Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

Investing in IPO excitement

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“Don’t let your guard down when investing in the excitement of initial public offerings (IPO).” — Adrian Mastracci, discretionary portfolio manager & financial advisor at Lycos Asset Management.

Levi Strauss is the current IPO euphoria darling. Investing in IPOs can be very exciting, often creating plenty of buzz and fascination. They can also be risky propositions.

Many IPOs are overpriced or priced to perfection

Many IPO stock prices turn out overpriced, or priced to perfection. IPOs are the first sale of stock by private companies to investors. Most IPO companies usually hire a securities firm to manage the stock offering and exchange listing.

It is very difficult to predict how the IPO stock price behaves after it becomes listed. Hype and excitement can overcome all signs of rational thinking.

IPOs allow initial private investors to cash out

Typically, there is limited historical data to analyze. Most IPOs are companies going through growth periods. Many IPOs are vehicles for the initial private investors to cash out or reduce the size of the holding.

Shares of IPOs can be hard to get in quantity when investor demand is high. They are better suited for speculators who have time to follow daily price gyrations. Having an iron clad sell strategy is critical.

Investors need to be convinced that an IPO’s upside potential is real. Not all IPOs have fared well after the buzz of initial excitement. Expect large price swings in both directions and often. Continue Reading…

MoneySense ETF All-stars 2019

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The latest MoneySense ETF All-stars has just been published for 2019. click on the highlighted text in the headline to access the full article: Best ETFs in Canada for 2019 (you don’t need to subscribe to access).

I’ve been writing this annual feature every year since 2013, always with the help of several ETF experts. This year, as the article reprises, there were a few changes in the makeup of the panel but we more than replaced the departing analysts, for a total of nine in total, including several returning experts. Among the newcomers are two regular Hub contributors: fee-only planner Robb Engen of Boomer & Echo, and CuttheCrapInvesting blogger Dale Roberts. Bios of the rest are below.

While there are more than 800 ETFs available on Canadian stock exchanges, our “All-Star” list remains an elite one: despite the multitude of new product launches in 2018, we increased the number of All-stars from just 21 to 25, although we also added a new feature we dubbed “Desert Island picks” to give a little more latitude to the individual preferences of each analyst.

Canadian Equity ETFs

All four Canadian equity ETFs are returning under the new revised panel: VCN, XIC, HXT and ZCN. There were also a couple of vigorous debates about Canadian equities, particularly about the fate of Horizons HXT, a swap-based total return product that has long been a pick of the All-Star panelists because of its tax-efficiency in non-registered portfolios. Last week’s federal budget added the possibility of regulatory risk to HXT and more than a dozen other similar products from Horizons. For 2019 at least, the panel opted to retain HXT as an All-Star, and we will monitor developments in the meantime. In the meantime, caveat emptor. (See Dale Roberts’ post on the topic.) Go to this MoneySense link for the chart of the winners and further commentary.

US equities

Here the panel again stood pat, opting to retain all four of our 2018 US equity picks: XUU, VFV,  VSP and ZSP. Go to this MoneySense link for the chart of the US equity winners and further commentary.

International Equities

The panel was in favor of retaining our three international ETF All-stars from previous years but also decided to add two new ones, both from Vanguard. The returning picks include the two from BlackRock: the iShares Core MSCI All Country World ex Canada Index ETF (XAW) and the iShares Core MSCI EAFE IMI Index ETF (XEF.) Also back is Vanguard’s Emerging Markets ETF (VEE). A new addition this year is VXC, the Vanguard FTSE Global All Cap ex Canada ETF. Also new this year is VIU, the Vanguard FTSE Developed All Cap ex North America Index ETF. Go to this MoneySense link for the chart of the International winners and further commentary. Continue Reading…

Instead of helping investors ravaged by fees, Ottawa plays gotcha on total returns for the “rich”

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HorizonsETFs.com

 

By Dale Roberts, CuttheCrapInvesting

Special to the Financial Independence Hub

The week just completed was budget week in Canada. And government finances certainly get most of the attention and most of the ink. But there were some investment issues that made it into Budget 2019. Not the larger societal issue of Canadians paying the highest mutual fund fees in the developed world combined with the standard and unscrupulous and unethical practices of the typical financial ‘advisor’ in Canada.

Nope, this made it into the budget. From a post on holypotato.net and John Robertson the author of The Value of Simple:

The derivative transaction mention means they will target total return ETFs such as Horizons’ TSX 60 Total Return (TRI) index ETF. Here’s the link to HXT, which replicates the TSX 60 by way of swaps. These funds are derivative based and they can be incredibly tax efficient. They remove the funds’ income. From Dan Bortolotti in this MoneySense article…

There are several advantages to building an ETF with a swap rather than holding the stocks or bonds directly. The first is tax-efficiency. The most important advantage of swap-based ETFs is their potential to defer or reduce taxes. As we’ve noted, these ETFs do not pay dividends or interest, which means you won’t be taxed on any income as long as you hold your units. All of the gains in the fund are considered capital gains, which are not taxable until you eventually sell the holding. And even then, capital gains are taxed at only half the rate of regular interest income and foreign dividends. (Canadian dividends enjoy favourable tax treatment too, but for high-income earners, capital gains are still taxed at a lower rate.)

And this ETF allows Canadians to invest at an incredibly low MER of just .03% with rebate. Horizons offers a suite of total return funds that includes US and International stock indices plus Canadian and US bonds. One could build a tax-efficient portfolio. [Editor’s Note: The chart shown at the top of the Hub version of this blog shows a Horizon bond ETF that operates along similar principles.]

Eat the rich investors

There is almost $1.9 billion in the HXT. There is well over $1.6 trillion in Canadian mutual funds. Now certainly not all of those funds are crap, but most of ’em are quite poor due to average fees in the area of 2.2% annual. Of course couch potato investors will know that passive low fee index investing drastically outperforms high fee actively managed funds over longer periods.

So instead of going after the 2.2% fee junk, they go after the .03% offering.

I’d estimate that the amount that Canadians pay and lose needlessly to high fees is in the range of $20,000,000,000 or more annually. Yes that’s $20 billion. That’s massive. It’s so massive it’s the size of our annual deficit projections. Ha. I’m not sure that picking up some tax scraps to the tune of tens of millions of dollars from swap based funds is going to close the deficit gap. Continue Reading…

Insurance and Marijuana: recent changes make Insurers scratch their heads

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By Lorne Marr, CFP

Special to the Financial Independence Hub

When marijuana laws changed in Canada last year, it had a ripple effect through several industries, including life insurance underwriting. Insurers had to come up with a solution for how to cover customers who are marijuana users.

To achieve this solution, insurers researched the following:

  • Are all marijuana users the same?
  • How much risk does marijuana represent from the insurer’s perspective when compared to traditional smoking?
  • Should joints (smoking) and edibles be treated differently?
  • What does the long-term data show about the risks, if any, between marijuana use and health?
  • Is marijuana habit-forming and if so, should it be considered an addiction risk?
  • Does the amount per use and frequency per week matter?
  • What are the differentiators between medical and recreational use?

We dug deeper into these topics to understand the details of offering insurance to people who use marijuana either for medication or recreational purposes. We also requested replies from several insurance companies, asking them how they view marijuana/cannabis consumption cases and how term life insurance, whole life insurance and other insurance products are provided for marijuana users.

Also, please feel free to review our detailed life insurance guide for marijuana users.

Not all Insurers treat Joints and Edibles equally

Interestingly, not all insurers treat joints and edibles as the same product! This is where you should pay close attention as a customer because this fact will strongly impact your premiums and ability to qualify for less expensive policies.

Here are the two approaches insurers choose:

  1. Joints and edibles are the same
    This means, if you consumer marijuana in any from more frequently than a pre-defined threshold, the insurer will consider you an increased risk, similar to smokers.
  1. Consumption of edibles is not considered smoking
    In this case a customer will be deemed a non-smoker even if he/she uses marijuana daily. That relates not only to edibles, but also to other non-smoking marijuana intakes such as oils. An example of a company that treats their customers in this way is Canada Protection Plan (CPP).

How much Marijuana is too much for Insurers?

There is a clear difference between being an occasional marijuana user lightning up a joint once a month versus a daily user. In the past, insurance companies defined a risk threshold by two joints/marijuana intakes per week. Meanwhile, some insurers are more relaxed and accept four intakes per week. Again, that is different from insurer to insurer and working with an experienced insurance broker will help to find the best policy for your situation.

What happens if you are a more “active” marijuana consumer? Well, in this case be prepared to pay extra for your insurance plan as your insurer would see you being as risky as a smoker.

Which companies are offering Insurance products to Cannabis users?

In the past there were just two insurers that were treating cannabis users as non-smokers: Sun Life and BMO Insurance. Meanwhile the situation has changed and now virtually every insurer treats infrequent marijuana users as non-smokers, allowing them to benefit from lower rates. Continue Reading…

Investing in the Cannabis Market

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Five months into the legalized marijuana market, it’s a good time to remind ourselves of basic investment principles. Get good advice you trust.

 

By Kevin Greaves, MyResolver.ca

Special to the Financial Independence Hub

Perhaps not since the dot com boom of the 1990s have we seen the kind of investor interest in a sector that we’re now seeing in the marijuana market.  Seasoned investors and newcomers alike are excited by the prospects of this nascent market and risk is rampant.  In the months leading up to, and the four months following legalization in Canada, there has been huge volatility in stock prices for some of the major players and the valuations of many of these companies is often characterized as ‘out of whack’.   For instance, market leader Tilray (TSX:TLRY) was valued greater than American Airlines Group in September 2018.  That is high! (Pun intended)

So, if you’re looking to add marijuana stocks to your portfolio, there’s a lot to take in at the moment.  It’s not easy to keep on top of the news of mergers, partnerships, earnings reports and growth forecasts in an emerging sector, and you could find yourself caught up in the hype.  So first and foremost, it’s good to work with a trusted investment advisor.  An advisor can help to put disclosure documents in perspective and assist in choosing an investment that suits your financial goals. Even if you are an experienced investor, accustomed to doing your own research and trades, having an advisor to confirm or correct your strategies, even just initially, could help you avoid some costly mistakes.  There are plenty of articles on the value of an advisor, and how to find one, so that’s not a topic we will cover in depth here.

Investor or Speculator?

Warren Buffett’s mentor, Benjamin Graham believed it was crucial to determine whether you are acting in the market as an investor or a speculator.  The distinction is fairly simple.  As an investor, you buy a stock in a company you believe will be successful and that stock represents ownership in the company.  You have a stake in the future of that company.  As a speculator, your only concern is what someone will pay for that stock down the line.

Some would argue that all investment is a combination of the two but it’s an important differentiation to make when you are working with an emerging market sector.  It allows you to clarify your expectations and often, the timeline for your ROI and the amount of risk you are prepared to take.

It’s important to remember that marijuana is a commodity: plain and simple.  And as a commodity it is subject to the same booms and busts as other commodities.  As an agricultural commodity it holds additional risks.  Think of all the uncertainties of growing any crop:  the introduction of a single pest can wipe out an entire harvest.

Consider ancillary products and players

There are opportunities beyond investing in producers of marijuana and if you’re considering investing in this sector, you may want to look beyond the obvious.  Certainly, Biotech stocks have been around for decades but with more and more information available regarding the medical uses of cannabis, there will be expanded opportunities for companies to develop drugs and treatments for various diseases, conditions and illnesses.  For instance, creams and oils derived from CBD, the non-intoxicating compound of the marijuana and hemp plants, have shown great promise in the treatment of epilepsy and arthritis.
Continue Reading…