Last Summer, Rob Carrick at the Globe and Mail asked a few major ETF providers to offer up some inflation protection. In a recent post Rob delivered the inflation-fighting ETF scorecard. There are a couple of obvious winners and a few head-scratching ETFs offered up as inflation-fighters. Here’s the inflation-fighting scorecard, plus the Sunday Reads.
And let’s get straight to the goods. It is no suprise that oil and gas stocks led the way. That is the only sector that provides consistent inflation coverage. Also, base metals are doing their thing. Gold is solid. Vanguard offered up a balanced portfolio (insert WTF emoji face) as an inflation fighter. And they do that after ignoring their own research on inflation and assets.
ClearBridge Investments, part of Franklin Templeton
(Sponsor Content)
Last month, I wrote in Financial Independence Hub about infrastructure as an asset class and the opportunities it can provide for both retail and institutional investors.
Our Global Infrastructure Income team is based In Sydney, Australia and manages funds in the U.S., U.K, Australia, Europe and Canada. Having launched in 2010, the strategy has built assets under management of US$4 billion.1
With inflation at multi-decade highs, war in Ukraine, not to mention the ongoing pandemic, risk management is front of mind for many investors. Adding infrastructure to a balanced portfolio of global equities and fixed income is designed to increase returns while decreasing risk.
Expertise in Infrastructure
Years of experience in the infrastructure space has allowed the ClearBridge team to develop the expertise required to select companies that are best placed to prosper over the long run.
With backgrounds in M&A and unlisted infrastructure, debt and equity financing, buy and sell trading, as well as government and regulation, the team constructs a portfolio of 30–60 listed companies where excess return, yield quality and risk assessment drive position sizing. Given that this is a sustainable fund, ESG integration is another crucial element, as it is for the firm overall: ClearBridge Investments was an early signatory to the UN Principles for Responsible Investment back in 2008.
Companies positioned to Succeed
In building the portfolio, the investment team scans the globe for high-quality, listed companies that are positioned to meet the strategy’s income and growth goals. Nextera Energy is one such firm. The largest renewable energy producer in the U.S., Nextera is made up of the parent company Nextera Inc., which owns a regulated utilities company in Florida, as well as Nextera Energy Partners, a yield-oriented renewables vehicle.
The firm’s renewables deployment is expected to increase by more than 50% over the next three years, so it is well placed to benefit from the move towards net-zero carbon emissions across the global economy. Nextera’s strong market position also provides competitive advantages that are driving equity returns that are well above the cost of capital, while its long-term contracts are supporting attractive dividend yield and dividend growth. As a leader in renewable energy, it’s not surprising that the company scores highly in the ‘E’ part of ESG, but it also excels in social and governance metrics too, with strong employee safety standards and excellent management and succession planning. Continue Reading…
Zoomer Magazine has just published a column by me on investing in cryptocurrencies. Contained in the June/July 2022 issue, the headline is The Crypto Conundrum.
There is an online version but it is not yet available: when it is, I will update with a clickable link. Alternatively, you can subscribe to the print edition and/or the digital edition, by clicking here.
As the adjacent artwork shows, “this notoriously volatile investment is not for the faint of heart” and I therefore “advise caution.”
The article does of course stress the volatility of this asset class and it goes without saying that if you’re a long-term believer in crypto — a so-called HODLer (for Hold On for Dear Life) — then you’re much better off investing in Bitcoin closer to $30,000 than the near $60,000 it reached late in 2021.
The article arose when a Zoomer editor was intrigued by a MoneySense column I wrote early in 2021 about my own personal experience with investing in Cryptos. You can find it by clicking on this highlighted headline: How to invest in Cryptocurrencies(without losing your shirt.
The gist of both articles is that I suggest investors restrict themselves initially to just Bitcoin and Ethereum, which I regard as the “Big 2” of crypto. I also suggest using ETFs in registered portfolios, and taking profits if and when they materialize: by selling half on any double, you can do what Mad Money’s Jim Cramer calls “playing with the house’s money.”
The other guideline I offer is to restrict total crypto investments to 1 or 2% of your total wealth: a range recommended by billionaires like Paul Tudor Jones or Stanley Druckenmiller.
Start small and try to play with the house’s money as soon as you can
If you find you lucked out and the 1% becomes 3% or the 2% becomes 5%, then sell about half so that you’re back to your original target.
The article notes that as reported here, as of January 2022, Fidelity has 2% in its balanced and 3% in its more aggressive asset allocation ETFs. FBAL has 59% stocks, 39% bonds, and 2% crypto while its growthier FGRO is 82% stocks, 15% bonds and 3% crypto. These seem to me prudent allocations for investors wanting a sliver of crypto. Continue Reading…
When it comes to sectors, energy is the most useful inflation fighter. In fact it is the only sector that has delivered positive real returns across every inflationary period, looking back some 100 years of stock market history. Energy stocks also delivered incredible returns during the stagflationary period of the 1970s and into the early 1980s. We have entered a stagflationary enviornment and (like the 70’s show) it includes an energy and commodities price shock. While I have enjoyed some very generous total returns from our energy ETFs, I am set to harvest most of those total returns, and will start building the energy dividend portfolio.
From an RBC report …
We peg free cash flow generation (before dividends) across the Canadian majors — Canadian Natural Resources, Suncor Energy, Cenovus Energy and Imperial Oil
—at $46.0 billion in 2022 and $48.7 billion in 2023.”
The free cash flow gushers are just ridiculous. The dividends (and investors) are enriched by that free cash flow.
Here’s a Tweet thread from Larry Short that sets the table.
Yes, have a look for my “Don’t drill baby, don’t drill” reply.
They’ve stopped drilling and now they’re filling – your brokerage account. From that very good video, Larry picks up an interesting chart from our friends at Ninepoint Partners.
You might say this is the money chart, the money shot.
Canadian energy stocks
And here is a post on Cut The Crap Investing that invited readers to consider investing in Canadian energy stocks, from October of 2020. That was about 300% ago. With even more gains available if you invested in the Ninepoint Energy Fund.
I have admitted to being late to eat my own cooking. In our accounts we have gains in the 100% to 150% range. In a TFSA account, I have sold a modest amount of shares in iShares XEG to pay our price at the pump for the next year or two. Being that I am in the semi-retirement stage with my wife being 2-5 years away from retirement, I will make that transition, selling down shares and moving the proceeds to dividend-paying stocks and specialized income-producing energy ETFs. That will take away the price risk for the energy producer sector. But certainly, the financial health of the sector and the companies is still very important. Only healthy companies (and sectors) deliver stable or growing dividends. Continue Reading…
The total return on Vanguard’s Canadian Long-Term Bond Index ETF (VLB) since 2020 October 27 is a painful loss of 24%. Why did I choose that particular date to report this loss? That’s when I wrote the article Owning Today’s Long-Term Bonds is Crazy.
Did I know that the Canadian Long-Term bonds returns would be this bad over the past 18 months?
No, I didn’t. But I did know that returns were likely to be poor over the full duration of the bonds. Either interest rates were going to rise and long-term bonds would be clobbered (as they have), or interest rates were going to stay low and give rock-bottom yields for many years. Either way, starting from a year and a half ago, long-term bond returns were destined to be poor.
Does this mean we should all pile into stocks?
No. If you own bonds to blunt the volatility of stocks, you can choose short-term bonds or even high-interest savings accounts. This is what I did back when interest rates became low.
Does that mean everyone should get out of long-term bonds?
It’s too late to avoid the pain long-term bondholders have already experienced. I’m still choosing to avoid long-term bonds in case interest rates rise more, but the yield to maturity is now high enough that owning long-term bonds isn’t crazy.
Isn’t switching back and forth between long and short bonds just a form of active management?
Perhaps. But it’s important to understand that bonds and stocks are very different. Stock returns are wild and impossible to predict accurately. There is no evidence that anyone can reliably time the stock market. However, when you hold a (government) bond to maturity, you know exactly what you will get (in nominal terms). When a long-term bond offers a yield well below any reasonable guess of future inflation, buying it is just locking in a near-certain loss of buying power for a long time. Continue Reading…
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