Money Show, Alfred Lee

Alfred Lee is from BMO Financial Group. His talk was called Core Satellite Investing Using Exchange Traded Funds.

They suggested using index ETFs and Index Funds as the Core investments and Mutual Funds and Hedge Funds as the Satellite investments.

He asked if the volatility will dispensate. No, because uncertainty will continue and there is lots of uncertainty. There was global equity panic in 2008, exuberance in 2009, flux in 2010 and flux continuing in 2011. He says we should get out of cyclicals and go into higher dividend paying stock. He says in the short term volatility will be accentuated. Because of this volatility it can trigger program selling.

June to September is usually not good markets, but this year our problem in the market is more than just seasonality. We need to diversify over assets classes and not just within asset class. We should be moving into more bonds. Future portfolio return will depend on diversification.

A core – satellite portfolio is one way to go. You would have the core in ETFs and this should be 60% of your portfolio. The other 40% should be in Mutual Funds (and if you really want to go that way, individual stocks.) He says in moderate volatility only 39% of Mutual Funds beat the market, but in high volatility 68% of Mutual Funds beat the market.

He says there are a number of market cycles. The longest term cycle is the secular cycle. The next one is the cyclical cycles (or business cycle) and the shortest term one is the trading cycle. Currently the trading cycle is driving the market.

It may not be a bad idea to hold high yield emerging market bonds in our satellite portion of our portfolio. We can use covered calls on any Canadian bank we hold to lower volatility of our portfolio. We should be shifting from REITs to utility stock.

We should have commodities, especially gold. Gold is in the 11th straight winner year. The gold market is not co-related to the equity markets. We should buy junior gold stock ETFs. The junior gold stocks have not yet gone up with the price of gold.

We can go to BMO ETFs site and subscribe to BMO’s monthly Strategy Report.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.