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  • Tropical Storm Fernand pulls away from US

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    Tropical Storm Fernand pulls away from US

    Tropical Storm Fernand is now rumbling through the Atlantic

    >> JUST GETTING IN THE LATEST INFORMATION FROM THE 05:00AM ADVISORY ON TROPICAL STORM FAIR. NOT NOW. THIS IS REALLY JUST MAINTAINING STRENGTH, BUT IT’S OVER 300 MILES NOW EAST-NORTHEAST OF EVEN BERMUDA. SO THIS IS JUST OVER THE OPEN ATLANTIC AND IT IS MOVING TO THE NORTH-NORTHEAST AT 12 MILES PER HOUR. SO NOT LOOKING ALL TOO IMPRESSIVE. AND WITH THE LATEST SPAGHETTI PLOTS, WE DO HAVE A REALLY GOOD CONSENSUS THAT HIGH PUNCHING THAT THIS CONTINUES TO TRACK NORTHEAST HEADING TOWARD THE FAR NORTHERN SUBTROPICAL ATLANTIC WHERE I DO EXPECT IT TO EVENTUALLY DISSIPATE BY THE END OF THE WEEK. SO THE LATEST FORECAST CONE SHOWING THAT WHAT WE COULD SEE SOME WOBBLES IN INTENSITY, PERHAPS SOME OCCASIONAL STRENGTHENING, NOT FOR LONG. WE DO NOT EXPECT THIS TO REACH HURRICANE STATUS OF HER. AND WE EXPECT THIS TO EVENTUALLY ON WEDNESDAY TRANSITION TO A POST-TROPICAL CYCLONE MEETING. IT WILL HAVE LOST ALL OF ITS TROPICAL CHARACTERISTICS AND IT POSES NO THREAT TO THE U.S.. THAT IS, OF COURSE NOT. THE ONLY THING I’M MONITORING THIS MORNING ON TOP OF TROPICAL STORM FAIR NON-LOCAL INTO THE SOUTH OVER THE WINDWARD ISLANDS THIS MORNING. A DISTURBANCE WITH LOW ODDS FOR DEVELOPMENT. WE’RE TALKING HAD DECREASED OVER THE WEEKEND TO JUST 10%. SO OVER THE NEXT 2 DAYS, EVEN THE NEXT WEEK, LOW ODDS TO SEE SOME SORT OF TROPICAL DEVELOPMENT. HOWEVER, REGARDLESS OF DEVELOPMENT, THIS IS STILL PRODUCING DISORGANIZED SHOWERS AND STORMS. EVEN THOUGH THE COVERAGE IS DECREASING A BIT THIS MORNING AND FOR THE WINDWARD ISLANDS, AT LEAST SOME GUSTY WINDS AND HEAVY RAIN POSSIBLE THROUGHOUT E DAY TODAY, EVEN INTO TOMORROW AS THIS TROPICAL WAVE MOVES WEST. SO AS OF NOW, NOT SEEING HIGH LIKELIHOOD THAT THIS EVER ACTUALLY DEVELOPS. BUT WE’RE GOING TO BE STAYING ON TOP OF IT, OF COURSE, AT THIS POINT IN HURRICANE SEASON. WE’RE ALSO 3RD THROUGH OUR STORM NAMES LIST. THE NEXT NAME ON THE LIST. GABRIEL AND THEN UMBERTO. SO WE’RE GONNA BE WATCHING FOR THAT. AND KEEP IN MIND, WE’RE JUST ABOUT 2 WEEKS OUT FROM THE STATISTICAL PEAK OF HURRICANE SEASON. ALL RIGHT, LIVE RADAR, SWEEPING, CLEAR WATCHING SOME OF THOSE SPOTTY SHOWERS JUST OFF THE COAST OF CHARLOTTE COUNTY. BUT MOST OF US IN GREAT SHAPE AFTER A VERY SOGGY WEEKEND, HOWEVER, WITH EVEN SOME FLOODING CONCERNS FOR PARTS OF LEE COUNTY. SO WHO IS FAVORED TO SEE THE RAIN AGAIN TODAY? WHILE COASTAL SPOTS, SOME SPOTTY SHOWERS AND STORMS INTO THE MORNING HOURS. AND WE’RE LOOKING AT THAT POSSIBLE HEADING INTO THE AFTERNOON. SCATTERED STORM. SO WE DO NOT EXPECT THE COVERAGE TO BE NEARLY AS HIGH AS WHAT WE SAW SATURDAY OR SUNDAY. HOWEVER, YOU ARE STILL GOING TO WANT THE UMBRELLA HANDY. WE’RE LOOKING AT A RINSE AND REPEAT PATTERN STILL EVERY SINGLE DAY OVER THE NEXT WEEK. SO NOT SEEING THE RAINY SEASON WEAKENING ANYTIME SOON. IN FACT, THE RAINY SEASON DOESN’T COME TO AN END UNTIL USUALLY THE MIDDLE OF OCTOBER. SO WE STILL HAVE QUITE A WAYS TO GO TEMPERATURE NO RELIEF THERE. LOW TO MID 90’S EVERY SINGLE DAY MORNINGS WILL BE IN THE MID TO UPPER 70’S. SO PRETTY SEASONAL. I DON’T EXPECT RECORD HEAT, BUT WE’RE ALSO NOT GETTING IN ON ANY SORT OF COOL DOW

    Tropical Storm Fernand pulls away from US

    Tropical Storm Fernand is now rumbling through the Atlantic

    Updated: 2:28 AM PDT Aug 25, 2025

    Editorial Standards ⓘ

    The Atlantic Basin remains active as Tropical Storm Fernand spins over the open Atlantic and a disturbance near the Windward Islands has a low chance for development.Tropical Storm Fernand At 5 a.m. Monday, Tropical Storm Fernand maintained strength with sustained winds at 50 mph. It’s currently 360 miles east-northeast of Bermuda and moving north-northeast at 12 mph.It is forecast to head toward cooler sea surface temperatures and high wind shear, making a transition to post-tropical by Wednesday.Fernand poses no threat to the U.S. and is expected to dissipate by Thursday.Invest 99LNear the Windward Islands, the National Hurricane Center has designated a tropical wave as Invest 99L in the region highlighted in yellow. Chances for development have decreased to only 10% as the system tracks west. Regardless of development, heavy rainfall and gusty winds are the main threats in the Windward Islands over the next two days.As 99L pushes deeper into the Caribbean, there is potential that it could reach an area of more favorable development conditions later this week. Count on the Gulf Coast Storm Team to keep you informed.

    FORT MYERS, Fla. —

    The Atlantic Basin remains active as Tropical Storm Fernand spins over the open Atlantic and a disturbance near the Windward Islands has a low chance for development.

    Tropical Storm Fernand

    At 5 a.m. Monday, Tropical Storm Fernand maintained strength with sustained winds at 50 mph. It’s currently 360 miles east-northeast of Bermuda and moving north-northeast at 12 mph.

    Tracking the tropics

    hurricane

    It is forecast to head toward cooler sea surface temperatures and high wind shear, making a transition to post-tropical by Wednesday.

    Fernand poses no threat to the U.S. and is expected to dissipate by Thursday.

    Invest 99L

    Near the Windward Islands, the National Hurricane Center has designated a tropical wave as Invest 99L in the region highlighted in yellow.

    Area of Interest

    Chances for development have decreased to only 10% as the system tracks west. Regardless of development, heavy rainfall and gusty winds are the main threats in the Windward Islands over the next two days.

    As 99L pushes deeper into the Caribbean, there is potential that it could reach an area of more favorable development conditions later this week. Count on the Gulf Coast Storm Team to keep you informed.

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  • Should you do options trading? – MoneySense

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    What is an option?

    An option is a contract to buy or sell a security for a specific price, called the strike price, on or before the option’s expiration date. Options are available for individual stocks, stock indexes, commodities and other securities. They trade on stock exchanges and can be bought and sold both through brokers and self-directed investing platforms.

    Read more in the MoneySense Glossary: What is an option?

    Why are options popular right now?

    Combined with more stock market chatter on social media and market volatility, options trading has gained steam with mom and pop Canadian investors. The trend truly picked up during the pandemic when many were stuck at home and has since continued, with options trading surging 89.4 per cent in 2023 compared with the year before, a World Federation of Exchanges report shows. 

    Social media and online commentary have pushed demand for options trading, said Josh Sheluk, portfolio manager at Verecan Capital Management. “People hear about how great somebody on Reddit has done with a specific options trade and they want to try to do the same thing and get very, very rich, very, very quickly,” Sheluk said. “It’s become very appealing.”

    However, he cautioned that this type of trading is very risky for do-it-yourself investors. “I don’t think many of the do-it-yourself investors truly understand how much risk that they’re taking with options trades.”

    What can you do with options?

    Options—a derivative whose value is directly linked to an underlying asset or stock—allows investors to bet on which way a stock will move in a specific time period. It’s a contract between two investors. There are two types of options: puts and calls.

    What is a put option?

    Put options are derivatives. This means their value is based on the value of another security, typically a stock. Puts are also available on currencies, indexes and other assets. A put option, or put, is a contract that gives you the right, but not the obligation, to sell the underlying investment at a specific price, called the strike price, before the option expires. The price of a put is called the premium, which fluctuates depending on a number of factors, including the current stock price and the time left until the expiration date.

    Read more in the MoneySense Glossary: What is a put option?

    What are a call options?

    A call option gives investors the right to buy a stock at a certain price and a put option is the right to sell a stock at a certain price. For example, if an individual stock is trading at $50 per share, an investor can buy a call option for $55—predicting the stock will go up five dollars within a period of time, Sheluk said.

    “As the holder of that ‘call’ option, if the stock price goes from $50 to $60, you’re pretty happy because you can now buy that stock at $55, where on the market, it would be $60,” he explained. It’s not so great for the seller of the option, who will have to buy the stock at market value and sell it back at the option strike price of $55.

    Where can you buy call options in Canada?

    Josh Sheluk photo courtesy of Verecan Capital Management

    If the stock doesn’t reach the option’s strike price, the entire investment will be lost. A drop in options trading fees, primarily on DIY investment platforms, has also attracted young investors to the space. On Wealthsimple, for example, investors can trade options for as low as $1.

    Big banks have also started to lower their options trading fees as competition among investment platforms grows. Last month, the Bank of Montreal lowered fees for options traders making more than 150 trades per quarter.

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    The Canadian Press

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  • Making sense of the markets this week: November 3, 2024 – MoneySense

    Making sense of the markets this week: November 3, 2024 – MoneySense

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    Amazon earnings highlights

    Share prices were up 5% in after-hours trading on Thursday after the strong earnings beat.

    • Amazon (AMZN/NASDAQ): Earnings per share of $1.43 (versus $0.14 predicted) and revenues of $134.4 billion (versus $131.5 billion predicted).

    Amazon Web Services (AWS) remains the golden goose, even though very few of Amazon’s retail customers know it exists. Revenues climbed 19% during the quarter, and totalled $27.4 billion. Amazon’s advertising revenues were another highlighted area of the report, as they were up 19%. Overall operating profits grew 56% year over year to $17.4 billion, mostly credited to the 27,000 jobs cut by the company since 2022.

    Founder, executive chairman and former president and CEO of Amazon, Jeff Bezos was in the headlines this week in his role as owner of the Washington Post. He refused to allow the Post’s editorial team to print their endorsement of Kamala Harris for president, and it was met with widespread outrage from Post readers. As of Tuesday, more than 250,000 subscriptions were cancelled as a result. 

    Source: The Sporting News

    Fortunately for Bezos, he purchased the Washington Post (one of the world’s premier news brands) for “chump change”—$250 million (roughly a mere 1.2% of his net worth). So, if he drives it into the ground, I don’t think he’ll shed tears.

    No doubt co-founder and CEO of Tesla, Elon Musk, is making similar calculations with his luxury purchase two years ago of Twitter (which he rebranded as X). Critics say he has turned the social platform into an echo chamber for Republican presidential candidate Donald Trump. What are the billions for, if a person can’t even enjoy themselves by buying a little media, am I right? (That’s sarcasm.)

    So far we’ve yet to see analysis to show Bezos’ editorial decision affecting Amazon’s share price or revenue numbers. Apparently Republicans buy Amazon Prime, too.

    Canada’s best dividend stocks

    Microsoft, Meta and Google: Predictably incredible earnings

    While not having quite as large a market cap as Nvidia and Apple, other mega tech stocks in the U.S. are no slouches. For example, Microsoft is also as valuable as the entirety of Canada’s stock exchanges at $3.2 trillion. Alphabet and Meta clock in at $2.1 trillion and $1.5 trillion respectively. (All figures in this section are in U.S. dollars.)

    Other Big Tech stock news highlights

    Here’s what these companies announced this week.

    • Alphabet (GOOGL/NASDAQ): Earnings per share came in at $2.12 (versus $1.51 predicted) on revenues of $88.27 billion (versus $86.30 billion predicted).
    • Microsoft (MSFT/NASDAQ): Earnings per share of $3.30 (versus $3.10 predicted), and revenues of $65.59 billion (versus $64.51 predicted).
    • Meta (META/NASDAQ): Earnings per share coming in at $6.03 (versus $5.25 predicted) and revenues of $40.59 billion (versus $40.29 predicted).

    All three companies crushed earning estimates across the board. However, shareholders’ reactions to these earnings beats were still muted. Meta shares were down 2.5% in after-hours trading on Wednesday, and it was a similar situation for Microsoft. Alphabet fared better as its shares were up 3%.

    It’s hard to put these numbers into the massive context into which they belong, because the world has never seen anything like these companies before. Here are highlights from the earnings calls. (Scroll the chart left to right with your fingers or press shift, as you use scroll wheel on your mouse to read.)

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    Kyle Prevost

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  • Lisa Hannam on measuring time and money, and more – MoneySense

    Lisa Hannam on measuring time and money, and more – MoneySense

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    Who are your money heroes?

    The perk of being a finance journalist is having access to different people—whether it’s an economist, a financial planner or other Canadians—who share what they’ve learned from their own lives and areas of expertise. And as a service journalist who works on how-tos and explainers, there’s always that question in the back of my mind: “How can I apply this to my own life?” I take a little bit from every interview and story that I read.

    Get free MoneySense financial tips, news & advice in your inbox.

    How do you like to spend your free time?

    I love reading. I love writing. I like to stay active. I try to balance out mind and body activities in my free time. I want to ensure that I’m taking care of both sides of my health.

    If money were no object, what would you be doing right now?

    Honestly, I would love to say, “exactly what I’m doing right now.” But I think money allows us to do things, which is why we work. While I do love working, and I definitely don’t shy away from it, if money were no object, I would want to explore things that I couldn’t in my everyday life, that I can’t do while working, like travelling.

    However, that said, I would probably be bored three months in and end up working again.

    What was your first memory about money?

    Obviously, there are things like lemonade stands or asking mom and dad for a treat, but I think the most impactful memory around money was babysitting. I worked for an amazing woman. She was a single mom, and I had a regular gig with her two kids every weekend. She paid me pretty well. Another family asked me to babysit. And they got the neighbourhood together, I guess whoever was going out with them that night, and got all their kids together. So, I ended up babysitting five kids for half the rate of my regular gig. I hard-learned the value of money and my time and stress. I never went back to that house. That was a good lesson there.

    What’s the first thing you remember buying with your own money?

    Magazines. I was obsessed with magazines, and I found that magazines were a better value for me as a teenage girl, because I could see different ways to wear my clothes, as opposed to going out and buying things that I saw in the mall. The amount of time I would spend with a magazine was a lot. I would read it from cover to cover multiple times. I was just so amazed with how the editors would anticipate my questions and made everything so seamless and flawless to read, whether it was learning a new skill or learning about a new trend or music group or whatever. I was just so impressed in how they answered every question before I had it. I try to be that type of editor today.

    What was your first job?

    I worked all through high school and university at my first “real” job. I worked at Kentucky Fried Chicken. With my first paycheque, I took all my friends out for my birthday to Mother’s Pizza. It was a lot of fun, and I remember how cool it felt to be able to buy my friends dinner.

    What was the biggest money lesson you learned as an adult?

    I remember learning what a pension was and realizing that I didn’t have one, and that being in journalism, I probably would never have one. I saw an ad on the TTC, which is the Toronto subway, quickly explaining RRSPs. So I made an appointment at my bank where I had my bank account and my credit card, and I went in and said, “I need an RRSP. Just put gold in it.”

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    MoneySense Editors

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  • “Get to know and minimize the investing fees you pay”: Michael McCullough, MoneySense contributing editor – MoneySense

    “Get to know and minimize the investing fees you pay”: Michael McCullough, MoneySense contributing editor – MoneySense

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    Image courtesy of Wiley

    Recently, Michael helped to update the Canadian version of Personal Finance for Dummies (7th edition), a comprehensive guide to everything from budgeting and spending to taxes and retirement. Below, he shares his own money experiences and what he thinks is the most underrated financial advice.

    Who are your finance or investing heroes?

    Maybe John Bogle, who founded The Vanguard Group, an investment firm in the U.S. that created the first index funds for retail investors. He was driven by more than self-interest. He wanted to empower small investors. Bogle also wrote The Little Book of Common Sense Investing, which made it into MoneySense’s list of 25 timeless personal finance books.

    How do you like to spend your free time?

    Cycling, hiking, running. I live in the Cowichan Valley on Vancouver Island, which has amazing trails right outside your door.

    If money were no object, what would you be doing right now?

    Michael McCullough stands on a hiking trail in front of mountains.
    Hiking in Tofino, B.C. Photo courtesy of Michael McCullough.

    Travelling to expensive destinations like Paris, Japan and the South Pacific.

    What was your first memory about money?

    I seemed to “get” money from a young age. I’d save it and loan it to my teenaged siblings at pretty high rates of interest. This was the late 1970s and early ’80s, when interest rates were sky-high. Then I learned about credit risk!

    What’s the first thing you remember buying with your own money?

    A K-tel compilation record full of one-hit wonders from the 1970s.

    What was your first job?

    I sold service-station coupons door-to-door on commission. It was a racket. I quit after two weeks.

    What was the biggest money lesson you learned as an adult?

    When I was 22, I got ripped off by a criminal gang in Thailand. I basically had to buy my way out of possible captivity with gold, paid for with an American Express card my dad had given me for emergencies. It took me months to pay my dad back, but I knew even then that it’s only money.

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    MoneySense Editors

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  • What is Sun Life’s new decumulation product? – MoneySense

    What is Sun Life’s new decumulation product? – MoneySense

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    A Canadian retiree’s main decision with this Sun Life product is the age they want the funds to last until (the maturity age). They can choose from 85, 90, 95 or 100 (or select a few with a combination of ages); but they can also start drawing down as early as age 50. Sun Life recalculates the client payments annually, at the start of each year, based on the account’s balance. That has the firm looking at the total amount invested, payment frequency, number of years remaining before the selected maturity age, estimated annual rate of return (expected return is 5.5% but a conservative 4.5% rate is used in the calculations) and any annual applicable regulatory minimums and maximums.

    Birenbaum says holders of MyRetirementIncome can arrange transfers to their bank accounts anywhere from biweekly to annually. While the payment amount isn’t guaranteed, they can expect what Sun Life calls a “steady income” to maturity age, so the payment isn’t expected to change much from year to year. If the client’s circumstances change, they can alter the maturity date or payment frequency at any time. While not available inside registered retirement savings plans (RRSPs), most other account types are accommodated, including registered retirement income funds (RRIFs), life income funds (LIFs), tax-free savings accounts (TFSAs) and open (taxable) accounts.

    Compare the best RRSP rates in Canada

    Emphasis on simplicity and flexibility

    In a telephone interview, Eric Monteiro, Sun Life’s senior vice president of group retirement services, said, in MyRetirementIncome’s initial implementation, most investments will be in RRIFs. He expects that many will use it as one portion of a retirement portfolio, although some may use it 100%. Initial feedback from Canadian advisors, consultants and plan sponsors has been positive, he says, especially about its flexibility and consistency. 

    As said above, unlike life annuities, the return is not guaranteed, but Monteiro says “that’s the only question mark.” Sun Life looked at the competitive landscape and decided to focus on simplicity and flexibility, “precisely because these others did not take off as expected.” The all-in fee management expense ratio (MER) is 2.09% for up to $300,000 in assets, but then it falls to 1.58% beyond that. Monteiro says the fee is “in line with other actively managed products.”

    Birenbaum lists the pros to be simplicity and accessibility, with limited input needed from clients, who “simply decide the age to which” they want funds to last. The residual balance isn’t lost at death but passes onto a named beneficiary or estate. Every year, the target withdrawal amount is calculated based on current market value and time to life expectancy, so drawdowns can be as sustainable as possible. This is helpful if the investor becomes unable to competently manage investments in old age and doesn’t have a trusted power of attorney to assist them. 

    As for cons, Birenbaum says that it’s currently available only to existing Sun Life Group Retirement Plan members. “A single fund may not be optimal for such a huge range of client needs, risk tolerance and time horizons.” In her experience, “clients tend to underestimate life expectancy” leaving them exposed to longevity risk. To her, Sun Life’s approach seems overly simplistic: you “can’t replace a comprehensive financial plan in terms of estimating sustainable level of annual draws with this product.” 

    In short, there is “a high cost for Sun Life doing a bit of math on behalf of clients… This is a way for Sun Life to retain group RRSP savings when their customers retire … to put small accounts on automatic pilot supported by a call centre, and ultimately, a chatbot. For a retiree with no other investments, it’s a simple way to initiate a retirement income.”

    However, “anyone with a great wealth advisor who provides planning as well as investment management can do better than this product,” Birenbaum says. “For those without advisors, a simple low-cost balanced fund or ETF in a discount brokerage will save the client more than 1% a year in fees in exchange for doing a little annual math.”

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    Jonathan Chevreau

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  • Financial planning for the first time? A guide for women on a single income – MoneySense

    Financial planning for the first time? A guide for women on a single income – MoneySense

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    While some financial advisors recommend the 50-30-20 rule, where 50% of your pay goes to fixed expenses, 30% to discretionary and 20% to savings, putting aside just 10% of your take-home pay for savings is OK, too. “We can be as efficient with that 10% as we can possibly be… meaning we could put your savings in a diversified portfolio where the expected returns are going to be higher and over a longer period of time.”

    Ayana Forward, a financial advisor and founder of Retirement in View in Ottawa, acknowledges how hard it can be for single women—and all women—to create a plan to invest, particularly early in their careers. “You have all kinds of competing priorities,” she says, including possible childcare expenses, a mortgage, car payments and school debts. However, Forward encourages women to begin saving anything they can as soon as possible to build habits and benefit from compound interest, which is when your money’s interest starts earning interest of its own. 

    Here’s how that can look: Let’s say you take $100 a week from your miscellaneous allotment and invest it at an interest rate of 5% and watch it grow. After 30 years, if you had put that $100 in a savings account with no or a low interest rate, you’d only have $156,100—but because you invested it, you’d have $345,914. (Calculate your savings with our compound interest calculator.) 

    Prioritize what you love

    What are your absolute must-haves in life? Your non-negotiables? You don’t have to give those up—you may just have to find an alternative way to make them work while meeting your savings goals. “My client, who is a college instructor, loves to travel, and her trips are usually tax deductible,” says Hughes. But to be able to afford her trips while continuing to save, she picked up a part-time job. “It gave her some extra income since she was determined to meet her goal, which was to own a place of her own,” says Hughes. 

    Whether you pick up a side hustle or not, chances are there will still be a few sacrifices you’ll need to make. It comes down to looking at your budget and deciding what you want to prioritize in the immediate time period, says Cornelissen, and deciding what you can let go of for a while. 

    Or it can relieve you from doing the opposite, over-saving for fear of not having enough money. Knowing how much money is going in and going out of your account is key to making a plan for your money.

    Revisit your employee contract

    If you’re employed full-time, find out if your company offers a pension or an employer-sponsored plan, such as RRSP matching (where an employer contributes the same amount as an employee to a registered retirement savings plan). This will help you determine how much you need to save for retirement. “If you don’t have a pension, you’ll need to save more than someone who has a pension,” says Forward. 

    Also, when planning for your retirement explore government income sources that may be available, like the Canada Pension Plan (CPP) and Old Age Security (OAS). “You can go into your My Service Canada account to get those benefit statements so you know what you’ll be receiving from those programs,” says Forward. (You can log into your My Service Canada account using a unique password or use your bank account log in.)

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    Renée Reardin

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  • Making sense of the markets this week: October 27, 2024 – MoneySense

    Making sense of the markets this week: October 27, 2024 – MoneySense

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    Despite these setbacks, CPKC posted an income gain of 7% year over year. The four categories that made the most impact were grain, energy, plastics and chemicals, and they grew revenues by 11%. CPKC says the shipment of wheat to Mexico from the Canadian and American Prairies over the past 12 months was exactly the type of “synergy win” that it was hoping for when the former Canadian Pacific acquired Kansas City Southern back in 2021. This railway remains the only one to span Canada, the United States and Mexico.

    CNR CEO Tracy Robinson commented on the railway’s operational challenges. “Our scheduled operating plan demonstrated its resilience in the third quarter, allowing us to adapt our operations to challenges posed by wildfires and prolonged labor issues,” she said. “Our operations recovered quickly and the railroad is running well. As we close 2024, we will continue to focus on recovering volumes, growth, and ensuring our resources are aligned to demand.”

    CNR’s revenues were up 3% year over year; however, increased expenses meant the company’s operating ratio rose 1.1% to 63.1% (indicating that expenses are growing as a share of revenue). The railway announced it was  raising its quarterly dividend from $0.79 to $0.845. This raise of nearly 7% is right in line with CNR’s mission to conservatively raise its dividend payouts each year.

    For more information on these railroads, check out my article on Canadian railway stocks at MillionDollarJourney.ca.

    Canada’s best dividend stocks

    Rough day for Rogers 

    Thursday’s revenue miss left some Rogers shareholders shaking their heads. 

    Rogers earnings highlights

    Here’s what the large mobile company reported this week:

    • Rogers Communications (RCI/TSX): Earnings per share of $1.42 (versus $1.34 predicted) and revenues of $5.13 billion (versus $5.17 predicted).

    While solid earnings numbers did take away some of the sting, Rogers’ share price was down 3% on Thursday. Lower-than-expected numbers for new wireless customers were at the root of low revenue growth. The oligopolistic Canadian wireless market remains uncharacteristically competitive as Rogers, Telus and Bell all continue to fight for market share. That competition is hurting profit margins for all three telecommunications giants at the moment. (Unlike in past years, when the three telcos all enjoyed charging some of the highest wireless plan fees in the world.)

    One highlight for Rogers was its sports revenue vertical, which was up 11% from last quarter. Rogers has really doubled down on its sports media strategy over the last few years and now owns a controlling share of the: 

    • Toronto Blue Jays in the Major League Baseball league (MLB)
    • Toronto Maple Leafs in the National Hockey League (NHL)
    • Toronto Raptors in the National Basketball Association (NBA)
    • Toronto FC in Major League Soccer (MLS)
    • Toronto Argonauts in the Canadian Football League (CFL)
    • SportsNet, a major Canadian sports network
    • Toronto’s Rogers Centre and Scotiabank Arena venues
    • Naming rights of sports venues in Edmonton, Toronto and Vancouver
    • National NHL media rights in Canada
    • Local media rights to the NHL’s Vancouver Canucks, Calgary Flames and Edmonton Oilers
    • Partial local media rights to the Maple Leafs and Raptors
    • Several minor-league franchises and esports (gaming) teams

    Despite owning all those household-name sports assets, it’s worth noting that Rogers’ wireless and cable divisions were responsible for close to 90% of revenues, with sports and media making up the rest.

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    Kyle Prevost

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  • What is the price of gold in Canada? And more about gold investing – MoneySense

    What is the price of gold in Canada? And more about gold investing – MoneySense

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    That, together with the fear of a stock-market correction, has prompted a lot of Canadians who never considered owning the precious metal before to wonder whether this age-old asset should be part of their portfolios. After all, Canada’s largest robo-advisor, Wealthsimple, allocates 2.5% of its clients’ accounts to gold—and 10% in its halal portfolios.

    Should it be part of yours? Or would you just be buying in at the peak? There’s no way to know, except in hindsight. There will always be “gold bugs” out there urging you to sell everything and buy gold before the world goes to pot. Their advice is best avoided.

    Here instead are some important facts around investing in gold that will help you make a better-informed decision.

    Why is gold so valued?

    Gold is used for a wide range of products—such as jewellery, dental fillings and electronics—but most of it is simply stored in vaults, in the form of gold bars. Like money itself or cryptocurrency, gold is valuable because people have decided it is. But unlike the other two, it’s immune to manipulation.

    As of mid-October, all the refined gold in the world, an estimated 212,582 tonnes, was worth a staggering USD$18.3 trillion. Mines around the world poured another 1,788 tonnes in the first half of 2024. So, the supply of gold is increasing, but slowly. And there’s little anyone can do to change that.

    Why do investors buy gold in Canada?

    As an investment, gold is classified as a commodity. That is, it’s a standardized and graded substance that trades globally. But unlike, say, soybeans or Brent crude oil, you can store a meaningful amount of gold in your jewellery drawer or safe deposit box. It’s also uniquely non-perishable; part of its appeal in ancient times was the fact it didn’t corrode like other metals. So, you can hold it indefinitely.

    If you own gold as an investment, it won’t generate any income; it’ll just go up and down in value according to supply and demand. Over the very long term, its price tends to track the rate of inflation.

    Most importantly, gold has a history as a store of value and unit of exchange. Many central banks still hold it to help stabilize their currencies. In developing countries like India and China, many people consider it more trustworthy than paper or electronic money. This is why it continues to hold a privileged place in investment portfolios.

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    Michael McCullough

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  • Making sense of the markets this week: October 20, 2024 – MoneySense

    Making sense of the markets this week: October 20, 2024 – MoneySense

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    Netflix shows a steady stream of profits

    Netflix (NFLX/NASDAQ) shareholders were happy on Thursday, as they saw share prices rise 5% in after-hours trading on the back of another excellent earnings announcement. (All figures in U.S. dollars.) Earnings per share came in at $5.40 (versus $5.12 predicted) and revenues were $9.83 billion (versus $9.77 billion predicted).

    Paid memberships also topped expectations, at 282.7 million, compared to the 282.15 million predicted by analysts. Netflix chalked up the increase in viewers to new hit shows such as The Perfect Couple, Nobody Wants This and Tokyo Swindlers, as well as new seasons of favourites Emily in Paris and Cobra Kai. Looking ahead to the next quarter, Netflix is banking on the new season of Squid Game and its foray into the world of live sports. Two National Football League (NFL) games and a massively anticipated boxing bout between Jake Paul and Mike Tyson represent new attractions for the streaming giant.

    Photo courtesy of United Airlines

    United Airlines shares take to the sky

    Tuesday was a massive earnings day for United Airlines (UAL/NASDAQ) as earnings per share came in at $3.33, well outpacing the $3.17 that analysts were predicting. (All figures in U.S. dollars.) Revenues were $14.84 billion (versus $14.78 billion predicted). Shares were up more than 13% on the outperformance and the news that the airline was starting a $1.5-billion share buyback program.

    Corporate revenue was up more than 13% year over year, while basic economy seat sales clocked an even more impressive 20% increase. Last week, the company announced new international routes headed to Mongolia, Senegal, Spain, Greenland and more.

    The best online brokers in Canada

    The inflation dragon has been slain

    It doesn’t seem that long ago that annualized inflation rates were topping 8%, and there appeared to be no end in sight. Well, the end has arrived. Statistics Canada announced this week that the Consumer Price Index (CPI) annualized inflation rate for September had dropped all the way down to 1.6%. That’s substantially lower than the Bank of Canada’s 2% target.

    Led by deflation in clothing and footwear, as well as transportation, the downward trend appears to be widespread. Gasoline was also down 10.7% from this time last year.

    List of items contributing to decrease in CPI, September 2024

    Source: Statistics Canada

    Of course, increased shelter costs remain the major concern for many Canadians. Rent increases were up 8.2% year-over-year; while that’s down from August’s figure of 8.9%, it’s still a bitter pill to swallow for many.

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    Kyle Prevost

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  • Making sense of the markets this week: October 13, 2024 – MoneySense

    Making sense of the markets this week: October 13, 2024 – MoneySense

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    Canadian Natural Resources doubles down on Canada

    For a decade now, big acquisitions by Canadian oil-and-gas producers have mostly been met with distaste by investors. So we’ll take it as a heartening sign how well the markets received Canadian Natural Resources’ (CNQ/TSX) decision to buy the Alberta upstream assets of Chevron Corp. (CVX/NYSE) for USD$6.5 billion in cash. CNQ stock rose 3.7% Monday in the wake of the announcement. Chevron was up 0.7% on a day when oil prices increased.

    The assets in question comprise a 20% stake in the Athabasca Oil Sands Project, along with 70% of the Kaybob Duvernay shale play. That should add 122,500 barrels of oil equivalent per day to Canadian Natural Resource’s 2025 output, the company said. It also announced a 7% bump to its quarterly dividend, to 56.25 Canadian cents a share, beginning in January.

    Chevron explained the asset sale in terms of freeing up cash for U.S. shale acquisitions as well as targeted positions abroad, such as in Kazakhstan, which it considers to hold better long-term profit potential.

    Canada’s best dividend stocks

    Nvidia moves up to number 2 in market cap

    Reports of the death of the Magnificent 7 tech stocks’ decade-long run are greatly exaggerated, Nvidia (NVDA/Nasdaq) seemed to say this week as its shares rose past $130. (All figures in U.S. dollars.) That pushed its market capitalization ahead of Microsoft Corp. to $3.19 trillion. That leaves only Apple, with a market cap of $3.4 trillion, worth more than the AI-focused chip-maker.

    Nvidia’s stock is up 26% in the past month, compared to a 6% advance for the S&P 500. Nvidia has grown tenfold in just two years. The price movement this week appeared to come from a positive report from Super Micro Computer, a provider of advanced server products and services. It found that sales of its liquid cooling products, deployed alongside Nvidia’s graphics processing units (GPUs), would be even stronger than expected this quarter. Analyst estimates of Nvidia’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the three-month period ended this month is $21.9 billion.

    The best online brokers in Canada

    Pepsi earnings leave a sour taste

    Posting its second straight disappointing set of quarterly results on Tuesday, beverage-and-snack maker PepsiCo lowered its full-year guidance for organic revenue unrelated to acquisitions. 

    Results were hampered by recalls of the company’s Quaker Foods products, related to potential salmonella contamination. PepsiCo also experienced weak demand in the U.S. and business disruptions in some overseas markets, such as the Middle East. Pepsi’s North American beverage volumes fell 3% year-over-year, mostly due to declines in energy drink sales. Meanwhile, its Frito-Lay division suffered a 1.5% decline.

    “After outperforming packaged food categories in previous years, salty and savory snacks have underperformed year-to-date,” executives said in a prepared statement. Overall, PepsiCo revised its 2024 sales growth outlook from the previous 4% to low single digits.

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    Michael McCullough

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  • How high tax rates hurt the economy – MoneySense

    How high tax rates hurt the economy – MoneySense

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    At a time when Canada, just like every other country, is looking for highly skilled workers, our tax rates make it more difficult for them to choose to work here. This is equally true for Canadian citizens and potential new immigrants. Anecdotally, I’m hearing more and more from clients and people in my network that their children who have chosen to study abroad aren’t coming back home because they can earn and keep more of their income elsewhere. I’m not surprised.

    Our high tax rates also make it hard to attract investment into our country and for existing businesses to expand. That is essential to improve productivity, innovate, create jobs and compete against peers in lower-tax jurisdictions.

    The Allan Small Financial Show, featuring three tax experts—Fred O’Riordan of Ernst & Young, Jake Fuss of The Fraser Institute and Tim Cestnick, a Globe and Mail tax columnist and CEO of Our Family Office—originally aired on September 18, 2024.

    Let’s explore a flat tax

    We need a better, more thoughtful tax strategy as a country—one that is fair for everyone. Canada has not taken a hard, comprehensive look at our tax system since 1962, when Prime Minister John Diefenbaker appointed the Royal Commission on Taxation.

    At the very least, it would be an opportunity to streamline what is a very complicated system, as I see it. At best, it may point to a better way forward. One potential way to streamline our tax system, and make it more efficient and fair, is to implement a flat tax rate across the board. This is not a new concept for taxation.

    For the past decade, Estonia has reaped the rewards of having the most competitive, simple and transparent tax system in the OECD. Its personal and corporate tax rates are 20%. It’s set to increase to 22% in 2025 to match its consumption tax, which increased from 20% to 22% in 2024. In the case of individuals, the tax rate does not apply to dividend income; and businesses only pay tax on distributed profits.

    The result: the country has been very successful attracting startups and investment.

    And we don’t have to leave Canada for an example of a flat tax. From 2001 to 2014, Alberta had a single 10% personal and business income tax rate, dubbed the Alberta Tax Advantage. The Fraser Institute is now calling for Alberta to implement an even lower flat tax of 8% on personal and business income to attract people, businesses and investment in the province and to encourage spending. When Canadians pay less tax, they have more to spend and put back into the Canadian economy.

    Another potential way to ensure tax fairness and generate revenue to meet government responsibilities is to foster more opportunities for the public, business and government to collaborate. For example, why not give individuals and businesses the ability to invest in infrastructure projects, such as new roads and highways, and get a rate of return over time.

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    Allan Small, FMA, FCSI

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  • Gemini is exiting the Canadian market, plus more crypto news – MoneySense

    Gemini is exiting the Canadian market, plus more crypto news – MoneySense

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    Is ethereum being left behind?

    As this chart shows, ethereum (ETH)—the second-largest cryptocurrency in terms of market cap—has lagged bitcoin (BTC) in investment returns over the past year. The blue line is BTC and the red line is ETH. (As of 12 p.m. EST on Oct. 1, 2024.)

    Source: TradingView

    Over the past year, BTC has gained about 122%, whereas ETH has gained only about 45%. Hang on—both are amazing one-year gains. However, ETH has been left behind comparatively. Here are two reasons why:

    1. New bull market: Usually, in a new crypto bull market—like the one that began in January 2024—BTC leads the way, in much the same way that large blue-chip stocks lead the charge in a new bull market for stocks. So, BTC’s outperformance is to be expected right now. There’s no obvious reason for ETH investors to panic (at least, not yet).
    2. BTC spot ETFs: In January 2024, the U.S. Securities and Exchange Commission (SEC) approved spot BTC exchange-traded funds (ETFs) for the first time. This opened the floodgates for institutional investors and large individual investors in the U.S. to gain exposure to crypto without buying it directly. True, Canada was the first country to approve BTC and ETH spot ETFs, starting in 2021 but the big market-moving money comes from the U.S. Since BTC ETFs got the nod from the SEC first—followed by ETH ETFs six months later—BTC saw more money flowing in, and earlier, compared to ETH.

    How will rate cuts affect crypto?

    The U.S. Federal Reserve (Fed) lowered interest rates by 50 basis points in September. And more cuts are likely to come. This is significant for bitcoin and crypto. 

    TLDR: when the U.S. Fed lowers interest rates, it’s essentially adding dollars into the system by reducing the cost of borrowing. The more dollars there are sloshing around in the economy, the less each of those dollars is worth. Consequently, asset prices rise—including stocks, real estate and crypto. 

    Think of it this way: if the number of Gucci bags in the world doubled tomorrow, each of those bags would be worth less than they are today. In other words, each Gucci bag would have been devalued. It’s the same with money. 

    When there’s a lot of money in the economy, people don’t want to hold cash, because of its devaluation. Instead, they’d rather hold growth assets such as stocks, real estate, gold and—yes, you guessed it—cryptocurrencies. In fact, the devaluation of the U.S. dollar is one of the strongest narratives in support of investing in bitcoin.

    The chart below was shared on x.com (formerly Twitter) on Sept. 16, 2024, by Raoul Pal—author of the investment newsletter “Global Macro Investor.” It shows the close relationship between the anticipated global money supply (Global M2 10-week lead) and the price of BTC. 

    Federal Reserve rate cuts often lead to a rise in the money supply. So, the market is anticipating a rise in M2. If the price of BTC continues to resemble the moves in Global M2, we could be in for a sharp rise in BTC. That’s a big “if,” though. No chart can predict the future, so investors should not make decisions solely based on this (or any other) chart.

    The evolving regulatory landscape and increased institutional adoption are positive signs for crypto in Canada. Sure, some exchanges may exit due to tighter regulation, but many more are aligning themselves with securities laws. This makes crypto investing safer for Canadians. 

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    Aditya Nain

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  • Boost your portfolio: Why and how to increase small-cap exposure with ETFs – MoneySense

    Boost your portfolio: Why and how to increase small-cap exposure with ETFs – MoneySense

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    Interestingly, small-cap stocks have historically outperformed their larger counterparts and, if academics are to be believed, will continue to do so over the long term. Don’t let recency bias sway you; the dominance of mega-cap stocks over the last decade isn’t the whole story.

    What is a market cap?

    Market cap, short for market capitalization, is the total market value of a company’s outstanding shares, or stocks. To calculate market cap, multiple the number of shares by the market price of one share. (For example, a company with 10 million shares priced at $25 each has a market cap of $250 million.) People in the investing community use market cap to indicate a company’s value and compare its size relative to others in the same industry or sector. Stock exchanges and cryptocurrencies also have a market cap. 

    Read more in the MoneySense Glossary of Investing terms: What is a market cap?

    When it comes to the stock market, there are certain formulas, known as asset pricing models, that help us understand why stocks move the way they do. You might have heard of one called CAPM, or the Capital Asset Pricing Model. Basically, CAPM tells us that the return you should expect from a stock is tied to how risky it is compared to the whole market. It’s like saying, the riskier the stock, the bigger the potential reward should be.

    Here’s the twist: CAPM doesn’t reveal the whole story. It misses out on some other factors that can also affect a stock’s performance. Back in the 1990s, two professors from the University of Chicago, Eugene Fama and Kenneth French, added more layers to this model. It’s called the Fama-French three-factor model. It later grew into a five-factor model, but to keep it simple, let’s go with the original three:

    1. Market Factor (Rm-Rf): This is the extra return you’d expect from investing in the stock market over something super safe, like government bonds.
    2. Size Factor (SMB for Small Minus Big): This one’s interesting because it shows that smaller companies often outperform larger ones. It’s kind of like rooting for the underdog.
    3. Value Factor (HML for High Minus Low): This tells us that stocks that are priced lower relative to their book values (think bargain stocks) often do better than those that are more expensive.

    So, focusing on the size factor, it explains why, over time, these smaller companies, or “small caps” as we call them, might give you better returns than the giants of the stock world. 

    Source: Test.io

    To understand the performance dynamics between large- and small-cap stocks, we can examine two older U.S. index-based mutual funds: the Vanguard 500 Index Fund Admiral Shares (VFIAX), which tracks the S&P 500, and the Vanguard Small-Cap Index Fund Admiral Shares (VSMAX). 

    We’ll use a back-test period from November 14, 2000, to September 19, 2024. This timeline is particularly insightful as it includes several major market events: the dot-com bust, the 2008 financial crisis, the COVID-19 pandemic and the ensuing bull market primarily driven by technology stocks.

    During this period, small caps, represented by VSMAX, outperformed the S&P 500, as tracked by VFIAX. The Compound Annual Growth Rate (CAGR) for VSMAX stood at 9.21% compared to 7.98% for VFIAX. However, this higher return came with increased volatility and larger drawdowns (price drops from peak to trough).

    On a risk-adjusted basis, the performance of both funds essentially leveled out with an identical 0.31 Sharpe ratio, meaning that investors in VSMAX were compensated more or less fairly for the higher risk associated with small-cap investments. 

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    Tony Dong

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  • What to do with a small pension in Canada – MoneySense

    What to do with a small pension in Canada – MoneySense

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    Many Canadian employers see DB plans, where retirees receive a guaranteed payout every month (sometimes indexed to inflation), as too expensive. And while the average time spent working for the same employer has actually risen over the last five decades, according to Statistics Canada data, spending a lifetime at one job—and collecting decades of pensionable earnings in the process—is a rarity these days. 

    “My dad worked for a bank for 35 years. That was the only job he ever had,” says Kenneth Doll, a fee-only Certified Financial Planner based in Calgary. “Those days are gone.” 

    Many Canadians must make do on partial pension coverage: either a small pension based on a decade or so of service, a defined (DC) contribution plan—where employers don’t provide backup funding if a plan underperforms—or a group registered retirement savings plan (RRSP), possibly with matching funding from their employer. Some Canadians don’t have a pension at all. “There is a massive decrease over the past 30 years in the number of defined-benefit pensions,” says Adam Chapman, financial planner and founder of YESmoney in London, Ont. 

    These pensions won’t pay all the bills like a traditional defined-benefit plan. So, what can people with insufficient pension coverage do? Ultimately, the answer lies in balancing the small (or not so small) guaranteed income from a pension and pushing the limits of other income streams. 

    How to plan your retirement now

    Every Canadian’s circumstances are different, and financial planners avoid speaking in generalities. But the earlier you start planning for retirement, the better. This applies whether you have nothing except the Canada Pension Plan (CPP) and Old Age Security (OAS), a DB plan indexed to inflation and guaranteed for life, or something in between. 

    First of all, sit down and figure out how much you plan to spend on life in retirement. Joseph Curry, a financial planner and president of Matthews Associates in Peterborough, Ont., says that when clients come to him, he maps out these details—as well as their expected income from CPP and OAS. All other income sources, including any pension income, are thrown in there, too. 

    “We have clients who would spend as little as, you know, $2,000 a month, all-inclusive,” Curry says. “And we have clients who would be spending in excess of $200,000 a year in retirement.” 

    One trick that works well is to max out any RRSP contribution room, then take the tax savings and throw them into a tax-free savings account (TFSA) for future retirement income. This can be tricky for Canadians with existing pensions, because their own and their employer’s pension contributions are deducted from their RRSP contribution room. For robust defined-benefit plans like the Ontario government’s Public Sector Pension Plan, it can remove thousands of dollars worth of contribution room a year. 

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    Brennan Doherty

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  • Making sense of the markets this week: October 6, 2024 – MoneySense

    Making sense of the markets this week: October 6, 2024 – MoneySense

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    Some experts speculate the real sticking point in negotiations isn’t about wages but protection from automation. The ILA refused to allow its members to work on automated vessels docking at U.S. ports. As a result, American ports are getting more and more inefficient, ranking not only behind ports in China, but also Colombo, Sri Lanka. (The Container Port Performance Index is put together annually by The World Bank and S&P Global Market Intelligence.)

    For reference, the highest-rated port in Canada is Halifax, listed at 108th in the world. Halifax’s port efficiency was well behind not only Sri Lanka, but also economic powerhouses like Tripoli, Lebanon. To give further Canadian context, Montreal is 348th, and Vancouver is 356th, which is just ahead of Benghazi, Libya.

    Something tells me that negotiating for USD$300,000-per-year dockworkers is not going to help these North American efficiency numbers. The higher salaries get, the more attractive automation strategies will quickly become. Clearly there will be an eventual reckoning. In the meantime, for at least one more important presidential news cycle, dockworkers will be able to extract large wage gains as they hold the broader economy hostage.

    Why utilities aren’t “boring”—any more

    As income-oriented Canadian investors start to grow less enamoured of high-interest savings accounts and guaranteed investment certificates (GICs), the dividend yields of dependable North American utility stocks should begin to look more attractive. Given how quickly interest rates are likely to fall, it’s clear that there is a stampede of investors heading for the stocks of utility companies. 

    The iShares U.S. Utilities ETF (IDU/NYSE) is up more than 30% year to date, and the iShares S&P/TSX Capped Utilities Index ETF (XUT/TSX) is up about 15% year to date. (Check out MoneySense’s ETF screener for Canadian investors.)

    Most of the time utilities (especially those in sectors regulated by federal and local governments) are perceived as “boring.” Sure, the profits are dependable, but if the government is going to determine how much is paid for electricity or natural gas, then a company’s profit margins are tough to change. The dividend income is dependable. But that’s really the whole sales job in a nutshell.

    Lately, however, due to AI’s electricity needs and possible AI-fuelled efficiency increases, utilities have been getting some glowing press. Falling interest rates mean that annual interest costs will drop (utilities often have to borrow a lot of money to complete big projects). Meanwhile, Canadian investors looking for safe cash flow are pouring in. Utility stocks make up about 4% of the S&P/TSX Composite Index. The largest utility companies—such as Fortis, Emera, Hydro-One and Brookfield Infrastructure—are some of Canada’s largest companies.

    Some of the same income-oriented investors who like utility stocks may also be interested in two new exchange-traded funds (ETFs) that J.P. Morgan Asset Management Canada just launched. The JPMorgan US Equity Premium Income Active ETF (JEPI/TSX) and the JPMorgan Nasdaq Equity Premium Income Active ETF (JEPQ) use options strategies to “juice” the income already provided by higher-dividend-yielding stocks. 

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    Kyle Prevost

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  • Cap-weighted vs. equal-weighted ETFs: Which is best for Canadian investors? – MoneySense

    Cap-weighted vs. equal-weighted ETFs: Which is best for Canadian investors? – MoneySense

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    Source: Multpl.com

    The CAPE Ratio assesses a stock’s price compared to its average earnings over the past 10 years, adjusted for inflation. A high CAPE Ratio suggests that stocks might be overvalued relative to historical earnings, indicating potential downside risks.

    The picture isn’t as clear-cut as it seems, however. One of the primary drawbacks of equal weighting, as critics point out, is the additional drag on performance from its methodology. 

    Source: testfol.io

    Take the Invesco S&P 500 Equal Weight ETF (RSP) as an example. It has a 21% turnover and a 0.20% expense ratio. The Canadian-listed version is the Invesco S&P 500 Equal Weight Index ETF (EQL, EQL.F). In contrast, SPY maintains a mere 2% turnover and a lower expense ratio of 0.0945%.

    While it’s true that RSP outperformed SPY in total returns since its inception in April 2003, the victory isn’t as clear-cut as it might seem. The risk-adjusted return of RSP, indicated by a Sharpe ratio of 0.45, is slightly lower than SPY’s 0.48. What does that mean? It could suggest that RSP took on higher volatility for only marginally better returns. Moreover, RSP experienced a deeper maximum drawdown than SPY. A maximum drawdown measures the largest single drop from peak to trough during a specified period, indicating a higher historical risk of losses for investors.

    Source: testfol.io

    Further analysis via factor regression reveals that most of RSP’s outperformance can be attributed to the size. Essentially, RSP’s equal-weighted methodology has inadvertently skewed its exposure towards smaller and more undervalued companies, which historically have contributed to outperformance.

    This raises a critical point: If the goal is to invest in these kinds of companies, wouldn’t it be more straightforward and efficient to target them directly based on fundamental metrics rather than adopting a blanket equal-weighting approach to the entire S&P 500?

    I find myself siding with cap weighting now. The primary appeal is simplicity. Market-cap strategies require fewer decisions regarding rebalancing or reconstitution, which in turn keeps sources of friction like turnover and fees considerably lower—resulting in fewer headwinds to performance.

    In an ideal frictionless world, the appeal of equal weighting is clear. However, the reality of quarterly rebalancing and higher fees associated with equal-weight ETFs has not historically yielded better risk-adjusted returns over the last two decades. 

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    Tony Dong

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  • Making sense of the markets this week: September 29, 2024 – MoneySense

    Making sense of the markets this week: September 29, 2024 – MoneySense

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    The Chinese government commands the economy to grow

    Many people like to sort countries’ economies as either communist, socialist, capitalist or free markets. But these days, every country has some version of a mixed economy. The practical implementation of fiscal and monetary policy is becoming increasingly more grey than our old black-and-white economics textbooks would have us believe. Yet, even within the grey, China’s approach for its economic system is uniquely difficult to define.

    Back in 1962, when asked about building a socialist market economy, future China leader Deng Xiaoping famously said, “It doesn’t matter whether the cat is black or white, so long as it catches mice.”

    Well, the current China leaders have let the fiscal and monetary cats out of the bag, and they’re hoping those cats are hungry.

    We wrote about China’s housing problems about a year ago, warning about rising deflation fears. These issues seem to have gotten worse, and the biggest news in world markets this week was that China’s government decided enough was enough. And in a “command” economy (which is probably the most accurate way to describe its approach), the government has a very high degree of control over economic levers. Consequently, markets reacted swiftly and positively to this news. 

    Here are the highlights of the multi-pronged fiscal and monetary stimulus that the Chinese government has decided to implement:

    • Banks cut the amount of cash they need in reserve (this is known as the reservation requirement ratio) by 0.50%. This will incentivize banks to lend more money (basically “creating” 1 trillion yuan, USD$142 billion).
    • The People’s Bank of China (PBOC) Governor Pan Gongsheng said another cut may come later in 2024.
    • Interest rates for mortgages and minimum down payments on homes were cut.
    • A USD$71 billion fund was created for buying Chinese stocks.

    That last point is pretty interesting to me. Here you have a supposedly communist government essentially creating a big pot of money to spend within a free stock market. The fund is to directly purchase stocks, as well as providing cash to Chinese companies to execute stock buybacks. Good luck defining that action in traditional economic terms. 

    The idea is to give investors and consumers faith that they should go out there and buy or invest in China’s expanding economy. Clearly something major had to be done to jolt Chinese consumers out of their malaise.

    Source: FinancialTimes.com

    Early reports are speculating that the Chinese gross domestic product (GDP) could fail to rise by less than the 5% target set by the government. If so, we’re about to see what happens when the commander(s) behind a command economy decide that the GDP will rise no matter what.

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    Kyle Prevost

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  • Making sense of the markets this week: September 22, 2024 – MoneySense

    Making sense of the markets this week: September 22, 2024 – MoneySense

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    U.S. Fed cuts rates for the first time in four years

    The U.S. dollar remains the most important currency in the world, and the American economy is arguably the most important financial system as well. Consequently, when the U.S. Federal Reserve makes a big announcement, it creates an economic wave that ripples everywhere. That’s why Wednesday’s decision to cut the key overnight borrowing rate by 0.50% is a very big deal.

    Many speculated the U.S. Fed would begin cutting rates this week, but it was generally thought it would go with a 0.25% drop to begin an interest rate-cut cycle. The 50 basis points cut lowers the federal funds rate range 4.75% to 5%.

    Source: CNBC

    The U.S. Fed announced in a statement: “The Committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance.”

    Federal Reserve Chair Jerome Powell said, “We’re trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with this inflation. That’s what we’re trying to do, and I think you could take today’s action as a sign of our strong commitment to achieve that goal.”

    Immediately after the news of the U.S.’s first interest rate cuts in four years, major stock market indices responded with a brief jump on Wednesday. But they ended the day nearly flat. That seemed to be a bit of a delayed reaction from investors, as the Bulls returned Thursday with Nasdaq soaring 2.5% and the Dow leaping 1.3% to pass 42,000 for the first time ever.

    Notably, former U.S. President Donald J. Trump continued to criticize the monetary decisions made by the U.S. Federal Reserve. This despite centuries of financial wisdom telling us that politicians getting involved in short-term monetary policy is a bad idea. (See: Turkey – Erdoğan, Tayyip.) At bitcoin bar PubKey on Wednesday, Trump said, “The economy would be very bad, or they’re playing politics.”

    The larger-than-expected rate cut left some commentators questioning if this action would spook the markets. But, if the U.S. Fed manages to thread the needle and cut rates without a recession, it could be a good thing. The historical precedents are very positive for shareholders. 

    Source: EdwardJones.ca

    This large rate cut helps ease pressures on emerging markets that borrowed in U.S. dollars. And, it takes some of the pressure off other central banks around the world that didn’t want to see their currencies devalued too much relative to the mighty USD.

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    Kyle Prevost

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