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Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we have signs that the US Federal Reserve may be done with its rate hiking cycle. Inflation is cooling. We are going to find out where the funds have been flowing in the ETF space with Andres Rincon, TD Securities.
MoneyTalk's Anthony Okolie is going to have a look at what the latest housing starts report is saying about the health of the real estate market.
And in today's WebBroker education segment, Nugwa Haruna is going to have a look at different asset allocation will available on WebBroker. So here's how you can get in touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our guest of the day, let's get you an update on the markets. We have had a nice rally so far this week on the back of that cooler than excited inflation report.
Other signs that price pressures are easing south of the border. A bit of a pause on that rally today with the price of crude oil under pressure. Inventories are building, worried about demand. West Texas intermediate is down a little more than 4%.
That is clearly weighing on the TSX.
Topline is down 72 points, about 1/3 of a percent. It is the energy name is doing a lot of giving back today. Let's take a look at some of the most actively traded names on the TSX. I could have chosen any of the big energy majors. Baytex is down almost 5%.
Gold though, we are seeing yields continue to ease off in the price of gold is moving higher today and some of the miners are benefiting.
Got Kinross at 751, up to 3 1/2%, pushing back against some of the weakness in energy space. South of the border, we saw a brief firm rally on the news of cooling inflation. A bit of a pause today. Nothing too dramatic. The S&P 500, the broader rate of the American market, down nine points or offensive a percent. The tech heavy NASDAQ telling us the same story. A little more downside, 63 point, less than half a percent. We are still in the thick of earnings season. Hearing from retailers this week including Macy's. It's up almost 6% at this hour.
It was an earnings beat. Sales are down, we are seeing this across the retail space, but Macy's is making progress in bringing down inventory levels and improving the margins. It seems to be enough of the street today. And that is your market update.
More signs of cooling inflation suggest the Fed may be done hiking rates and the cycle has come to an end. That has been pushing markets higher in recent sessions.
But has that led to a shift in how investors are positioning themselves? 20 etc. discuss, Andres Rincon, head of ETF sales and strategy at TD Security. Great to have you back.
Thank you for having me.
I always love talking to you about the fund flows, trying to figure out where the market is moving.
What are we seeing in this market? For a long time, we were pretty cautious.
It's all been about fixed income.
What's really interesting, you mentioned earlier, we have seen a complete shift from both our advisor and retail investors and also institutional into fixed income ETF. Call it two thirds of the flows we are seeing in Canada this year have been into fixed income ETF's.
It's pretty impressive and we are, what is really interesting is that the direct investing channel has taken up interest in the fixed income world.
All this time it was dormant with interest rates being low, but with interest rates now being higher, a lot of these products are offering attractive yields. It's interesting to see active trader, the first things they did was look at fixed income ETFs. It's a really interesting process to see that shift and it's been mostly on the short end of the curve because it's paying quite a bit. Your calling treasuries, HISA ETFs, money market ETFs, short-term bond ETF, a big part of it, but 40% is going there. And then you have a portion of that's going to your traditional AG, that your broad market fixed income.
But you are also seeing some money now go into the long end of the curve, so it's a bit of a Bärbel exposure where you get a lot of money in the short end, a lot of money in the long end and that long and exposure is really being taken up by a lot of retail and wealth investors and also institutions originally to hedge exposure against rates declining and also a meltdown in the market if that ever happens.
It's an interesting dynamic that we have right now on both sides of that.
You mentioned HISA ETFs., That is high interest savings account ETFs. Recently, our regulator, OSFI, in Ottawa, change the rules around that.
Walkers through what they did at OSFI and what impact that is had so far on the market?
Yeah, it's a little bit complicated.
They've been reviewing these ETFs for several months now and their view really stems from the liquidity provisions that these ETFs receive. The liquidity provisions really stem from whether the stickiness of these funds, is there institutional money coming into these funds, can investors pull out that money anytime they want? So they have a variety of factors and they determined after a long review that these products would be considered as institutional money.
Although most of it is actually retail money, I would say 90% plus is retail, but because it is in an ETFs form and it can go in and out, they decided that it should be considered a deposit like an institution.
As a result of that, what we will see starting in February, at the end of January, we will see very likely a drop in the rate as the liquidity treatment for these ETFs will change. Now, the drop in the rate will be fairly minimal. We expect about 50 beeps or so. That is still to be determined.
But we do expect the space to remain very attractive at those rates and also to be very popular because they are just bank deposits, so they are fairly safe in this environment.
Interesting changes there. Lots of things happening in the ETF space.
A trend that I wasn't aware of, mutual funds apparently converting to ETFs. A bit of a different situation south of the border compared to here in Canada. Walk me through that.
They are creating a lot of news in the US because we have very big mutual fund companies or traditionally mutual fund companies, some of them also already have ETFs, but they are now converting a lot of their signature large mutual funds into ETFs. You might ask yourself why you are you not saying that in Canada? That's because the rules in Canada are different to the rules in the US. In Canada, you are already allowed to launch an ETFs series of an existing mutual fund so there's no need. It is already allowed, anybody can do it.
That's been the case of the longest time here in Canada. He will often have a mutual fund or an ETFs in both structures.
In the US, that structure where you have the ETF class was really patented by Vanguard and only Vanguard.
And that patent actually expired recently.
But you still have to apply to the SEC to get into that structure.
So what a lot of the issuers in the US have done is actually instead of going that route and having to fight with the SEC, they have converted some of their very large mutual funds into ETFs. That's really complicated on how to do that but what that allows them is to enjoy many of the benefits of the ETF structure and keep all their assets. We are seeing a lot of these big issuers like Fidelity and some other big players convert all of those into ETF structure.
Obviously, growing in the ETF space.
Does the investor have anything to be mindful of from one of fun converts from one thing to another or is it really just a change on the institutional side?
It is mostly on the retail side.
Really, they don't have to be mindful of the law. They would get a, this has to go through a voting process, which is why I say I can get complicated. Not every mutual fund can do this.
So the investor has to be mindful that they would have to vote for this transition and if they do, what ends up happening is that same day, there mutual fund would convert to an ETF and then what they have to understand is that if they want to sell it, they can sell it in the market as any other ETF.
Interesting stuff.
Viewers of the show will know that you are a regular guest on MoneyTalk Live. It Andresen hosts his own program called Buyside Views that looks at some of the big trends in the investment industry. In the latest episode, he was joined by Samir Dhrolia, Senior Managing Director for global derivatives trading and inexpert polio management at the British Columbia investment management Corporation.
They discussed the rise of centralized trading. Have a listen to this.
So if you, for example, have a portfolio manager that is desiring to buy Google stock, they could buy it using call options, they could buy just the stock directly, they could buy a swap on that product.
A centralized trader will be able to look at all of the different ways of executing that order and optimizing and delivering to a portfolio manager and saying, this is the best way you can execute this. And she may want to go is a swap, she may want to use the option structure instead.
So this is where this broad skill sets of traders in a centralized framework are able to add value.
Okay, so first thing, I love that coach. It looks very comfortable.
It is very comfortable, yes.
But there are some interesting things being said there. Samir explained centralized trading.
A very interesting space.
If you're a big asset manager or pension plan or, most of them actually have centralized trading or are transitioning to centralized trading. This is not new but we are seeing a big push recently onto this platform and basically what it means is that you have multiple regions, multiple asset classes and instead of them being traded separately by region and asset class, they are all being treated out of a central desk.
That has many, many benefits for a lot of the large asset managers across the world.
I think this is interesting for your audience to you. You have a lot of active traders, active trading on the TD platform to what you have a lot of traders in your platform in those that want to learn a little bit about trading and how some of the larger or the larger shops in the world do this, this is a great video for them and for those of you that are listening, we are on Google podcast, Apple folic acid's modify. You can find a sad TD Buyside Views.
Interesting stuff. We are going to get your questions on exchange traded funds for Andres Rincon in just a moment's time.
A reminder that you can get help with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Shares of Walmart in the spotlight today.
The retailer is giving a pretty cautious outlook for the all-important holiday season.
Consumers are shifting their spending habits in this high price environment.
Walmart managed meet expectations for the latest quarter but it is saying the choppers are waiting for big sales events to open their wallets, and they pull back on paying full price for goods. The market doesn't like the sounds of note of caution. 156 bucks and change per share, you're down almost 8%.
I think in yesterday's session, you had Walmart at all-time highs.
Bit of a pullback there. Let's talk about luxury goods. Brands that enjoyed strong demand coming out of the pandemic also starting to see a slowdown.
Burberry is reporting sale same-store sales growth at 1% for its most recent quarter, sharply back from the 18% growth in the spring. Sales were particularly weak in China and the United States.
Let's check in on shares of Cisco Systems.
Last time I checked they were under pressure today. Indeed, down more than 11%.
That's after the networking giant credit sales and profit forecast, pointing to a slowdown in new orders. Cisco says it believes customers are currently focused on installing their products that they bought following the strong demand earlier this year. A quick check in on the markets. We will start here at home on Bay Street with the TSX Composite Index. Bit of a pause in the rally on both sides of the border.
The price of crude oil under significant pressure today. Inventories are building, concerned about demand heading into the new year, slowing economy.
West Texas intermediate down a little more than 4%. Definitely weighing on the energy names on the top line on the TSX. Down 56 points, 1/3 of a percent.
South of the border, also a pause in the big rally we have seen in recent sessions.
It's pretty modest. You are down seven points, less than 1/5 of a percent.
We are back with Andres Rincon, taking your questions about a change traded funds. Let's get to them. First one here from our viewer.
Just interested on a discussion on covered call ETF, the pros and cons, particularly in the current market picture. If not now, when is a good time to use them? On the platform, we cannot give direct investing advice. But we can talk about covered call ETF, the pros and cons and how you deploy this strategy.
This is been an area that's been very popular here in Canada, and it goes back to the earlier topic that we were talking about, yelled. People here care a ton about yield, now more than ever on the fixed income side but in equity land, they cared about yield for quite a bit of time.
We've seen about 3 1/2 billion dollars go into the space this year alone and it's very substantial actually, more than 5% of the ETF market in Canada, it's fairly sizable. Generally speaking, how we look at these products and how the industry looks at it, we are exchanging growth for yield. When you buy covered call ETF, you're making an active decision, you are taking away some of the growth of your equity position, you are saying, I want more yield instead.
So why do people get into these? Well, they are environments that fit this goal very well. Today, let's say when you have a lot of volatility, you have choppy markets, you say, you know what? Maybe I don't want her care as much for that 10, 20% upside, potential upside, let's say, in the S&P 500 or whatever it is. Maybe I will just take some yield instead.
Yield is fairly range bound, it's basically guaranteed.
We see a lot of this with people saying I'm going to exchange some of my growth for yield. In terms of the pros, what you are getting, you are getting tax efficient yield which is very good. You are getting a fairly well determined yield every single month which people, especially retirees, is very positive. On the con side, you are giving away a bit of your upside. It can range from 1/3 of your portfolio to 50%.
You have some other side still in that 50 or 30% but it's relatively limited.
Those are generally speaking the pros and the cons.
Interesting breakdown on that. If you get the big rip in the market, you're really not fully participating but you've made that conscious decision. Hopefully, if someone is buying this product, they have researched it and made the conscious decision.
Yeah, you still have downside potential. Their long stocks. You have downside potential there and limited or not as high of upside as you would have before.
But yield is really the name of the game.
It can be anywhere from 7% to 50% in terms of yield which is, obviously, very substantial.
Before the program began, we were having a chat. You were telling me about a type of covered call ETF in the states that's getting a bit of attention, but it seemed novel to be. Walk us through that one.
This is an interesting one. I wouldn't necessarily look at these were many advisors and retail investors but it's catching people's eye because of the analysed yield that they're paying. Right now, these are relatively new to be fair, but in recent payment of one of these, their annualized yield was looking closer to 70%.
70.
70%.
How are they doing that?
How they are doing that, which is not as common in the industry, they are capping your entire portfolio and they are doing it at the money which means that you have zero upside on that hundred percent of the portfolio they are selling calls on.
And most importantly, was really neat about these products is they are selling zero days to maturity options. So what they call zero DT options. These are relatively new in the market in the US and what they do is they basically expire every single day. It's a lot of work for a fund manager running these. But because it's so short-term, the volatility is higher than a water three month option which is generally what these funds use.
So the yield is, it is driven by higher volatility. We are seeing high yields on these products.
I don't think this is really sustainable.
What is the risk here?
I don't think it sustainable, in my opinion.
In the way this specific product is structured, we are talking about defined ETF's, the way these were structured I don't think they are tenable long term.
But what's really interesting to see is that although these loans may not be sustainable, there are different ways that you could use your options. I do believe that in the future we are going to see more cover call ETF's that you zero DT options.
Interesting development in that space.
Let's take another question from the audience. If you want to know if there are any high-yield bond ETF's that are worth looking at in this environment?
We can't really recommend an ETF.
We can't recommend but the idea, the whole thing about high-yield is that there is risk and that is why the yield is higher.
That's right.
The ETF is just a wrapper of securities.
In this case, the securities that are being included in the ETF are simply bonds that are triple B and lower, mostly lower than triple B. And so they are higher risk so they have higher yield. And we do see these in the US. HYD being the biggest high-yield ETF but in Canada you have many examples.
You have ZHY from Fimo, you have XHY from bema, you have M HYD from McKenzie and you have a couple of other ETFs that look at that space.
For the most part, they look at North America. Canada, US, mostly US, the high-yield market in the bond space in Canada is not very developed.
It's mostly in the US market that these funds target.
If someone was doing their homework on the space they would have to think about, if this is high-yield, this is riskier.
If we do get a recession, if we do get a hard landing, you might have to wonder about the help of some of the underlying players in this fund.
Of course.
And your long credit. That's why high-yield ETF's, they are long corporate bonds and these are credit that is actually higher risk. So when the markets fall, these funds will underperform significantly.
In reality, these funds actually move very closely in tandem to equities. So the correlation is much higher to equities than it is to bonds. So you can think about them as you holding the equities to some degree.
Obviously, there would be some significant volatility if there was a recession or downturn in the markets.
Fascinating stuff in the high-yield space there. Another question now. We have another view or wondering if there are any ETFs in the healthcare sector that are worth looking at? We cannot give recommendations but there is some out there that we can discuss.
This area is covered well by the ETF market.
You have the whole spectrum.
You can have broad healthcare ETFs.
You can have cover call ETFs. For some reason, cover call, the reason being that is not a very high yielding space naturally in terms of dividends, so there's a lot of cover call ETFs and the healthcare space. In the US, you will have biotech, you also have Pharma.
Medical machinery. Every single part of the chain is covered by an ETF so you have all different ways to get exposure to that. In Canada, for example, you have HFC, but you have global in nature, you have North American nature.
Like I said you age is more US focus. It just really depends on what the investor wants to get exposure to. Is it broad, is it more specific, is it more close to home?
Some areas therefore our viewers to do their homework on.
As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Andres Rincon on exchange traded funds in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
There are lots of different asset types available on WebBroker. Today's education segment, at Nugwa Haruna, senior client education instructor with TD Direct Investing has a look at how you can stay on top of your asset mix using the platform.
So foreign investor who is looking to reach their investment goal by creating an investment portfolio, they may consider asset allocation as well as diversification. The idea behind utilizing asset allocation and diversification, it's a way that would help investors manage the risk when it comes to investing. Let's go into WebBroker and we will show you how investors can find the different asset classes that they can potentially utilize when creating their investment portfolio.
Under accounts, investors are able to click on asset allocation. The idea behind this being the different asset classes tend to respond in different ways to different market conditions, so that investors who once again are trying to manage their risk and limit the volatility in their portfolio could consider asset allocation. Investors are able to see what the breakdown is in terms of equities, fixed income, as well as cash and cash equivalents in their accounts.
Now, investors who want to have a better understanding of how these investments work may be able to do that by clicking on the help button and what this does is it gives investors a breakdown of these different asset classes as well as how they tend to respond. An investor may have a question, what if I don't have the time or the information to create a robust investment portfolio?
That's what investors could potentially consider using investment funds.
There is different asset allocation investment funds that are available to investors and they can actually select these funds based on what their investor profile would be. Let's take a look at where investors can look at different kinds of investment funds. Under research, underinvestment, investors will click on ETFs, so exchange traded funds. And what we are going to do is we are going to use the many screeners tool which allows investors to use different criteria to select different kinds of securities. And under ETF category, we are going to click on this drop-down and in this situation, let's click on exchange traded funds that have up to 50 to 70% when it comes to equities in that portfolio, and it shows us there are 22 matches.
So I'm going to scroll down to pull of these 22 exchange traded funds here and then investors will be brought to a page where the breakdown of these different exchange traded funds. One more thing to show us, if you want to see what exactly each ETF is holding, I'm going to select one here on the screen, and I'm going to go with MD IV. And once I click on it, I can click on summary. The idea behind this is I actually want to see what the breakdown in the asset classes are. Also on this page, I can scroll down, focusing on the left side of the screen here, that I can start to see what that breakdown is.
So I can see that this particular exchange traded fund has 60% US stocks and equities, including some non-US equities.
It also has a holding of preferred shares, over 20% preferred shares, they are a hybrid between stocks and fixed income securities, as well as US bonds and non-US bonds. Investors can see the different sectors that the ETF is invested in. They can see the geographic region and finally investors are able to see what the top 10 holdings of the fund managers holding in this exchange traded fund. So once again, investors are able to utilize some of these tools when they are looking to have some diversification in their portfolio as a way to potentially help them manage the risks of investing in the market.
Our thanks to Nugwa Haruna, senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Now before you get back your questions about exchange traded funds for Andres Rincon, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Andres Rincon, taking your questions about exchange traded funds. Plenty coming until let's get to a few more.
Of your wants to know if you can comment on the Ag sector, particularly the WEA T ETF. It's a pretty low price, wondering if it's time to take a look. Of course, we do not give investing advice on the platform but let's talk about the agriculture sector ETF.
Is very interesting right now given the war in Ukraine. That makes agriculture ETFs quite popular these days and we seen a lot of restrictions in the supply chains so agriculture in general has been an interesting trend lately. So WEA T specifically, it's different than some of the other agricultural ETFs and that that one actually buys futures. It buys wheat futures and this is common in commodities.
It ETFs, they are part of the supply chain, producers, minors, other commodity is part of the supply chain, or you get some ETF that actually by the futures.
What's important to learn or understand about these products is that these futures have to roll every so often.
So they are subject to the cost of carry.
When you buy a future, the cost of carry applies for the future to hold the sweetener has to be stored somewhere so that cost goes up for X, Y, and Z head and your cost of ownership of that ETF also goes up because that ETF has to sell the short-term future and then by the long-term future, hold it and then sell out and then buy it continuously.
What it does is the fund owns it through financial futures.
Important to understand the mechanics of that if our viewer is taking a look at WEA T. Another question. What is your guest outlook for Taiwan?
Is this a good entry point to take a small position in an ETF? I have to say it again. We won't give you investing advice but let's talk about Taiwan.
There are some interesting things about it and perhaps some reasons for caution.
Of course.
Obviously, there's a lot of geopolitical information right now surrounding Taiwan.
But there are actually ways to get exposure to Taiwan directly and to ETFs in the US actually come to mind, EW T and FLT W. One from iShares and one from Franklin.
What's really interesting about these things is that they give you exposure to Taiwan itself which is very tech heavy, as you can imagine, chips, the whole conversation around chips is Taiwan. Also some financial, that's where you can get some exposure to these. In addition to these two ETFs, the Franklin is significantly cheaper. Franklin is amongst the cheapest in the world. These are only 19 beeps which is 50 beeps for the iShares ETFs so these two are good ways to get passive exposure to Taiwan in a single ticket.
And fairly low MER as well.
Interesting stuff.
From Jeff. I don't know if I've heard from Jeff in a while. Thanks for sending this one in. Wait a minute. Here's Jeff's question.
Is it time to add to my position in Z LLC?
This is the Fimo long corporate bond index ETF. Thank you for your question, Jeff.
Can't give you direct investing advice on the platform but let's talk about if someone is taking a look at the long corporate bond space.
Earlier, we are talking about the long end of the curve, that's why we had the Bärbel. And why investors are going into the long end of the curve is once again because they think that interest rates are going to go lower which also might pair with the decline in the markets.
Which is why long and is very interesting right now.
To be clear, it's actually a very volatile space right now.
But it has obviously done well as inflation has been softening and whatnot.
But what's interesting about adding credit to that equation is that in a declining or deteriorating market, you probably want to be more exposed to federal bonds, select government bonds and then corporate bonds.
So you have federal bonds, or government bonds, and you have corporate bonds and government bonds are less exposed to credit risk while corporate bonds are an if the markets decline, obviously you will have a lot of exposure there. So something to bear in mind because it can be a bit of an offsetting exposure if you have rates going lower, the market going lower, that means that the credit of that ETF is actually deteriorating at the same time that the rates are going low which improves the future of that bond. So you are getting a bit of an offsetting balance there where the government bond which would behave opposite in that scenario.
Interesting things to think about there. Jeff, Hope that helps you out in your research on the product. Another question from the audience. Could you please tell me the ETF that cover Canadian bonds?
It's a vast universe. There are almost 300 ETF that cover bonds in Canada.
So you have coverage of the entire spectrum. The way I will put it is that you have different degrees of credit and different degrees of duration.
So you have ultra short-term maturity, short-term, you have made and you have long and you have one that aggregates all of them.
And then you have the same thing on you have high yield, as we were talking about earlier, and you have the other side of the spectrum which is government bonds. To have all that spectrum and you have ETFs on every single part of that matrix, basically.
So you can have a long corporate or long government or short government and for corporate. So you can have an entire spectrum of ETFs across the board and that's generally how you would have it structured. In those, what you have, you have ETFs that by all those ETFs and basically those are Ag products.
Apart from those, one that I will mention that or not they are specifically in that matrix are like real return bonds that target maturity bond ETF would have been very popular in our channel these days.
Those ETFs also by Canadian bonds.
If you combine all of these, you get exposure to all sorts of bonds in Canada and it really depends on what the investor wants exposure to. If you want exposure to corporations or government, to the short end or long end, you have over 300 options.
All right, there's definitely some weekend homework there.
We are going to get back your question for Andres Rincon on exchange traded funds in just a moment.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Signs are building that Canada's economy has been weakening. Of course, this presents downside risk to the housing market in this country. Could this negatively impact demand and figure sum for selling? Anthony Okolie is joining us now with a look at a new TD Economics report on the challenges that are facing housing in this country.
Thanks very much. TD Economics has said that the past Bank of Canada rate hikes has put downward pressure on Canada's retail activity since the summer and national sales fell almost 6% between September and October and sales remain about 17% below the pre-pandemic levels.
The lower sales coincide with a drop in the average home prices as well as a drop in new listings. The Canadian sales to new listings ratio fell from roughly 70% back in April to just under 50% back in October. That's a 10 year low.
After 6 Consecutive Monthly Gains in Canada. This is just a couple of things.
Homeowners are taking much longer to sell their homes and according to the Canadian Real Estate Association, they say that they are seeing more signs of sellers willing to negotiate a fair price.
Secondly, it also suggests that would be sellers seem to be awaiting the retail market altogether. People are listing their homes for sale next spring when we see activity picking up. Meanwhile, when you look at Canadian housing starts, he kicked off the fourth quarter on a very positive note and came in up 1% month over month and was led by urban detached homes, primarily in BC, Nova Scotia and Saskatchewan.
This is important given the surgeon population in Canada. So far, homebuilding is going well despite the fact that we are still seeing higher borrowing costs and persistent labour shortages. It moving back to existing home sales, overall, sales of existing homes measured on a per capita sales basis are sitting at levels last recorded over 20 years ago amid higher interest rates according to TD Economics. While we have seen some rates, Canadian five year bond yields coming down from their peak levels, from earlier peak levels, they still remain fairly elevated.
The key location for this is that these conditions favour buyers primarily in BC and Ontario. We are seeing the sales and listing ratio are the lowest. In Ontario, the sales to new listings is at the lowest level since the global financial crisis.
This seems to suggest that prices will help lower in these two markets, BC and Ontario, over the next several months. And this will, of course, be a drag in the country's nationwide average home price.
Now TD Economics is believed that the Canadian housing starts continue to run at a pretty healthy clip and that is helped by some lofty home prices, low levels of unsold inventories and a surge in residential construction. They forecast it to stay pretty high in the near term thanks to some government policy changes but the past declines in home sales should lead to lower starts through next year.
TD Economics puts all of that together.
What are they thinking about 2024?
TD economic systems of the Bank of Canada is finished raising interest rates and will start to cut by the second quarter of next year. Population growth should also remain robust with job market spending but not breaking under the weight of higher rates and these forces should support gains in residential investment and prices starting in the second quarter of 2024. However, historically challenge the portability backdrops in most provinces will likely curb the pace of these gains.
Now TD Economics a suspect it will take until 2025 for Canadian home sales to sustainably surpass their pre-pandemic levels.
Now, they also mentioned some key risks, obviously a weaker than expected economy poses an important downside risk to their outlook for housing. Another key risk is that rates will remain a higher should inflation linger at low levels that are higher than TD Economics expects. On the opposite end, Canada's population continues to grow strongly meaning that housing shortages are likely to persist in this could push prices higher than TD Economics anticipates.
Fascinating stuff and stuff that everyone wants to know about housing.
Thanks that.
My pleasure.
MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. This, of course, is the heat map function.
This is a view of the market movers. We are screening the TSX 60 by price and volume. With the price of American benchmark crude pulling back about 4% today on buildups of supplies, concerns about demand and a softening global economy, you do have some of the biggest energy names in the country taking points off the topline for the TSX, got Suncor down more than 3%, right next to it Cenovus also down to about the same tune.
For green on the screen, you've got the price of gold up right now, about 20 bucks per ounce. We are seeing a bit of steadying and bond yields after the pullback today's that is benefiting names like Kinross Gold, up more than 3%.
Barrick Gold up almost 2%. First Quantum a bit of a standard in the group.
The price of copper is a bit lower today but First Quantum had its own issues lately with the large copper mine in Canada, problems there was considerable pushback from the people of Panama when it comes to that operation. South of the border, a two is happening on the S&P 100.
We will screen through. We are still getting a lot of earnings information today and Cisco, we were talking about earlier the program, seeing a slowdown in the orders. That stock is down 11 1/2%.
You have Walmart under pressure to the tune of about 7 1/2%.
Basically saying that shoppers are opening their wallets and the deals when the deals are there and sales are on but they are protecting their cash when it comes to other times. They are concerned about the all-important holiday season.
Intel is standing on the screen. It seems to be a bit more positive sentiment on the street or in the name today.
You can get more information on TV Advanced Dashboard vices being TD.com/Advanced Dashboard.
We are back with Andres Rincon, head of ESL strategy at TD Security.
AI artificial intelligence ETFs out there.
It was a bit of a surprise in the spring.
Boom, AI just landed on all of us.
I think every time I'm on your show, we are talking about AI. It's very, very popular.
The bay ETFs in the US is BOT Z.
Clever name.
Clever name. That's from global acts and the partner here in Canada are from global X is horizons there and they have RBOT , robot, that covers robotics and AI.
So both of those areas are covered by these ETFs and generally, as you can imagine, they are very into the technology sector but also the industrial sectors.
Generally speaking, the entire supply chain that involves robotics and AI. One interesting product that is coming up in the new year is IN iA from Invesco which is a fund that is solely focused on AI.
Just the AI.
Just AI. They've done quite a bit of work to formulate the new product because it is global. It will have exposure to Asia. AI is very important there too.
It will be launching in the new year I am just saying but it is one to watch.
The MER fee is quite a bit lower than what you see on the street there. Another product to watch, IN iA, coming up next year.
Interesting to elements. Let's squeeze one more question in.
Can Andres point to any copper ETFs in Canada?
Yeah, so there's only one ETF in Canada that covers copper and this one covers the producers.
We had that earlier conversation and on whether something covers the producers or the commodity.
You have CoP P in Canada also by horizons that covers different minors. Something is a caveat we were talking earlier about First Quantum and a couple of different areas, some of these different producers make other metals. So they will purchase or hold these names that are predominantly copper producers but they also produce gold and other different things.
So you have CoP P by horizons, also CoP X, but you also have CPER in the US that actually it gives you exposure to copper in itself.
Similar to the WEA TE ETF were talking about earlier in that it buys futures.
Always a great conversation and fascinating to have you talk about the trends in ETF space.
Thank you.
Our thanks to Andres Rincon, head of ETF sales and strategy at TD Securities.
As always, make sure you do your own research before making any investment decisions.
we are going to answer one final viewer question before we go.
Off-topic, I just started watching. If I miss a program, is there a way to see it later? Indeed, there is a way to see it later. You can find our videos on our website, moneytalkgo.com. All the shows get posted there and the opening interviews get posted there as well. You want to stay tuned. We'll be back tomorrow with highlights from some of our best interviews of the weekend coming up Monday, David Mau, Ed DP director and earthly manager with TD Asset Management will be our guest take your questions about industrial stocks.
You can get a head start with your question. Just email moneytalklive@td.com.
It will macchiato. Jeff answered back, he's been away for a while. Glad to have him back. Look forward to your questions.
That's all the time we have for the show today. Thanks for watching. We will see you tomorrow.
[music]
Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we have signs that the US Federal Reserve may be done with its rate hiking cycle. Inflation is cooling. We are going to find out where the funds have been flowing in the ETF space with Andres Rincon, TD Securities.
MoneyTalk's Anthony Okolie is going to have a look at what the latest housing starts report is saying about the health of the real estate market.
And in today's WebBroker education segment, Nugwa Haruna is going to have a look at different asset allocation will available on WebBroker. So here's how you can get in touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our guest of the day, let's get you an update on the markets. We have had a nice rally so far this week on the back of that cooler than excited inflation report.
Other signs that price pressures are easing south of the border. A bit of a pause on that rally today with the price of crude oil under pressure. Inventories are building, worried about demand. West Texas intermediate is down a little more than 4%.
That is clearly weighing on the TSX.
Topline is down 72 points, about 1/3 of a percent. It is the energy name is doing a lot of giving back today. Let's take a look at some of the most actively traded names on the TSX. I could have chosen any of the big energy majors. Baytex is down almost 5%.
Gold though, we are seeing yields continue to ease off in the price of gold is moving higher today and some of the miners are benefiting.
Got Kinross at 751, up to 3 1/2%, pushing back against some of the weakness in energy space. South of the border, we saw a brief firm rally on the news of cooling inflation. A bit of a pause today. Nothing too dramatic. The S&P 500, the broader rate of the American market, down nine points or offensive a percent. The tech heavy NASDAQ telling us the same story. A little more downside, 63 point, less than half a percent. We are still in the thick of earnings season. Hearing from retailers this week including Macy's. It's up almost 6% at this hour.
It was an earnings beat. Sales are down, we are seeing this across the retail space, but Macy's is making progress in bringing down inventory levels and improving the margins. It seems to be enough of the street today. And that is your market update.
More signs of cooling inflation suggest the Fed may be done hiking rates and the cycle has come to an end. That has been pushing markets higher in recent sessions.
But has that led to a shift in how investors are positioning themselves? 20 etc. discuss, Andres Rincon, head of ETF sales and strategy at TD Security. Great to have you back.
Thank you for having me.
I always love talking to you about the fund flows, trying to figure out where the market is moving.
What are we seeing in this market? For a long time, we were pretty cautious.
It's all been about fixed income.
What's really interesting, you mentioned earlier, we have seen a complete shift from both our advisor and retail investors and also institutional into fixed income ETF. Call it two thirds of the flows we are seeing in Canada this year have been into fixed income ETF's.
It's pretty impressive and we are, what is really interesting is that the direct investing channel has taken up interest in the fixed income world.
All this time it was dormant with interest rates being low, but with interest rates now being higher, a lot of these products are offering attractive yields. It's interesting to see active trader, the first things they did was look at fixed income ETFs. It's a really interesting process to see that shift and it's been mostly on the short end of the curve because it's paying quite a bit. Your calling treasuries, HISA ETFs, money market ETFs, short-term bond ETF, a big part of it, but 40% is going there. And then you have a portion of that's going to your traditional AG, that your broad market fixed income.
But you are also seeing some money now go into the long end of the curve, so it's a bit of a Bärbel exposure where you get a lot of money in the short end, a lot of money in the long end and that long and exposure is really being taken up by a lot of retail and wealth investors and also institutions originally to hedge exposure against rates declining and also a meltdown in the market if that ever happens.
It's an interesting dynamic that we have right now on both sides of that.
You mentioned HISA ETFs., That is high interest savings account ETFs. Recently, our regulator, OSFI, in Ottawa, change the rules around that.
Walkers through what they did at OSFI and what impact that is had so far on the market?
Yeah, it's a little bit complicated.
They've been reviewing these ETFs for several months now and their view really stems from the liquidity provisions that these ETFs receive. The liquidity provisions really stem from whether the stickiness of these funds, is there institutional money coming into these funds, can investors pull out that money anytime they want? So they have a variety of factors and they determined after a long review that these products would be considered as institutional money.
Although most of it is actually retail money, I would say 90% plus is retail, but because it is in an ETFs form and it can go in and out, they decided that it should be considered a deposit like an institution.
As a result of that, what we will see starting in February, at the end of January, we will see very likely a drop in the rate as the liquidity treatment for these ETFs will change. Now, the drop in the rate will be fairly minimal. We expect about 50 beeps or so. That is still to be determined.
But we do expect the space to remain very attractive at those rates and also to be very popular because they are just bank deposits, so they are fairly safe in this environment.
Interesting changes there. Lots of things happening in the ETF space.
A trend that I wasn't aware of, mutual funds apparently converting to ETFs. A bit of a different situation south of the border compared to here in Canada. Walk me through that.
They are creating a lot of news in the US because we have very big mutual fund companies or traditionally mutual fund companies, some of them also already have ETFs, but they are now converting a lot of their signature large mutual funds into ETFs. You might ask yourself why you are you not saying that in Canada? That's because the rules in Canada are different to the rules in the US. In Canada, you are already allowed to launch an ETFs series of an existing mutual fund so there's no need. It is already allowed, anybody can do it.
That's been the case of the longest time here in Canada. He will often have a mutual fund or an ETFs in both structures.
In the US, that structure where you have the ETF class was really patented by Vanguard and only Vanguard.
And that patent actually expired recently.
But you still have to apply to the SEC to get into that structure.
So what a lot of the issuers in the US have done is actually instead of going that route and having to fight with the SEC, they have converted some of their very large mutual funds into ETFs. That's really complicated on how to do that but what that allows them is to enjoy many of the benefits of the ETF structure and keep all their assets. We are seeing a lot of these big issuers like Fidelity and some other big players convert all of those into ETF structure.
Obviously, growing in the ETF space.
Does the investor have anything to be mindful of from one of fun converts from one thing to another or is it really just a change on the institutional side?
It is mostly on the retail side.
Really, they don't have to be mindful of the law. They would get a, this has to go through a voting process, which is why I say I can get complicated. Not every mutual fund can do this.
So the investor has to be mindful that they would have to vote for this transition and if they do, what ends up happening is that same day, there mutual fund would convert to an ETF and then what they have to understand is that if they want to sell it, they can sell it in the market as any other ETF.
Interesting stuff.
Viewers of the show will know that you are a regular guest on MoneyTalk Live. It Andresen hosts his own program called Buyside Views that looks at some of the big trends in the investment industry. In the latest episode, he was joined by Samir Dhrolia, Senior Managing Director for global derivatives trading and inexpert polio management at the British Columbia investment management Corporation.
They discussed the rise of centralized trading. Have a listen to this.
So if you, for example, have a portfolio manager that is desiring to buy Google stock, they could buy it using call options, they could buy just the stock directly, they could buy a swap on that product.
A centralized trader will be able to look at all of the different ways of executing that order and optimizing and delivering to a portfolio manager and saying, this is the best way you can execute this. And she may want to go is a swap, she may want to use the option structure instead.
So this is where this broad skill sets of traders in a centralized framework are able to add value.
Okay, so first thing, I love that coach. It looks very comfortable.
It is very comfortable, yes.
But there are some interesting things being said there. Samir explained centralized trading.
A very interesting space.
If you're a big asset manager or pension plan or, most of them actually have centralized trading or are transitioning to centralized trading. This is not new but we are seeing a big push recently onto this platform and basically what it means is that you have multiple regions, multiple asset classes and instead of them being traded separately by region and asset class, they are all being treated out of a central desk.
That has many, many benefits for a lot of the large asset managers across the world.
I think this is interesting for your audience to you. You have a lot of active traders, active trading on the TD platform to what you have a lot of traders in your platform in those that want to learn a little bit about trading and how some of the larger or the larger shops in the world do this, this is a great video for them and for those of you that are listening, we are on Google podcast, Apple folic acid's modify. You can find a sad TD Buyside Views.
Interesting stuff. We are going to get your questions on exchange traded funds for Andres Rincon in just a moment's time.
A reminder that you can get help with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Shares of Walmart in the spotlight today.
The retailer is giving a pretty cautious outlook for the all-important holiday season.
Consumers are shifting their spending habits in this high price environment.
Walmart managed meet expectations for the latest quarter but it is saying the choppers are waiting for big sales events to open their wallets, and they pull back on paying full price for goods. The market doesn't like the sounds of note of caution. 156 bucks and change per share, you're down almost 8%.
I think in yesterday's session, you had Walmart at all-time highs.
Bit of a pullback there. Let's talk about luxury goods. Brands that enjoyed strong demand coming out of the pandemic also starting to see a slowdown.
Burberry is reporting sale same-store sales growth at 1% for its most recent quarter, sharply back from the 18% growth in the spring. Sales were particularly weak in China and the United States.
Let's check in on shares of Cisco Systems.
Last time I checked they were under pressure today. Indeed, down more than 11%.
That's after the networking giant credit sales and profit forecast, pointing to a slowdown in new orders. Cisco says it believes customers are currently focused on installing their products that they bought following the strong demand earlier this year. A quick check in on the markets. We will start here at home on Bay Street with the TSX Composite Index. Bit of a pause in the rally on both sides of the border.
The price of crude oil under significant pressure today. Inventories are building, concerned about demand heading into the new year, slowing economy.
West Texas intermediate down a little more than 4%. Definitely weighing on the energy names on the top line on the TSX. Down 56 points, 1/3 of a percent.
South of the border, also a pause in the big rally we have seen in recent sessions.
It's pretty modest. You are down seven points, less than 1/5 of a percent.
We are back with Andres Rincon, taking your questions about a change traded funds. Let's get to them. First one here from our viewer.
Just interested on a discussion on covered call ETF, the pros and cons, particularly in the current market picture. If not now, when is a good time to use them? On the platform, we cannot give direct investing advice. But we can talk about covered call ETF, the pros and cons and how you deploy this strategy.
This is been an area that's been very popular here in Canada, and it goes back to the earlier topic that we were talking about, yelled. People here care a ton about yield, now more than ever on the fixed income side but in equity land, they cared about yield for quite a bit of time.
We've seen about 3 1/2 billion dollars go into the space this year alone and it's very substantial actually, more than 5% of the ETF market in Canada, it's fairly sizable. Generally speaking, how we look at these products and how the industry looks at it, we are exchanging growth for yield. When you buy covered call ETF, you're making an active decision, you are taking away some of the growth of your equity position, you are saying, I want more yield instead.
So why do people get into these? Well, they are environments that fit this goal very well. Today, let's say when you have a lot of volatility, you have choppy markets, you say, you know what? Maybe I don't want her care as much for that 10, 20% upside, potential upside, let's say, in the S&P 500 or whatever it is. Maybe I will just take some yield instead.
Yield is fairly range bound, it's basically guaranteed.
We see a lot of this with people saying I'm going to exchange some of my growth for yield. In terms of the pros, what you are getting, you are getting tax efficient yield which is very good. You are getting a fairly well determined yield every single month which people, especially retirees, is very positive. On the con side, you are giving away a bit of your upside. It can range from 1/3 of your portfolio to 50%.
You have some other side still in that 50 or 30% but it's relatively limited.
Those are generally speaking the pros and the cons.
Interesting breakdown on that. If you get the big rip in the market, you're really not fully participating but you've made that conscious decision. Hopefully, if someone is buying this product, they have researched it and made the conscious decision.
Yeah, you still have downside potential. Their long stocks. You have downside potential there and limited or not as high of upside as you would have before.
But yield is really the name of the game.
It can be anywhere from 7% to 50% in terms of yield which is, obviously, very substantial.
Before the program began, we were having a chat. You were telling me about a type of covered call ETF in the states that's getting a bit of attention, but it seemed novel to be. Walk us through that one.
This is an interesting one. I wouldn't necessarily look at these were many advisors and retail investors but it's catching people's eye because of the analysed yield that they're paying. Right now, these are relatively new to be fair, but in recent payment of one of these, their annualized yield was looking closer to 70%.
70.
70%.
How are they doing that?
How they are doing that, which is not as common in the industry, they are capping your entire portfolio and they are doing it at the money which means that you have zero upside on that hundred percent of the portfolio they are selling calls on.
And most importantly, was really neat about these products is they are selling zero days to maturity options. So what they call zero DT options. These are relatively new in the market in the US and what they do is they basically expire every single day. It's a lot of work for a fund manager running these. But because it's so short-term, the volatility is higher than a water three month option which is generally what these funds use.
So the yield is, it is driven by higher volatility. We are seeing high yields on these products.
I don't think this is really sustainable.
What is the risk here?
I don't think it sustainable, in my opinion.
In the way this specific product is structured, we are talking about defined ETF's, the way these were structured I don't think they are tenable long term.
But what's really interesting to see is that although these loans may not be sustainable, there are different ways that you could use your options. I do believe that in the future we are going to see more cover call ETF's that you zero DT options.
Interesting development in that space.
Let's take another question from the audience. If you want to know if there are any high-yield bond ETF's that are worth looking at in this environment?
We can't really recommend an ETF.
We can't recommend but the idea, the whole thing about high-yield is that there is risk and that is why the yield is higher.
That's right.
The ETF is just a wrapper of securities.
In this case, the securities that are being included in the ETF are simply bonds that are triple B and lower, mostly lower than triple B. And so they are higher risk so they have higher yield. And we do see these in the US. HYD being the biggest high-yield ETF but in Canada you have many examples.
You have ZHY from Fimo, you have XHY from bema, you have M HYD from McKenzie and you have a couple of other ETFs that look at that space.
For the most part, they look at North America. Canada, US, mostly US, the high-yield market in the bond space in Canada is not very developed.
It's mostly in the US market that these funds target.
If someone was doing their homework on the space they would have to think about, if this is high-yield, this is riskier.
If we do get a recession, if we do get a hard landing, you might have to wonder about the help of some of the underlying players in this fund.
Of course.
And your long credit. That's why high-yield ETF's, they are long corporate bonds and these are credit that is actually higher risk. So when the markets fall, these funds will underperform significantly.
In reality, these funds actually move very closely in tandem to equities. So the correlation is much higher to equities than it is to bonds. So you can think about them as you holding the equities to some degree.
Obviously, there would be some significant volatility if there was a recession or downturn in the markets.
Fascinating stuff in the high-yield space there. Another question now. We have another view or wondering if there are any ETFs in the healthcare sector that are worth looking at? We cannot give recommendations but there is some out there that we can discuss.
This area is covered well by the ETF market.
You have the whole spectrum.
You can have broad healthcare ETFs.
You can have cover call ETFs. For some reason, cover call, the reason being that is not a very high yielding space naturally in terms of dividends, so there's a lot of cover call ETFs and the healthcare space. In the US, you will have biotech, you also have Pharma.
Medical machinery. Every single part of the chain is covered by an ETF so you have all different ways to get exposure to that. In Canada, for example, you have HFC, but you have global in nature, you have North American nature.
Like I said you age is more US focus. It just really depends on what the investor wants to get exposure to. Is it broad, is it more specific, is it more close to home?
Some areas therefore our viewers to do their homework on.
As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Andres Rincon on exchange traded funds in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
There are lots of different asset types available on WebBroker. Today's education segment, at Nugwa Haruna, senior client education instructor with TD Direct Investing has a look at how you can stay on top of your asset mix using the platform.
So foreign investor who is looking to reach their investment goal by creating an investment portfolio, they may consider asset allocation as well as diversification. The idea behind utilizing asset allocation and diversification, it's a way that would help investors manage the risk when it comes to investing. Let's go into WebBroker and we will show you how investors can find the different asset classes that they can potentially utilize when creating their investment portfolio.
Under accounts, investors are able to click on asset allocation. The idea behind this being the different asset classes tend to respond in different ways to different market conditions, so that investors who once again are trying to manage their risk and limit the volatility in their portfolio could consider asset allocation. Investors are able to see what the breakdown is in terms of equities, fixed income, as well as cash and cash equivalents in their accounts.
Now, investors who want to have a better understanding of how these investments work may be able to do that by clicking on the help button and what this does is it gives investors a breakdown of these different asset classes as well as how they tend to respond. An investor may have a question, what if I don't have the time or the information to create a robust investment portfolio?
That's what investors could potentially consider using investment funds.
There is different asset allocation investment funds that are available to investors and they can actually select these funds based on what their investor profile would be. Let's take a look at where investors can look at different kinds of investment funds. Under research, underinvestment, investors will click on ETFs, so exchange traded funds. And what we are going to do is we are going to use the many screeners tool which allows investors to use different criteria to select different kinds of securities. And under ETF category, we are going to click on this drop-down and in this situation, let's click on exchange traded funds that have up to 50 to 70% when it comes to equities in that portfolio, and it shows us there are 22 matches.
So I'm going to scroll down to pull of these 22 exchange traded funds here and then investors will be brought to a page where the breakdown of these different exchange traded funds. One more thing to show us, if you want to see what exactly each ETF is holding, I'm going to select one here on the screen, and I'm going to go with MD IV. And once I click on it, I can click on summary. The idea behind this is I actually want to see what the breakdown in the asset classes are. Also on this page, I can scroll down, focusing on the left side of the screen here, that I can start to see what that breakdown is.
So I can see that this particular exchange traded fund has 60% US stocks and equities, including some non-US equities.
It also has a holding of preferred shares, over 20% preferred shares, they are a hybrid between stocks and fixed income securities, as well as US bonds and non-US bonds. Investors can see the different sectors that the ETF is invested in. They can see the geographic region and finally investors are able to see what the top 10 holdings of the fund managers holding in this exchange traded fund. So once again, investors are able to utilize some of these tools when they are looking to have some diversification in their portfolio as a way to potentially help them manage the risks of investing in the market.
Our thanks to Nugwa Haruna, senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Now before you get back your questions about exchange traded funds for Andres Rincon, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Andres Rincon, taking your questions about exchange traded funds. Plenty coming until let's get to a few more.
Of your wants to know if you can comment on the Ag sector, particularly the WEA T ETF. It's a pretty low price, wondering if it's time to take a look. Of course, we do not give investing advice on the platform but let's talk about the agriculture sector ETF.
Is very interesting right now given the war in Ukraine. That makes agriculture ETFs quite popular these days and we seen a lot of restrictions in the supply chains so agriculture in general has been an interesting trend lately. So WEA T specifically, it's different than some of the other agricultural ETFs and that that one actually buys futures. It buys wheat futures and this is common in commodities.
It ETFs, they are part of the supply chain, producers, minors, other commodity is part of the supply chain, or you get some ETF that actually by the futures.
What's important to learn or understand about these products is that these futures have to roll every so often.
So they are subject to the cost of carry.
When you buy a future, the cost of carry applies for the future to hold the sweetener has to be stored somewhere so that cost goes up for X, Y, and Z head and your cost of ownership of that ETF also goes up because that ETF has to sell the short-term future and then by the long-term future, hold it and then sell out and then buy it continuously.
What it does is the fund owns it through financial futures.
Important to understand the mechanics of that if our viewer is taking a look at WEA T. Another question. What is your guest outlook for Taiwan?
Is this a good entry point to take a small position in an ETF? I have to say it again. We won't give you investing advice but let's talk about Taiwan.
There are some interesting things about it and perhaps some reasons for caution.
Of course.
Obviously, there's a lot of geopolitical information right now surrounding Taiwan.
But there are actually ways to get exposure to Taiwan directly and to ETFs in the US actually come to mind, EW T and FLT W. One from iShares and one from Franklin.
What's really interesting about these things is that they give you exposure to Taiwan itself which is very tech heavy, as you can imagine, chips, the whole conversation around chips is Taiwan. Also some financial, that's where you can get some exposure to these. In addition to these two ETFs, the Franklin is significantly cheaper. Franklin is amongst the cheapest in the world. These are only 19 beeps which is 50 beeps for the iShares ETFs so these two are good ways to get passive exposure to Taiwan in a single ticket.
And fairly low MER as well.
Interesting stuff.
From Jeff. I don't know if I've heard from Jeff in a while. Thanks for sending this one in. Wait a minute. Here's Jeff's question.
Is it time to add to my position in Z LLC?
This is the Fimo long corporate bond index ETF. Thank you for your question, Jeff.
Can't give you direct investing advice on the platform but let's talk about if someone is taking a look at the long corporate bond space.
Earlier, we are talking about the long end of the curve, that's why we had the Bärbel. And why investors are going into the long end of the curve is once again because they think that interest rates are going to go lower which also might pair with the decline in the markets.
Which is why long and is very interesting right now.
To be clear, it's actually a very volatile space right now.
But it has obviously done well as inflation has been softening and whatnot.
But what's interesting about adding credit to that equation is that in a declining or deteriorating market, you probably want to be more exposed to federal bonds, select government bonds and then corporate bonds.
So you have federal bonds, or government bonds, and you have corporate bonds and government bonds are less exposed to credit risk while corporate bonds are an if the markets decline, obviously you will have a lot of exposure there. So something to bear in mind because it can be a bit of an offsetting exposure if you have rates going lower, the market going lower, that means that the credit of that ETF is actually deteriorating at the same time that the rates are going low which improves the future of that bond. So you are getting a bit of an offsetting balance there where the government bond which would behave opposite in that scenario.
Interesting things to think about there. Jeff, Hope that helps you out in your research on the product. Another question from the audience. Could you please tell me the ETF that cover Canadian bonds?
It's a vast universe. There are almost 300 ETF that cover bonds in Canada.
So you have coverage of the entire spectrum. The way I will put it is that you have different degrees of credit and different degrees of duration.
So you have ultra short-term maturity, short-term, you have made and you have long and you have one that aggregates all of them.
And then you have the same thing on you have high yield, as we were talking about earlier, and you have the other side of the spectrum which is government bonds. To have all that spectrum and you have ETFs on every single part of that matrix, basically.
So you can have a long corporate or long government or short government and for corporate. So you can have an entire spectrum of ETFs across the board and that's generally how you would have it structured. In those, what you have, you have ETFs that by all those ETFs and basically those are Ag products.
Apart from those, one that I will mention that or not they are specifically in that matrix are like real return bonds that target maturity bond ETF would have been very popular in our channel these days.
Those ETFs also by Canadian bonds.
If you combine all of these, you get exposure to all sorts of bonds in Canada and it really depends on what the investor wants exposure to. If you want exposure to corporations or government, to the short end or long end, you have over 300 options.
All right, there's definitely some weekend homework there.
We are going to get back your question for Andres Rincon on exchange traded funds in just a moment.
As always, make sure you do your own research before making any investment decisions.
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Signs are building that Canada's economy has been weakening. Of course, this presents downside risk to the housing market in this country. Could this negatively impact demand and figure sum for selling? Anthony Okolie is joining us now with a look at a new TD Economics report on the challenges that are facing housing in this country.
Thanks very much. TD Economics has said that the past Bank of Canada rate hikes has put downward pressure on Canada's retail activity since the summer and national sales fell almost 6% between September and October and sales remain about 17% below the pre-pandemic levels.
The lower sales coincide with a drop in the average home prices as well as a drop in new listings. The Canadian sales to new listings ratio fell from roughly 70% back in April to just under 50% back in October. That's a 10 year low.
After 6 Consecutive Monthly Gains in Canada. This is just a couple of things.
Homeowners are taking much longer to sell their homes and according to the Canadian Real Estate Association, they say that they are seeing more signs of sellers willing to negotiate a fair price.
Secondly, it also suggests that would be sellers seem to be awaiting the retail market altogether. People are listing their homes for sale next spring when we see activity picking up. Meanwhile, when you look at Canadian housing starts, he kicked off the fourth quarter on a very positive note and came in up 1% month over month and was led by urban detached homes, primarily in BC, Nova Scotia and Saskatchewan.
This is important given the surgeon population in Canada. So far, homebuilding is going well despite the fact that we are still seeing higher borrowing costs and persistent labour shortages. It moving back to existing home sales, overall, sales of existing homes measured on a per capita sales basis are sitting at levels last recorded over 20 years ago amid higher interest rates according to TD Economics. While we have seen some rates, Canadian five year bond yields coming down from their peak levels, from earlier peak levels, they still remain fairly elevated.
The key location for this is that these conditions favour buyers primarily in BC and Ontario. We are seeing the sales and listing ratio are the lowest. In Ontario, the sales to new listings is at the lowest level since the global financial crisis.
This seems to suggest that prices will help lower in these two markets, BC and Ontario, over the next several months. And this will, of course, be a drag in the country's nationwide average home price.
Now TD Economics is believed that the Canadian housing starts continue to run at a pretty healthy clip and that is helped by some lofty home prices, low levels of unsold inventories and a surge in residential construction. They forecast it to stay pretty high in the near term thanks to some government policy changes but the past declines in home sales should lead to lower starts through next year.
TD Economics puts all of that together.
What are they thinking about 2024?
TD economic systems of the Bank of Canada is finished raising interest rates and will start to cut by the second quarter of next year. Population growth should also remain robust with job market spending but not breaking under the weight of higher rates and these forces should support gains in residential investment and prices starting in the second quarter of 2024. However, historically challenge the portability backdrops in most provinces will likely curb the pace of these gains.
Now TD Economics a suspect it will take until 2025 for Canadian home sales to sustainably surpass their pre-pandemic levels.
Now, they also mentioned some key risks, obviously a weaker than expected economy poses an important downside risk to their outlook for housing. Another key risk is that rates will remain a higher should inflation linger at low levels that are higher than TD Economics expects. On the opposite end, Canada's population continues to grow strongly meaning that housing shortages are likely to persist in this could push prices higher than TD Economics anticipates.
Fascinating stuff and stuff that everyone wants to know about housing.
Thanks that.
My pleasure.
MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. This, of course, is the heat map function.
This is a view of the market movers. We are screening the TSX 60 by price and volume. With the price of American benchmark crude pulling back about 4% today on buildups of supplies, concerns about demand and a softening global economy, you do have some of the biggest energy names in the country taking points off the topline for the TSX, got Suncor down more than 3%, right next to it Cenovus also down to about the same tune.
For green on the screen, you've got the price of gold up right now, about 20 bucks per ounce. We are seeing a bit of steadying and bond yields after the pullback today's that is benefiting names like Kinross Gold, up more than 3%.
Barrick Gold up almost 2%. First Quantum a bit of a standard in the group.
The price of copper is a bit lower today but First Quantum had its own issues lately with the large copper mine in Canada, problems there was considerable pushback from the people of Panama when it comes to that operation. South of the border, a two is happening on the S&P 100.
We will screen through. We are still getting a lot of earnings information today and Cisco, we were talking about earlier the program, seeing a slowdown in the orders. That stock is down 11 1/2%.
You have Walmart under pressure to the tune of about 7 1/2%.
Basically saying that shoppers are opening their wallets and the deals when the deals are there and sales are on but they are protecting their cash when it comes to other times. They are concerned about the all-important holiday season.
Intel is standing on the screen. It seems to be a bit more positive sentiment on the street or in the name today.
You can get more information on TV Advanced Dashboard vices being TD.com/Advanced Dashboard.
We are back with Andres Rincon, head of ESL strategy at TD Security.
AI artificial intelligence ETFs out there.
It was a bit of a surprise in the spring.
Boom, AI just landed on all of us.
I think every time I'm on your show, we are talking about AI. It's very, very popular.
The bay ETFs in the US is BOT Z.
Clever name.
Clever name. That's from global acts and the partner here in Canada are from global X is horizons there and they have RBOT , robot, that covers robotics and AI.
So both of those areas are covered by these ETFs and generally, as you can imagine, they are very into the technology sector but also the industrial sectors.
Generally speaking, the entire supply chain that involves robotics and AI. One interesting product that is coming up in the new year is IN iA from Invesco which is a fund that is solely focused on AI.
Just the AI.
Just AI. They've done quite a bit of work to formulate the new product because it is global. It will have exposure to Asia. AI is very important there too.
It will be launching in the new year I am just saying but it is one to watch.
The MER fee is quite a bit lower than what you see on the street there. Another product to watch, IN iA, coming up next year.
Interesting to elements. Let's squeeze one more question in.
Can Andres point to any copper ETFs in Canada?
Yeah, so there's only one ETF in Canada that covers copper and this one covers the producers.
We had that earlier conversation and on whether something covers the producers or the commodity.
You have CoP P in Canada also by horizons that covers different minors. Something is a caveat we were talking earlier about First Quantum and a couple of different areas, some of these different producers make other metals. So they will purchase or hold these names that are predominantly copper producers but they also produce gold and other different things.
So you have CoP P by horizons, also CoP X, but you also have CPER in the US that actually it gives you exposure to copper in itself.
Similar to the WEA TE ETF were talking about earlier in that it buys futures.
Always a great conversation and fascinating to have you talk about the trends in ETF space.
Thank you.
Our thanks to Andres Rincon, head of ETF sales and strategy at TD Securities.
As always, make sure you do your own research before making any investment decisions.
we are going to answer one final viewer question before we go.
Off-topic, I just started watching. If I miss a program, is there a way to see it later? Indeed, there is a way to see it later. You can find our videos on our website, moneytalkgo.com. All the shows get posted there and the opening interviews get posted there as well. You want to stay tuned. We'll be back tomorrow with highlights from some of our best interviews of the weekend coming up Monday, David Mau, Ed DP director and earthly manager with TD Asset Management will be our guest take your questions about industrial stocks.
You can get a head start with your question. Just email moneytalklive@td.com.
It will macchiato. Jeff answered back, he's been away for a while. Glad to have him back. Look forward to your questions.
That's all the time we have for the show today. Thanks for watching. We will see you tomorrow.
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