Making sense of the markets this week: December 7



Each week, Cut the Crap Investing founder Dale Roberts stocks fiscal headlines and provides context for Canadian traders. 

Canadians with smaller portfolios will be the target for deferred service charge (DSC) mutual funds

There was some great news and bad news in this post on Advisor’s Edge. The great news is that those horrible deferred service cost (DSC) mutual funds are being used less, in favour of lower-fee F-series funding. In his MoneySense column, Jonathan Chevreau has recorded the welcome decline of DSC funds. Instead, F-series funds are readily available to investors who pay their advisor a separate and distinct fee for advice or financial planning, and the overall cost is substantially lower.

The terrible news is that Canadians with smaller investment portfolios are still being targeted with these high-fee DSC funding. From this Advisor’s Edge article, which seemed in a current report by the Mutual Fund Dealers Association…

“The report built on data published last month revealing that a big percentage of households served by MFDA advisors are bulk market (less than $100,000 in cash and investments). 

“These top-of-mind customers continued to have the highest concentration of deferred sales fee funds (33 percent of assets), ” the report stated. And DSC funds made up almost half the resources of advisors with novels under $2 million. ” 

DSC funds are largely on their exit in Canada. In my view (and I’m certainly not exclusively on this) they are unfair and do not serve the investors at all. Actually, DSC funds are not harmful. Unfortunately, Ontario is going against the grain and also has been quite slow to remove DSC funds. (Here’s a post on my site that contains my letter to the Ontario Securities Commission, together with its weak and mushy regulatory reaction ). 

Moving away from high-fee mutual funds of all stripes is now a frequent theme in MoneySense. Here’s Larry Bates, author of Beat The Bank, on switching from mutual funds to ETFs. That’s a superb and detailed post as it sets out the benefits and the watch-outs. 

If you are among these “mass-market ” Canadians having a more modest portfolio, even an Canadian robo-advisor might be a great alternative. You’re going to get advice (human and digital ) to accompany lower-fee ETF portfolios. Do remember to be careful when moving assets to a robo-advisor; we still don’t even want to trigger any unnecessary penalties as we depart those mutual funds behind. 

Canada’s economic update

This week offered a collapse economic upgrade in the Trudeau government, and a first out of Finance Minister Chrystia Freeland. The fiscal update projects the deficit will reach $381.6 billion by the end of March 2021, and it may be greater depending on the spread of the virus and the potential of more lockdowns or semi lockdowns. 

Budget deficit forecasts:

2020/2021 — $381.6 billion 

2021/2022 — $121.2 billion 

2022/2023 — $50.7 billion

2023/2024 — $43.3 billion 

2024/2025 — $30.9 billion 

2025/2026 — $24.9 billion 

As you’ll find from the article, federal borrowing costs continue to fall (as a proportion of GDP) thanks to historically low interest rates. Obviously, the danger is that we could enter a period of greater rates and even higher borrowing costs.

Canada’s total federal debt has eclipsed $1 trillion. According to Aug. 14, we asked: Will there be tax hikes to cover all of this? 

Here’s a interesting discussion from Scott Barlow of The Globe and Mail: 

Source: Twitter

And here will be the nation rankings… 

Source: Twitter

On the optimistic side of the fiscal ledger we also had the Canadian third-quarter GDP explosion –the biggest ever. 

From that Globe and Mail post … 

“Statistics Canada reported Tuesday that actual GDP surged 8.9%  quarter-over-quarter (or 40.5% in annualized terms) from the period ended Sept. 30, reversing much of their 11.3% slump in the last quarter, as the market reopened after the prevalent lockdowns of the spring. However, the market ended September still running about 5% under pre-pandemic amounts, as the global health crisis retained a few segments of the market closed. ”

The economic recovery continues to take significant steps in the perfect direction. 

You can take these earnings to the Canadian bank

It’s my favourite season. No, not dark and grey late autumn; I mean the Canadian banks’ earnings year. Commentary in the banks’ CEOs may offer many insights into the country of the (fiscal) nation; after all, the Canadian banks perhaps have the best seat in the house in regards to getting a read on things. They view the degree of spending, debit and credit card usage, borrowing and making loan payments, and general company activity. 

The Big Six Canadian banks reported fourth-quarter effects this week, plus they largely surpassed expectations. With numerous tentacles (and by this, I mean strategies to make cash ), Canadian banks consistently seem to find a way to post strong results, even in stressful conditions. Canadian banks have been regarded as the best, or of those best-run banks on the planet. They also gain in their oligopoly situation; there is little competition. 

Here’s a really great video summary, courtesy of Mike Heureux out of Dividend Stocks Rock. Mike was an advisor with National Bank for over a decade, and understands the banks very well. 

As an investor, my favourite is Royal Bank of Canada (RY). And they have been also true to form, (possibly ) submitting the best consequences of the Big Six banks, beating earnings estimates by 10 percent annually over year. RBC’s full-year profit dropped 11 percent to $11.44-billion–the first year-over-year decline for RBC because the global monetary meltdown in 2009. Revenue was down 2.5% in precisely exactly the same quarter of 2019. Total yearly revenue has risen by 2.6% from 2020 compared to 2019. 

Canadian banks also put aside significantly less for loan loss provisions in comparison to the previous quarter. That’therefore the quantity which the banks put aside because of “poor loans. ” Those loan loss provisions directly affect or reduce earnings, and also this past year they were significantly less than what analysts had proposed. RBC’s loan loss forecasts for the quarter was $427 million, down 37% in the last quarter and down 14% year over year. 

In general, for the quarter, the Big Six banks added that a relatively small $3.3 billion for loan losses. That brought the total sum set apart within the past few quarters to an unprecedented $21 billion. 

Toronto Dominion Bank (TD) along with Bank of Montreal (BMO) also posted outcomes that might be regarded as top-of-the-heap for banks that this earnings season. 

From the TD report, this comment frames the terms that are gradually and consistently enhancing … 

“Canada’therefore market was impacted more negatively than the U.S. in the first half of calendar 2020 and ever since then has recovered marginally faster. The Bank estimates real GDP rose by 44.2% (annualized) in the third calendar quarter of the year. In spite of this increase, actual GDP was roughly 4.5% beneath the pre-COVID level from the fourth calendar quarter of 2019. The restoration from Canada’s labor market, nevertheless, has outperformed that of its U.S. counterpart. As of October 2020, almost four-fifths of those jobs lost during the first lockdown have been recovered in Canada, and it is a significantly better performance than in the U.S.. The Canadian unemployment rate has dropped from a peak of 13.7% in May to 8.9% in October. ”

The banks are a fiscal bedrock of the nation. It’therefore important that they are wholesome and well capitalized, and have the assurance of Canadians. For the time being, we’re moving in the perfect direction. But the larger risks remain, thanks to the pandemic. 

The big banks have been relatively flat for the week to Thursday afternoon. The stock prices of both Scotiabank and BMO created the best positive movements. 

Disclosure: I have RBC, TD and Scotiabank. 

Canada’s Pension Plan: Green by 2050?

This short article on Morningstar coated how our national pension plan, the CPP, may be stuck between a petroleum well and a difficult location. It can face stress to go green. 

The requirement for the CPP Investment plank is always really to “…handle funds of the CPP from the best interests of contributors and beneficiaries and to maximize investment returns without the risk of loss. ”

The mandate would be to create enough cash when taking on the proper quantity of danger. It is not to form our market or necessarily support a green energy policy. 

Additionally from Morningstar… 

“In an recent post from the Toronto Star, Michel Leduc, senior managing director and international public affairs and communications including Canada Pension Plan Investment Board stated, ‘We might be urged to abandon our own investment thesis and engagement work and simply divest from traditional energy according to specific target linked policies of the government, where we should always remain independent. ’” 

Last week, the Liberal government tabled the Net-Zero Accountability Act. The regulation ’s aim is to achieve net-zero emissions for Canada by 2050. 

Canada’s pension sector is a remarkable force in $2.8 trillion, a sum more than our GDP. The CPP stands at over $400 billion. There is an argument to be made that Canadian pension assets (investments) may be a representative of environmental and social shift. 

These pensions are a clear and tempting tool or lever for governments. Can our CPP face that pressure to “go green? ”

This will be a more than fascinating debate to keep a watch out for. 

Tesla is muscling into the S&P 500 “all in once”

We’ve been following this story for quite a while. The world’s leading electric car manufacturer, Tesla, is not a part of their S&P 500. However, that’s about to change. Tesla will be added to the famed US inventory index on Dec. 21. And it will happen in one massive move that will disrupt the index and the numerous resources that track the index. Those funds might need to add Tesla inventory, a lot of it.

By Bloomberg… 

“With about $11 trillion in funds tied to the S&P 500, cash managers were searching toward a couple of busy weeks ahead regardless of how Tesla was contained in the index. Whether it had been only one fell swoop or 2 separate tranches, managers of index-tracking funds would still have been required to offload stocks of other businesses to create room for the mammoth newcomer in their portfolios. ”

The Tesla stock price jumped on news. This is the biggest new addition to the S&P 500, ever: Tesla is currently valued at US$540 billion. (The previous record belonged to Berkshire Hathaway, added in 2010 using a worth of US$127 billion.)

Even the S&P 500 is about to add more growth, and much more green. 

Dale Roberts is a proponent of all low-fee investing who blogs in About Twitter @67Dodge


A guide to the best robo-advisors in Canada
What does one fee-only financial planner do, precisely?
Potential tax changes due to COVID-19
Should you buy property by means of a company?

The article Making sense of the markets that week: December 7 appeared initially on MoneySense.

Article Source and Credit Buy Tickets for every event – Sports, Concerts, Festivals and more

Discover more from Teslas Only

Subscribe now to keep reading and get access to the full archive.

Continue reading