downside Semi-Var 6.92 4.89 2.04

5i Research Members get access to inidividual holdings. 5i Research does not manage money, this is a no fee model portfolio.



Specialty ETFsTOP EXCHANGE TRADED FUNDS RANKED BY ONE-YEAR RETURNS AS OF SEPTEMBER 4, 2018 Fund Name Ticker Mkt Tot Return

YTD(Current)

Mkt Tot Ret 1 Mo

(Current)

Mkt Tot Ret 3 Mo (Current)

Mkt Tot Ret 12 Mo

(Current)

Mkt Tot Ret 3 Yr

(Current)

Mkt Tot Ret 5 Yr

(Current)

Mkt Tot Ret urn Since Incept

(Current)

Horizons Marijuana Life Sciences ETF HMMJ 16.18 32.03 22.46 162.79 - - -

Horizons Marijuana Life Sciences ETF HMMJ.U 10.11 31.31 20.84 153.87 - - -

BetaPro Crude Oil 2x Daily Bull ETF HOU 36.60 4.87 12.85 107.26 -20.21 -42.36 -

BetaPro Cdn Gold Miners -2x DlyBear ETF HGD 39.74 28.80 40.34 62.95 -39.85 -27.06 -

BetaPro NASDAQ-100® 2x Daily Bull ETF HQU 36.44 11.64 18.91 54.57 40.95 39.52 -

BetaPro Silver -2x Daily Bear ETF HZD 34.10 14.97 27.99 42.06 -9.90 4.67 -

FT AlphaDEX US Technology Sector ETF FHQ 27.74 12.12 10.88 41.31 24.77 - -

FT AlphaDEX US Energy Sector ETF FHE 13.77 -0.67 0.00 41.13 5.37 - -

Horizons Crude Oil ETF HUC 18.64 3.06 5.63 37.95 3.28 -7.67 -3.35

Dynamic iShares Active Global Div DXG 28.47 6.50 12.30 36.97 - - -

Canadian Crude Oil ETF CCX 31.93 4.22 23.38 36.59 -4.33 - -

Dynamic iShares Active U.S. Dividend DXU 21.32 5.02 8.83 34.78 - - -

BetaPro S&P 500® 2x Daily Bull ETF HSU 14.60 5.96 14.22 34.04 27.24 24.85 -

Horizons NASDAQ-100® ETF HXQ 23.78 6.24 10.56 33.96 - - -

BMO Junior Gas ETF ZJN 13.59 1.16 3.66 33.59 5.23 -3.30 -

First Asset EgyGntsCovCallETFComm(UnHdg) NXF.B 12.35 -2.73 -0.79 33.43 9.40 - 4.86

iShares S&P/TSX Capped Info Tech ETF XIT 24.61 5.24 3.43 32.31 17.49 20.23 3.81

FT AlphaDEX US Health Care Sector ETF FHH 21.98 7.78 14.00 31.73 7.83 - -

First Asset Mstar US Mom ETF Uhgd Comm YXM.B 13.95 3.18 3.97 31.01 9.91 - 15.23

BetaPro S&P/TSX Cap Engy 2xDlyBull ETF HEU 2.75 -8.84 -4.17 30.83 0.17 -14.17 -

BMO Equal Weight US Banks ETF ZBK 10.36 2.08 4.78 30.54 17.21 - 16.95

BMO Junior Oil ETF ZJO 7.70 -3.78 -5.60 29.46 -2.05 -7.74 -

BMO MSCI USA High Quality ETF ZUQ 15.65 4.31 8.91 29.29 16.61 - 17.65

First Asset U.S. Buyback ETF FBU 10.23 5.27 9.35 29.27 - - -

Horizons NASDAQ-100® ETF HXQ.U 20.01 6.01 8.98 28.68 - - -

Invesco DWA Global Momentum ETF USD DWG.U 12.61 2.40 12.52 28.49 - - -

Invesco QQQ ETF QQC.F 19.17 5.86 9.69 27.60 21.58 20.67 19.38

BMO NASDAQ 100 Equity Hedged to CAD ETF ZQQ 19.20 5.85 9.64 27.57 21.40 20.55 18.54

iShares NASDAQ 100 ETF (CAD-Hedged) XQQ 19.26 5.95 9.76 27.53 21.42 20.54 17.80

First Asset EgyGntsCovCallETF Comm(CADH) NXF 8.27 -3.22 -2.36 26.96 8.79 - 2.73

First Asset Mstar US Mom ETF CADH Comm YXM 10.02 3.70 3.36 26.51 9.41 - 9.09

Franklin LibertyQT US Equity ETF FLUS 12.51 4.08 7.67 26.44 - - -

Mackenzie Maximum Diversification US ETF MUS 15.89 4.33 9.48 26.27 - - -

iShares Core S&P US Total Market ETF XUU 14.39 3.66 8.17 25.68 15.33 - 12.93

Vanguard US Total Market ETF VUN 14.34 3.76 8.27 25.31 15.04 18.72 18.17

iShares S&P US Mid-Cap ETF XMC 12.24 3.38 6.01 25.03 13.82 - 11.84

TD S&P 500 Index ETF TPU 13.57 3.31 7.68 24.72 - - 16.89

Vanguard US Dividend Appreciation ETF VGG 11.98 3.27 8.48 24.72 14.49 16.79 16.20

BMO S&P 500 ETF (CAD) ZSP 13.79 3.51 8.33 24.67 15.30 19.04 20.74

Vanguard S&P 500 ETF VFV 13.83 3.58 8.38 24.64 15.35 19.09 20.80

©2018 Morningstar. All Rights Reserved. The information, data, analyses and opinions contained herein (1) include the confidential and proprietary information of Morningstar, (2) may include, or be derived from, account information provided by your financial advisor which cannot be verified by Morningstar, (3) may not be copied or redistributed,(4) do not constitute investment advice offered by Morningstar, (5)are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (6) are not warranted to be correct, complete or accurate. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, this information, data, analyses or opinions or their use. This report is supple-mental sales literature. If applicable it must be preceded or accompanied by a prospectus, or equivalent,and disclosure statement.


Back Issues Each back issue @ $5.20 with GST/$5.59 with HST for ON, NB, NL & NS residents. We currently have back issues available from January 2014 to October 2018. All back issues since January 2001 (plus article archives) are available online to print members by adding an online upgrade. Use the order form above or order online at https://www.canadianmoneysaver.ca. (GST/HST REGISTRATION # R105201230)

NEW/RENEW MEMBERSHIP • GIFT • ONLINE EDITION


Independent Financial Advice For Everyday Use - Since 1981 SAVERTo order, use the form below or go online at www.canadianmoneysaver.ca

FILL OUT, DETACH AND MAIL THIS PAGE WITH YOUR PAYMENT AND INFORMATION TO THE CANADIAN MONEYSAVER AT THE ADDRESS BELOW. PLEASE PRINT CLEARLY:

YOUR NAME ______________________________________________________________________ MEMBERSHIP NUMBER (ID) ____________________ (if applicable)

ADDRESS ___________________________________________ ________________________ CITY________________________________________________________

PROVINCE ____________ POSTAL CODE _______________________ TELEPHONE (____________) _____________________________________

E-MAIL _________________________________________________________________________________________________________________________

GIFT DESCRIPTION: __________________ YOU ARE RESPONSIBLE FOR GIFT ANNOUNCEMENT TO: (NAME) __________________________________________________

ADDRESS ___________________________________________ ________________________ CITY________________________________________________________

PROVINCE ____________ POSTAL CODE _______________________ E-MAIL ______________________________________________________________________

***FOR ADDITIONAL GIFTS, PLEASE SUPPLY SEPARATE LIST OF RECIPIENTS STATING GIFT DESCRIPTION, RECIPIENT NAME, ADDRESS AND EMAIL. THANK YOU.***

PREPAID ORDERS ONLY BY: CHEQUE/MO CARD # _____________-______________-______________-______________ EXP _____/_____

Cheques should be made payable to The Canadian MoneySaver Inc. 470 WEBER ST NORTH, SUITE #104, WATERLOO, ON N2L 6J2 TELEPHONE: 519-772-7632 EMAIL: [email protected] WEBSITE: https://www.canadianmoneysaver.ca

Enter QUANTITY in boxes belowPrint and/or Online, 1-Year and/or 2-Year,

and fill in $ Total Price.

PRINT EDITION OR ONLINE EDITION includes 10% off the second year New/Renew/Gift

CHOOSE THE PROVINCE IN WHICH YOU RESIDE:

1-Yr Online 9 Issues

1-Yr Print9 Issues

2-Yr: Online18 Issues

2-Yr: Print18 Issues

PRINT1-YEAR

PRINT2-YEAR

ONLINE1-YEAR

ONLINE2-YEAR $ TOTAL PRICE

ON $22.59 $30.45 $40.67 $58.08 HST incl. $__________

NS, NB, NL, PEI $22.98 $30.99 $41.39 $59.11 HST incl. $__________

AB, QC, MB, BC, SK $20.98 $28.30 $37.79 $53.97 GST incl. $__________

PRINT PLUS ONLINE EDITIONS with 50% off the second service New/Renew/Gift1-Year - 9 Issues 2 Year - 18 Issues Quantity: 1-Year 2-Year

ON $41.75 $82.70 HST incl. $__________

NS, NB, NL, PEI $42.49 $84.17 HST incl. $__________

AB, QC, MB, BC, SK $38.80 $76.85 GST incl. $__________

ONLINE UPGRADE

ON, NB, NL, NS, PEI $1.57 per issue times the number of issues remaining in a current print membership to reach a common expiry date.

HST incl.x Number of Issues ____________ $__________

AB, QC, MB, BC, SK $1.46 GST incl. x Number of Issues ____________ $__________

You may purchase gift memberships to Canadian MoneySaver for Canadian residents. Please select price that includes applicable taxes based on where you reside in Canada.

50%off the second service with the purchase of a combined print & online membership





Time to Renew?

Give as a Gift?If your mailing address is printed BELOW this box,

your membership is about to expire. Renew today and assure continuous service.

Use the form on the reverse side or the renewal envelope bound inside this issue to renew.

No other renewal notice is sent.

Give as a gift and share the wealth of financial knowledge and expert advice

with a friend or family member.

You can also renew or order online at www.canadianmoneysaver.ca

Don't miss a single issue!


Independent Financial Advice For Everyday Use - Since 1981 SAVER

Your Source for Unbiased Investment Research

How Have We Done?

25%OffA One-Year Subscription

to 5i Research+

Receive 1-Year FREE ofCanadian Moneysaver Magazine

Digital Edition

Top Picks Include: Stars Group: +1,782%

Boyd Group: +823%

Constellation Software: +796%

Sylogist: +569%

* For new members of 5i Research only. Does not apply to existing members or renewals. Discounts cannot be applied retroactively.

Offer valid until December 31st, 2018.

Try it RISK FREE for 60 Days with 25% OFF for a Limited Time at:

CanadianMoneySaver.ca/5i

5i Model Portfolio:• Return Since Inception: +168.42%• Five-year Annualized Return: +20.7%

Join now and don’t miss the latest stock research

or model portfolio changes!


special issue: 5i research talks stocks & investing · • future proofing your portfolio:...

Documents