Given the recent strong investment performance of the equity markets, do not stop your goal of managing your own capital

Based on my experiences with all types of investors over the years, those that use external money managers are reluctant to make any changes when their investment returns are strong. It is important to keep in mind your long term objectives – to lower the fees you are paying and ultimately improve your investment performance. If you can materially lower your fees this will immediately be beneficial to your net worth.

By taking ownership of your investments, you can effectively control how much portfolio volatility you are comfortable with and you can tailor your investments to match exactly your long term goals.

Why is Gold Bullion Falling?

Why is gold bullion falling when inflationary expectations are climbing?

There are several important reasons why gold prices are floundering today.

Nominal interest rates are rising sharply after having declined for many years. Gold bullion offers no income, so when rates rise investors are offered a yield- oriented alternative to gold.

Historically when real interest rates have turned negative, gold prices have risen sharply. Although real rates are still negative today, they are considerably less negative than they were at year end.

The US dollar has finally started to rise once again versus global currencies. This has normally been negative for gold.

Gold bullion is facing competition from bitcoin with many investors preferring its long- term outlook over gold.

Gold is not an industrial commodity like copper and steel. As a result of renewable energy and the electrification of cars, silver has also become much more of an industrial metal than gold.

As you can see from the attached chart, gold prices have performed well in a declining interest rate environment. As rates start to climb, gold prices begin to fall.


Unless inflationary expectations really start rising much faster than interest rates are increasing, gold prices will continue to face major headwinds.

Canadian Rate Reset Preferreds – Positive developments

You all know by now that I am not a favourite of rate reset preferreds. Extremely poor liquidity and rate reset risk when interest rates are low are major impediments from investing in them.

However, there have been some recent developments in regards to Canadian banks that have altered the preferred share market somewhat. Historically banks have been major issuers of rate reset preferreds as the capital raised could be included as Tier 1. The dividend on these preferreds was not considered interest and thus not deductible by the banks on their tax returns.

Recently, OSFI, the Canadian regulator, has granted approval for a new type of instrument called Limited Recourse Capital Notes (LRCN’S). These notes can be counted as additional Tier 1 capital. In addition while OSFI considers these notes permanent capital, the securities are considered bonds with the interest on them fully tax deductible by the banks. This deductibility of the interest makes them a cheaper way for banks to raise more capital.

Historically banks have been major issuers of rate reset preferreds. This new OSFI ruling is expected to create a potential shortage of new Canadian rate reset preferred issues, thereby lifting market valuations.

Secondly, there now exists a real possibility of many bank rate reset issues of being called and replaced by these new LRCN’S. This will also lift valuations. Fiera Capital expects up to $11 billion of redemptions over the next few years representing almost 17% of the overall preferred share market.

The LRCN’S will only be available to institutional investors as a new issue, but may still be available to retail investors in the secondary market. I assume that the distribution will not be eligible for the dividend tax credit as it is considered interest, but those details are quite hazy at this time. OSFI has not yet granted permission to Canadian non-financial companies to issue them. However these companies can currently issue a hybrid security instead of the preferred.


This recent news does not encourage me to go out and buy rate reset preferreds at this time. Interest rates remain low and are not expected to rise any time soon. However if you are a current holder of the bank issues, you may want to hold onto them for the possibility of being called at higher prices.

How to Invest Your monies in a Pandemic World

Equity markets initially collapsed, then subsequently rebounded sharply.The S& P 500 and TSX Composite are still off 16% and 19% respectively from their recent highs.

A global economic recession is clearly evident.

Many investors either have no cash or are virtually all in cash at this time. These are both bad long term strategies.

China has been vigilant in controlling this pandemic in their own country. Daily new cases and deaths in China are on the decline and have been for quite some time.

In the US and many other countries, the amount of daily cases has only seen a plateauing with no meaningful declines yet. Reopening the US economy, without a vaccine or effective anti-viral readily available, may well lead to a surge in new cases and deaths this fall according to Dr. Fauci, the head of the US Centre for Disease Control.

Consumer spending represents 70% of many domestic economies including the US and Canada. Unless the public feels completely safe, they are going to be very careful about travelling, staying in a hotel, shopping in bricks and mortar retail stores, attending a sporting event.

Specific industries are thriving in this Covid-19 era while others are really struggling and are unlikely to survive in the same form as was the case in the pre- Covid world.

For my Free Bloggers go to my home page to subscribe to my monthly newsletter and portfolios and read about how to invest your monies today. My May newsletter provides a summary of how to set up and manage an investment portfolio.



Canadian Equity Sector Performance – Insights for Future Performance

I have analyzed total returns for 1 year, year to date and 1 month.

Golds continue to be the best performing group outperforming all others for 1 year, year to date and 1 month.

Energy is the worst performing group for both the last year and year to date. However over the last month it has sharply outperformed the benchmark TSX Composite.

The Utility sector continues to outperform the TSX Composite on a 1 year, year to date and 1 month basis.

While the Industrials outperformed the TSX on a 1 year basis, they have under performed on a year to date and 1 month basis.

The Telcos – namely BCE, Telus and Rogers, have outperformed on a 1 year and year to date basis, but under performed on a 1 month basis.

The Grocers – Loblaw, Metro and Empire outperformed the TSX on a 1 year and year to date basis, but have not kept up to the TSX on a 1 month basis.

Lastly both the Reits and Financials outperformed the TSX on a 1 year basis, but have sharply under performed the TSX on both a year to date and 1 month basis.


Energy stocks are in the process of bottoming after the massive selloff.

Utility stocks continue to perform well and with their strong dividends they tend to outperform in a recession.

Golds are expected to continue their strong run as long as interest rates remain low.

Both Financials and Reits are suffering in this recession and this is likely to continue until signs of the recession ending are more evident.

There is some modest profit taking in some of the grocers over the last month after their strong performance. However they remain core holdings especially in a recession.

The telcos are similar to the grocers in that they are defensive in nature and will continue to perform well in a recessionary environment.

Industrials are quite cyclical in nature and are expected to perform better when this current recession ends.


Active stock picking and asset mix strategies are the best options in the current environment.

Stop buying passive index funds and etf’s in a falling equity market.

Improve the quality of your stock holdings by selecting companies with strong balance sheets and solid growth prospects. Sell your holdings in companies, funds and etf’s that do not meet this criteria. Be extremely selective in what you hold.

Active asset mix strategies work well in a volatile market where you have some cash available to take advantage of market opportunities on market dips.



Investment Asset Mix – Too Much or Too Little Cash – What to do now.

Having either too much cash or having too little cash by being fully invested both have different risks.

Many investors refused to see a possible market correction and remain fully invested in equities.The risk they face now is the possibility the equity market will retest its recent low and fall further from current levels. If you are fully invested in equities there is no place to hide.

There are two options you can pursue if are fully invested as follows:

Make some equity switches from poorer quality companies to better quality, less leveraged ones.

Take some profits in some stocks and equity sectors that have recently seen a nice market rebound.


For those of you with too much cash the risk is that you may have already missed the market bottom and this involves an opportunity cost.

There are several options you can follow if you have too much cash as follows:

You can gradually phase back into equities by purchasing high quality stocks that have come down in value recently.

You can systematically  invest a percentage of your assets back into equities – say 10-20% at a time.

Investing in a Bear Market

Cash is king – have plenty of it

Avoid Rate Reset Preferreds

Avoid High Yield Fixed Income

Both US Treasury  and Govt of Canada bonds perform well in a recession. However with current yields so low there is not much upside.

Avoid Equity Index funds and ETF’s

Favour defensive equity sectors like Reits, Utilities and Telcos

Gold bullion performs well when the following occurs:

Falling Interest rates like we have today

During most previous economic recessions, gold outperforms benchmark equity indices

When real interest rates are negative like today, gold performs well


Passive Index Funds vs. Active Management – Which is the best strategy in a bear market?

Passive indexing not a good strategy in a declining market

No place to hide in index funds

Active management sharply outperforms an index fund in a bear market due to the following:

Have more cash and invest in more defensive industries like Reits, Utilities and Telcos.

Individual stock selection weeds out poor performers and over leveraged ones


Algorithm based program selling triggers liquidation of both strong and weak sectors equally. However when markets rebound once again, defensive sectors and stocks tend to come back first.


Avoid passive index funds in a bear market

Active asset mix, stock and equity sector selection is the preferred strategy especially in a falling equity market


Downsizing your family home to a condo – Be very careful

As our children leave the family home, it is only natural to want to downsize by switching to a smaller condo. On the surface this may appear financially viable with average condo prices lower than two story homes.

However, there are a lot of other factors that you must take into account before doing anything as follows:

What is the monthly cost of the condo and what does this monthly fee cover?

How much has the monthly cost risen over the last several years?

Have there been any major capital improvements and maintenance costs over the last several years that have led to a one time cost assessment for every individual condo owner?

Does the condo fund have a capital surplus to cover annual maintenance costs plus some capital improvements? Alternatively if the fund has a deficit, this is a red flag.

Have you reviewed the financial statements of the condo association? This is absolutely essential and far more important than your assessment of the individual unit. If you are not comfortable reading the financial statements, hire a independent accountant who is not associated with the condo to read and assess them for you.

Lastly condo insurance rates are rising dramatically in Canada and will ultimately lead to a combination of higher monthly condo fees plus an additional assessment for each separate unit owner. In some instances insurance premiums have risen this year by up to 200-500% over last year. It is very important to review the building’s insurance rates for both the last several years and for this year in order to determine if the individual condo owners will be required to pay more monthly fees and one off cost assessment fees.



Buying a condo may not be the best decision you make financially.

Consider other options such as renting an apartment or purchasing a freehold property that does not involve any of the negative issues that condos have.




Adding new US Consumer Discretionary stock to both portfolios

For my subscribers please log on to my site to see my new company addition to both portfolios

For my blog non subscribers please go to my website at  to sign up to my monthly newsletter and model portfolios.

Trading Costs and how they differ between Discretionary and Non Discretionary Investment Accounts

Commission per share will be normally much lower for a discretionary account where your adviser combines purchases and sales into block trades.

The bid and ask spread price also affects trading costs and this is largely affected by the liquidity of the security being transacted.

Hidden trading costs or execution costs are far larger than the combination of commissions and bid and ask spreads for most transactions.

For example an adviser that wants to complete a block purchase for all their discretionary accounts has to be cognizant of the amount of stock being offered, not simply the price. Assume a buy order is placed for 100,000 shares of a security with only 25,000 shares being offered. Even for a relatively liquid security, this order imbalance of 75,000 shares will drive the share price higher than the combination of the commission per share and the bid ask spread.

On the other hand, an adviser dealing with a non discretionary account may recommend the purchase of a small quantity of 200 shares for the same security. This purchase order is obviously much smaller than the previous block order and would not affect the share price materially over the bid and ask spread.

Lastly a client that has a discretionary account with their adviser must be very careful of the tax consequences for a non registered account.


While there are lower commission costs for discretionary accounts, the hidden execution costs are normally much greater than the commissions. In addition the increased probability of capital gains being realized will trigger more negative tax consequences.

Regardless of your adviser’s recommendations, my advice is to stick to a non discretionary type of account where you, the client, have the final say for all buy and sell transactions.


Please see our disclaimer at Copyright 2019 McMurtry Investment Report. All rights reserved. 

Threat of Global Recession increasing

Germany’s economy is on the verge of a recession  and already has negative interest rates

US economy continues to weaken especially in the capital goods / industrial sector

US year over year corporate profit growth slowing to 1-2%.

Global business confidence continues to erode from trade wars, Brexit fears, inverted yield curve, negative rates in Germany and Japan


A cautious investment stance is critical in this environment. Maintain high cash levels, reduce equity exposure and tilt equity exposure to more defensive groups like utilities, consumer staples, telcos and Reits.


Adding Magna International to both portfolios

Current industry fundamentals are not favourable with slowing US car sales and weaker global growth

However, Magna’s shares are discounting this weak environment with its shares trading at 1.4 times book value and a little over 8 times 2019 EPS.

Time to purchase a cyclical company like Magna is when its shares are out of favour.

Its shares offer a free cash flow yield of over 12%. Its dividend yield is 2.99% while its cash dividend payout ratio is a low 21.7%.

It has a strong balance sheet with debt only 31% of total equity.

Over the last twelve months it has generated free cash flow of $2.7 billion  or $8.005 per share.


Canadian Banks – Quality of Management

TD, RBC and Bank of Montreal derive a material contribution to their revenues and earnings from the US market.

Scotiabank derives very little contribution from the US.


What does that imply about the quality of management of Scotiabank given the strength of the US economy?