Show Transcript
Print Transcript
[theme music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Coming up on today's show, Susan Prince is going to join us. We are going to wrap up the trading weekend take a look back at last summer at this time, take a look at the evolution of inflation and interest rates.
Pretty interesting stuff. We'll get to that in a moment. We'll also discuss why not all parts of the real estate market will benefit from lower rate. Colin Lynch will wait on that and Andres Rincon will take us through the fund flows in the ETF space amid the recent spike in volatility.
Plus in today's low broker education segment, Caitlin Cormier is going to walk us through how fractional shares work and how you can use them on the platform.
Before we get to all of that, let's get you an update on the markets. We will start from Bay Street. We have had some nice gains on both sides of the border today but we are pretty much just flat.
Six points to the upside on the TSX Composite Index, good for three tics.
You can see that dip about two weeks ago when we had that big selloff, the TSX seems to be right back where we started, a round-trip in a short period of time.
I want to take a look at some of the big names on the move today. Barrick Gold, what was up to? I chose this one because it was to the upside. Sometimes you forget your process. Barrick is up 2.6%. Want to check in on Cenovus. The price of West Texas intermediate crude has pulled back today, but it's been a choppy trade in crude recently. We have Cenovus down about 1.2% on lower crude prices. South of the border, big gains for the S&P 500 and the NASDAQ this week. At 5545, we are in the green and you can see that swoop of just two weeks ago and haven't recovered all of the ground that was lost but still making some pretty impressive gains.
The NASDAQ with the same story as well, not much happening today. You are down 1/3 of one point, basically flat.
Pretty impressive move off of the recent lows.
Applied Materials, going to tell you a little bit more later in the show, they came out with their earnings, it seems like the sales forecast is underwhelming.
You got applied it down to .6%. And that's your market update.
Of course, we talk about market moves on a daily basis here on the show. Sometimes we forget to pull back the lens, take a look at perhaps so far we have come on some of the fights that have been fought out there, including inflation, borrowing costs. Susan Prince joins us now. You are pointing out to me this morning that it was a year ago to the day that we were discussing these matters and you found some interesting comparisons.
>> I found my notes from our conversation last year and thought why not take a look at what happened?
You been talking a lot about the volatility, we look at day by day what's happening in the market. I took a look at my notes from last year and what we focused on was the U.S. Treasury tenure number rate indicator about what people's sentiments are about inflation and a year ago, the US 10 year yield was about 4 1/4%. Today, it is 3.9%, so it's down about 35 basis points. A bit of a move.
If high yields are an indicator that market traders want to be compensated for inflation risk, the fact that it's lower suggests that they are a little bit more comfortable with the direction of inflation. So that's interesting.
I 35 basis point move, that's meaningful but not holy Hannah.
Then you look at the year and the 52 week high for the yield was about 100 basis points higher than it is now.
>> Last fall was pretty consequential when you think about the trade and yields and what it did to equity markets.
>> Was pretty close to 5% and it had people very nervous. It had me thinking about the kinds of things you talk about.
Certainly with MoneyTalk wealth magazine, looking at the long term, looking through the ups and the downs of the market. In fact, if you had purchased S&P and next this time a year ago when we were talking about the inflation concerns and that sort of thing, you'd be up about 26% year to date. If you are looking at the TSX, you'd be up about 16%. That notion of make a decision but then commit to it and don't get worried about the bad weather days.
>> I always liked that saying: time in the markets beats trying to time the markets.
>> Absolutely.
>> If anybody was smart enough, not me, to know the exact entry and exit points, it would be easy, but clearly it's not easy.
The last couple of weeks have been interesting to. We think about sometimes in the summer, volumes are thin, you get some sort of event, this time it was recession fears in the states based on that jobs are for, they added jobs just not as many as they wanted, sometimes it takes at least in my experience a few days to shake things out. That was a very quick sort of selloff and a very quick rebound.
>> Yeah, and it is interesting because you are seeing more at play then institutions coming in and out of the market. We have so many ETFs and so many mutual funds.
There's a gearing that happens where moves are bigger and faster because there are formulas that are set up's, the algorithmic formulas, if this happens in this happens, we will do this, if this happens in this happens, we will do that.
If you take it back to some of the things, we look at it a year ago and look at the numbers, the US inflation numbers, we know that central banks like to see inflation at about 2% year-over-year. We know that the conversations have been that central bankers will look at cutting rates as they get closer to 3% or 2% and see it in that direction. A year ago, US inflation was 3.2%. We are now looking at a tiny bit below 3%. Clearly, the right direction.
It's a month earlier. Everyone likes to compare US and Canadian at the same time.
Data is different. We are looking at different time frames. But even looking at those, Canadian inflation for June was 2.7% compared to a year ago of basically 3.3%. If you want to look at the big picture stuff, it's moving in the right direction.
So then, what people look at in the markets is what can tell us that can get us ahead of any decisions? Every year in August, the Kansas City Federal Reserve has a symposium and the symposium is Jackson Hole. They don't often refer to it as the Kansas City Federal Reserve symposium, but Jackson Hole is a time where the chairman of the Federal Reserve usually gives a talk and usually gives some sense of what the direction is and that something people will be paying attention to next week.
>> Anytime we can hear from Jerome Powell and what may or may not be on his mind is pretty substantial. We will have that, it knew inflation numbers out of Canada and retail sales. It's going to be a busy one.
I consider this little period of this week was the summer lull. It wasn't much of a lull this summer.
>> An up week on what has been a down month but a little bit quiet.
>> Will be a lot busier next week. Thanks for that, Susan.
Susan Prince from MoneyTalk.
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.
We have shares of Applied Materials losing some ground today. The semiconductor equipment maker did beat on the top and bottom lines for the most recent quarter but it appears investors are more concerned with the sales forecast.
Applied supplies the likes of Taiwan Semiconductor, Intel and investors may been expecting a stronger revenue outlook given the boom in AI. Applied Materials is down 2.5%.
Checking in on shares of H&R Block, we don't look at them much on the show but they are in the spotlight today, getting a pretty big boost, up 16.5%. What's going on?
This is the tax services company. They beat expectations in their latest quarter, forecasting stronger than expected full-year results and they also announced a dividend hike and it's bringing out a $1.5 billion share buyback program. The street liked the sound of all of that.
E-commerce company JD.com recording a sales before its most recent quarter. This is China's largest online retailer which attracted customers the platform with price cuts.
JD.com's New York listing is up more than 5%. Quick check on the markets, on Bay Street and Wall Street.
We covered a lot of ground from last week selloff in recent sessions and today it's a bit calmer. Six point to the upside for the two home, good for three tics. The S&P 500, not a lot happening there today either. Three tics as well, 1.5 points to the upside. But it's been a good week overall for the S&P 500, the NASDAQ and the TSX.
The prospect of lower borrowing costs has been putting the spotlight on some sectors which may have been out of favour, including real estate.
Colin Lynch, managing Dir. and head of alternative investments at TD asset management joining earlier to discuss the potential opportunity.
>> Prospect of potential cuts in the states, Kitir in Canada and in other geographies around the world eases the pressure off of real estate just a bit. We haven't seen it fully filtered through because generally put, these things take time to filter through but a couple of big things to look at. Number one, if you are an investor and you got an opportunity to invest in many different things, what is the bar for competition for real estate?
That bar for competition is a dividend yield off of equities and potential for upside, it's the yield off of fixed income, so those yields off of fixed income have been elevated because you can effectively invest in what was perceived to be lower risk assets but to get a pretty attractive yield. Now, as those yields come down, the equivalent, which is in real estate cap rates, which is effectively at your net operating income divided by your value, those have been going up as income has been going up and values have come down.
So what's happening today?
As those costs, as those bond yields come down, as Rates go up, real estate becomes incrementally more attractive. That's the big point 1.
The second big point, debt is used a lot in the real estate world. Not just income producing assets where people may choose to own debt in addition to an equity position. You also have things like development or value add where you are doing retrofitting, renovations, etc.
that is used sometimes extensively in those activities. So the cost of debt is coming down and frequently that debt is variable-rate debt. As that cost comes down, the attractiveness of doing some of those activities increases.
So we are at the start of this journey because for instance in Canada, we have had to rate cuts and relative to historic highs, we are pretty much near those historic highs still, so I'm not going to the whole world has changed but what I would say is there is a dose of greater optimism today than there was just 1/4 ago.
>> There are the macro conditions and what we are seeing out there in terms of the bigger landscape. We know we can break down real estate in so many different ways. I think the first row we are going to break it down is by geography, the US versus Europe versus Canada.
>> In Europe, we saw certain countries move ahead of the rest of the world. Two years ago, if we go back a couple prime ministers in the UK to Liz Truss… >> We don't have to go back that far, do we?
>> That's true. It was interesting. A lot was going on. One of those things had to do with the budget and the impact of the budget and what that did was impact the pound but it also impacted borrowing costs in the UK. So that plus a proclivity of appraisers in the UK to adjust real estate values meant that the real estate market declined faster than the rest of the world. That was a very interesting test case for the rest of the world, not just in terms of what the rest of the world has seen and declines but what is the magnitude of those declines. We have seen about 20 to 25% in terms of income producing properties, in terms of declining values in the UK. That has happened. The market I would say has effectively reached the bottom and we are seeing a bit of optimism on the other end.
Why? Because we see more buyers in the market from around the world looking at properties that are attractively valued go back to a Rate perspective, from a Great point of view. So UK, the Nordics.
Very interesting.
Moving through that bottom and inflecting.
Other areas, such as German offices, not so much. Come to the US, we have also seen significant value adjustments in the last year that have followed what we saw in the UK and Nordics. We now believe we are reaching a point of potential attractiveness as well in the US. We have seen a decline around that 20% range, weighted average across all the property types. Canada has followed the US. We have been a little bit slower than the US but again, here, we are beginning to approach some of those values that we are seeing in the US. But in Canada, the fundamentals are a little bit more attractive. We have less retail per capita than the US, less industrial per capita than the US and we have a housing shortage here. The fundamentals are a bit stronger in Canada than the US. The last place of interest is Asia-Pacific. The dynamics are little bit different. In Japan, we saw a rate hike.
There still is, we look at bond yields relative to cap rates and is Rates are above bond yields, it's positive. There still is a positive spread in Japan but that has narrowed because of Bank of Japan moves. So we're watching that and then lastly in Australia, Australia has followed Canada. If you look at the order, the UK, Nordics first, and then other parts of Europe such as Germany, in particular offices, the US, Canada, then Australia.
>> Now in the geographic breakdown, you mentioned another way to think about the real estate, residential, commercial, etc.
How do you start seeing those different sectors in the context of lower borrowing costs?
>> Very good question.
Different impacts across the sectors. In areas where there is the most supply demand pressure, meaning limited supply and a lot of demand, i.e. housing, we have seen movement in cap rates but that movement has not been as pronounced as other areas. Conversely, if the borrowing costs go down and debt tends to be relatively extensively in the residential space, so think new construction, developers tend to lose a lot of leverage, or even income producing properties, people tend to lose a lot of leverage.
Therefore the cost of debt is coming down, there is a more material impact on the residential space relative to other spaces. Plus significant demand. And yes, there has been supply incrementally in certain places but overall, still, not just in Canada but in the US, the UK, Australia, etc., relatively insufficient supply relative to demand.
Pretty big positive in the residential rental condominium development space. In the industrial space, relatively positive in Canada. In the US, you see a lot of supply and that is of some concern in certain parts of the US. In the UK, relatively positive because supply is constrained and did over parts of the Nordics. So in the UK, Nordics, parts of Europe like France and Germany and Canada, parts of Australia, generally quite positive. At retail, essential retail, very positive. Why? Demand is very high.
We all know, we've been paying a lot for our essential goods, think grocery, pharmacy, those prices have been high.
The cost of debt has come down.
That means the ability for buyers to buy into the spaces increases demand for those spaces, increases prices over time. That's a relatively positive space. Then you have shopping malls which have been stressed, think enclosed shopping centres, in the last 10 years. If they have survived the last 10 years, generally put, their business models are generally strong. I say generally. There are some exceptions.
And the key point is, what is the potential for the shopping centre is to develop residential? And if there is potential, go back to what I said about residential.
Lastly, office.
Lower rates is not the cure-all for the office challenges. The cure-all for the office challenges are the propensity of people to actually physically be located… >> Go back to the office.
>> Exactly.
And if that office is, well located, high quality, close to transit and attractive, then people will be more likely to actually want to be in those offices and the tenants, therefore, the companies that are in those spaces, will be more likely to want to pay good rents. And if it's not that, then guess what?
The lower rates is not, in my view, going to be a cure-all for a challenged office.
>> That was Colin Lynch, managing director and head of alternative investments at TD Asset Management.
Now, look at our educational segment of the day.
TD Direct Investing has recently launched fractional share trading on the platform.
He did tell us how it works is killing me, senior client education instructor with TD Direct Investing. Always great to see you.
Walk as to why an investor might want to use fractional shares.
>> Yeah, absolutely! Definitely exciting news for us here at TD Direct Investing.
We are excited to launch fractional shares just to get flex ability to investors when it comes to getting their money in the market.
There are a few different things in a few different reasons why investors might want to think about using fractional shares.
One of the things is that you get to invest more of your money right away.
When you think about buying a stock, typically you're buying the whole share.
If it costs, if you have say $1000 you are looking to invest in the total of the shares comes to 910, that's all you get to invest, you have to keep the extra $90 in the account and wait until you have enough money to invest that.
So fractional shares is going to allow you to take the majority of that money and have only a little bit left over and get your money working for you right away.
Maybe there's a company you are looking at investing in that you want to have a piece of, you want to get in on the action but you don't have enough money to buy a whole share. There are some stocks out there that are a couple thousand dollars.
Maybe you want to at least own some of that company but you don't have enough for a full share or for more than one share, for example. So you can go ahead and just purchase a fraction of the share and not even have a full piece of that share.
It's a way to get in on the action without having the full amount.
In cases like that, if you are looking to buy a fraction of a share, it's a reduced cost for trading. It will cost you $1.99 if you are purchasing anything less than one full share. Anything under one share is gonna cost you $1.99. Anything over, one chair and above, it's gonna be the $9.99 transaction fee. There is no additional cost, it's the same trading price but you're getting a fraction on top of that.
So that's a couple of the things to consider. I want to quickly hop onto web broker and show you one of the things to you because not every single share is going to be eligible for fractional shares. What we are going to do to find out which shares are eligible is we are going to click on trading here at the top of web broker and were gonna come under buy and sell.
We are going to click fractional stocks and ETFs. ETFs can also be fractional.
It's not the shares.
You can see there is a listing here for all the different companies that are eligible. There are 140 pages, quite a lot to go through. There are a lot of shares that are eligible.
For example, if you are looking for a specific company, you can go ahead and type the name and and it will pop up here and you can see whether they are eligible for fractional or not. Pretty straightforward process to find that out.
That's some of the reasons why we have fractional shares, why we have introduced them and why it might be a benefit to some investors to look at fractional trading.
>> We have a better understanding of fractional shares, the rationale for using an instrument like that, how to do some research. What about when a client wants to perhaps use the order entry box for fractional shares, what happens then?
>> There are a couple of things that are a bit different in the order entry process now that we have fractional shares so let's go ahead and go through the process of putting an order through and see what the differences. I am already on the screen. I can click on the buy sell button on the top right-hand side of the screen but I'm just gonna go ahead and click buy here since I have a stock up already.
You're going to see this I, chose fractional. That will indicate whether the company is eligible for fractional trading or not.
I'm going to type and one that I know did not show fractional before. In this example, Pinterest is not eligible for fractional trading. This across through the symbol which is how you know it's on eligible.
To go back to the one we were looking at, I click on Apple and it will show me that it is eligible for fractional. I have to use a price type of market. If I choose limit, you will notice that the fractional gets crossed out. It's only market order types that we are able to do fractional trading at this point in time.
I have a choice between either investing a dollar amount or a quantity or number of shares and in this case it showing you US because it's a US stock. For example, I can say I want to invest 10,000 US and will tell me how many shares that will get me and you'll notice that it showing, it's going to be 44.18327 so I can see exactly how many shares I would be able to get with that dollar amount. Previously, we would have to put the number of shares and then do the calculation so it's nice to already have the consolation done for us to take it out of her hand.
And that's really the majority of things that you need to kind of know on the screen here to make sure of. When you go to the process and hit preview order, it's gonna show you what your cost would be. In this case, instead of typing in a dollar amount, if I just said I wanted to buy .75 of Apple, it's gonna show me how much is going to cost me in US and then when I click preview order, it's going to show me my commission and because it's not one full share or more, it's gonna be a 199 to actually process this trade but if I had one full share plus a fraction, it's gonna be the standard commission of that 999. If I were to come in here and instead switch over to a limit order, it's going to erase everything that I have, I am not able to go through this fractional piece. And the last thing I wanted to mention to you is that we can do fractional shares through our mobile app, you can do it through easy trade as well as advanced dashboard, so it's not just web broker that you can do this trading on, we have encompassed a lot of our different areas of trading to make sure that you can do that trading on whichever platform is best for you.
>> All right. Great stuff as always.
Thanks for that.
>> Thanks so much.
>> Caitlin Cormier, Senior client education instructor at TD Direct Investing. For more educational resources, check out the learning centre on web broker or use this QR code to navigate to TD Direct Investing's YouTube page and once you are there, you will find more informative videos.
It's been an interesting summer in the markets, we saw some sector rotation and a brief but dramatic sell off. What has this meant for fund flows in the ETF sector?
Andres Rincon, managing director and had a VP of sales and strategy at TD Security join me earlier to discuss.
>> What we can clearly see is trend where ETFs are dominating. They continue to be the driving force of flows in the fund industry in Canada and the US. Also to your comment earlier, they are also very much in a risk on environment which is really interesting given all the volatility we are seeing as of late. Just to give you some perspective, in ETF land, we have seen about $33 billion in inflows this year and mutual funds have out flowed $8 billion this year.
This is a trend we have seen since COVID, really. In Canada, COVID was a turning point. In the US, that turning point happened many, many more years before, but we don't really see a way back were mutual funds come actively and consistently bring in more inflows than ETFs. What's really interesting is the mix. See you are seeing inflows and fixed income across both vehicles, mutual funds and ETFs.
We are seeing a lot in equity ETFs and balance ETFs and we believe a lot of that is interest rates.
If interest rates are high, people want to be and yielding products instead of balanced portfolios. Now it's rates going the other way, perhaps resting a bit of a shift into mutual funds on the balanced side but for now, mutual funds are seeing a lot of outflows in the balanced side and the equity side while both vehicles are seeing a lot of inflows across all products in ETFs but also very strong on the fixed income side. So it's very interesting and also really interesting to see is that the ETF side is a little bit lagging when it comes to fixed income compared to mutual funds and there still a lot more money going in there. As we have seen over the last few years, ETFs are starting to dominate.
>> Hume mentioned balanced funds there. As I was going to your report, I'm not sure if I got this right, but people don't seem as interested in balanced funds as they were and are getting into things themselves.
>> Investors are switching out of mutual fund balance funds into balanced funds on the ETF side. So what we call the asset allocation ETFs are very popular here in Canada, they are treated heavily by retail.
They are very popular. But you're right, a lot of investors are choosing to pick their own tools, they are buying the equity ETF, fixed income separately and then building their own portfolio.
>> Covered call ETFs, we have talked about it with you on the show before. You say that spaces can heat up in terms of competition.
>> Not just covered calls. If we step back, we have 40 issuers here in Canada which is a significant number but we have seen a slowdown in new entrants from Canada into the Canadian market. Now, we are seeing a couple of new interesting entrance from the US which has many large issuers that are not necessarily in Canada today.
We have some large ones already here but many of the US issuers are not here. So recently we had filings from two very large asset managers in the US that are coming into Canada, they have already filed, one of them is J.P. Morgan asset management, the largest active manager in the US, or one of the largest, and you also have capital, which is a very big equity and fixed income player in the US too.
Most notably, in the case of J.P. Morgan, they are coming in with two of the most popular product, the two largest cover call products in the world are managed by JP Morgan, JP and JPQ. These two funds basically give you exposure to the broad market, be at the S&P 500 and the NASDAQ, in an active portfolio. These funds are now being brought here to Canada. It's very interesting. What we are seeing now is a lot of new entrants. Equity just filed, another company just launched two, these are the first in Canada that UCL ends. Equity linked notes.
>> Is it a new generation of covered calls?
>> In the US, they are more common. In the US, JP and Jay peak you use those. It favours the US market which is why they are used a lot more in the US. They are now bringing them here to Canada. It's very exciting. There are a lot of new issuers coming to Canada with these products.
>> Maybe viewers watching are going to start doing some research. What's the risk?
>> I think people need to rubber that when you have a covered call fund, there is still downside exposure. They provide some yield back to the investor that can buffer some of your downside exposure but at the end of the day, you're still holding a box of securities that will have some volatility and it's important to understand that. It's also important to understand that you are giving up upside.
There is an opportunity cost when you are selling calls and generating yield.
The investor is making an active decision to move away from gross into yield.
Because they are giving away that growth, you are giving up that opportunity cost, the opportunity cost is there. That's very important to understand when you have ETFs or are investing in that space.
>> Interesting stuff in that space.
Regular viewers of this program are gonna know that Andres also has his own show called Buyside Views where he interviews prominent voices in the finance industry and in his most recent episode, he was joined by Tim Wiggan, the group head of wealth management and insurance at TD Bank Group. They discussed the big trends that he is focused on in wealth.
>> So first off, demographics. I've always been fascinated in studying demographics and the impact it has on capital markets generally.
We have an aging demographic and that's grading a lot of themes. One major one is the move from accumulation to decumulation and I like to think of that as converting your assets and income. You stop working and you are basically using your savings and investment dollars to create an income stream for you. Demographics as well has a part to play with a younger demographic.
They might have a different set of principles as it relates to the financial institution that the issues to deal with.
They may not want to deal with the bank that mom and dad have, so that's a major factor.
>> Interesting points there on how demographics can change the investment landscape. They also discussed how high interest rates have impacted the wealth business.
>> High interest rates can affect things like investment allocation versus savings allocations so with a very high level of interest, it might dissuade swarm one, I think to their detriment, but might dissuade someone from starting their investment journey relative to just having savings which may not be as efficient from a long-term return perspective and a tax perspective. It's obviously part of the package.
>> Lots of interesting stuff there, Andres, and I know that was just too little threads of a really fascinating interview that I had a chance to check out as well. What else could you take from that chat?
>> The first thing that stood out was how interconnected all of the businesses are that Tim works on and it's very important to leverage all of the businesses to service the end clients in the end clients can be anyone from retail to family offices. He also talked about insurance which is a very interesting area right now with a lot of natural disasters happening in different areas.
That was fascinating for me to listen to you. There is also the growth of wealth and how it being diversified globally and changing quite rapidly so Tim and I go back a long way. We both worked on the trading floor for quite some time.
>> He has a history at TD Securities.
>> He worked one row away from me for many years. He was an equity sales a long time ago and then he did many roles in banking and capital markets. He has a wealth of experience and I do encourage your DI audience to log into the TD Securities website, listen to the video and they can also listen to it on spot if I and Apple podcasts. It's really fascinating what he has to say about the wealth industry.
>> That was Andres Rincon, managing Dir.
and head of ETF sales and strategy at TD Securities.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This is the heat map function, and a few of the market movers. We will start with the TSX 60. A lot happening on the top line number today but we have made impressive gains for the week. There are still some standout names, whether it's a Barrick Gold or Neagle Eagle making gains in the materials basket.
It sort of a mixed picture out there as the headline is basically flat. South of the border, we are starting to pick up a little bit. The S&P 500 is up slightly. We are seeing upside momentum. The Dow is moving higher in the NASDAQ as well. What is going on? The S&P 100, it will give us a clearer look, you got Nvidia up almost a percent, and he is up, Cisco, a big tech name, is up more than 2%. You got some strength on the board from their and also the financials, they're not taking up a lot of real estate but J.P. Morgan, Bank of America, Wells Fargo, all up between 1/2 and a full percent.
That's what's happening in the afternoon session of Wall Street.
It's been a challenging year for the electric vehicle market, some major automakers are pulling back on their investment in the space due to slowing demand. The question becomes, is this a speedbump or longer-term trend? David Mau, VP and Dir. for portfolio research at TD Asset Management joined me earlier to discuss.
>> For the overall market, EV demand has certainly come down a little bit. We are seeing a slowing. Like you said, it started probably midway, halfway through last year and it has continued into this year and we are talking about the US and Canada. It doesn't mean that sales growth is actually negative, it's just that the pace of sales growth has slowed significantly. A lot of people think that-- or maybe people are hoping that this is just a temporary blip and we will recover back to you a positive long-term trend.
As to exactly what's going on in the industry, it just seems that the market is a bit saturated now and demand from people who are not first adopters has definitely slowed people. Among be players, Tesla's always up there when you mention big players, Tesla is actually experiencing declining sales this year, something that they haven't really seen.
Another big competitor out there is BYD, a Chinese company.
I would say they are probably Tesla's closest competitor. They mostly sell their cars in China and other parts of Asia but BYD actually haven't seen a decline in sales. But again, that's a function of their geography, where their biggest market is, because in Asia and particularly in China, demand hasn't slowed as much as it has here in North America. The other thing is BYD actually sells hybrid vehicles as well which Tesla doesn't so that's been supportive for BYD as we know demand for hybrids has been very strong in the last couple of years.
>> You mentioned Hazlett, they are all in on electric. You saw Ford, GM, other big automakers said we are not going to let Tesla have all the fun in this market.
They came out with their own EVs but I look back over the last year and there were announcement saying we have not abandoned the EV strategy but we are pulling back a little bit and we are going to focus on a mix, whether it's hybrids or whether there is still demand for the internal combustion engine. Interesting was happening with North American players.
Not necessarily stopping everything but saying maybe we need a different mix.
>> That's definitely true.
I think all of the names you mentioned, they are seeing the market change right before them and what they are trying to do is maintain the most likability that they can't so flex ability meaning in terms of production so like you said if EVs slow even more from here, they will probably cut more in EVs and increase or hybrid production instead of cutting back on internal combustion engines as much, they might slow that and continue to produce those gasoline cars.
>> These are the big automakers, obviously, but we know, you're at home, Southwestern Ontario, but through a large part of the state, there are a lot of suppliers to the big names. There so many we don't even know the names.
Surely they must be starting to feel this in terms of what these big companies want from them.
>> That's absolutely true. There is some disruption going on throughout the EV supply chain.
An example here, in Ontario, is there is a European battery materials company called Uni core. They were in the middle of building and EV battery plant out by Kingston so really not too far from here.
They have seen the change in the market and they have recently decided, you know what? We are going to pause on building at this plant because the industry is simply not growing as fast as they thought it would. Keep in mind, this plant is going to cost almost $3 billion and once it was up and running was going to provide about 600 jobs in the Kingston area so that's pretty impactful. Another Canadian example is Magna. It Magna is a Canadian auto parts supplier. They also assemble cars for OEMs.
They had a partnership with an EV startup, Fisker automotive, which is a US EV company.
Fisker recently announced I think it was in June, they filed for bankruptcy. So this is going to have an impact on Magna and Magnus future sales and the prophets.
Not only that, with Fisker going into bankruptcy and that partnership or relationship ending, Magna is going to cut about 500 jobs. These are just two examples here that are close to home but there are numerous other examples out there of companies either cutting back existing production capacity or delaying spending plans. It is starting to have a very real impact on the economy in terms of jobs and capital spending.
>> I want to get back to the China story.
You mentioned BYD. There are some others.
They've mostly been telling to the Chinese market and other Asian markets. This seems to be concern over the last several months among some of the major automakers on the shores that those cars would start coming over here.
>> Yeah, that's a very real concern.
The way the companies in Europe and North America responded is by announcing their intentions to slap tariffs on imported Chinese electric vehicles.
The Biden administration recently said that they will impose a 100% tariff on any Chinese EV coming into America. The European Union is also putting tariffs on Chinese EVs. There tariff rate is a bit lower, I think it's gonna be around 38%.
But still meaningful. And Canada, we will probably follow with the US is doing and impose a 100% tariff on any Chinese electric vehicle coming into the country.
And the reason that these Western governments are looking at these tariffs or are intended to put these tariffs so it is they have felt that the Chinese EV industry has been unfairly subsidized by the Chinese government, giving these Chinese companies kind of an unfair playing field over the domestic companies we have here and in Europe. Their solution to that is basically to double the price of any car that's coming in with the intention that this will make the appeal of Chinese EVs less appealing to consumers. Once this 100% tariff is in place, the selling price of the Chinese EVs will be comparable to the lower end EVs that we have right now in North America and in Europe.
>> That's incredible. You double the price of the Chinese EV coming in and that just gets it to where this market figures the price should be. That tells you the price points that may be coming into this market.
>> To be honest, the electric vehicles coming out of China now are quite good.
That was not the case maybe five years ago but China has made significant, the Chinese automakers have made huge improvements over the last few years in terms of quality and build and driver experience. Also what they offer is quite competitive.
>> Going forward, we put all that together, there is the competitive threat from the Chinese EV market, was going to happen on the tariff front, the slowing demand here, if an investor is looking at the EV space and trying to form a thesis, I don't see a clear path right now.
>> It is definitely a bit murky here but what I would say is that I don't think this EV, I don't think EVs are simply a trend. There is a similar change happening in the industry so it's always can be hard to project anything for one year or two years but with a long-term view, I think the outlook is still pretty positive.
There are going to be bumps along the road, people go out of business or things will happen but ultimately, I do you think that we get to a point and it might not be as soon as what people think, it might not be the 10 to 15 year targets that are if there right now home but more than 20 years, but I think that electric vehicles will become the most dominant form of cars or automobiles.
>> That was David Mau, VP and Dir. for portfolio research at TD asset management.
As always, make sure you do your own research before making any investment decisions.
Coming up on Monday show in the wake of that spike in volatility we sell recently, we will be joined by Emin Baghramyan, VP and Dir. for quantitative equity at TD Asset Management. You can get a head start with your questions.
Just email MoneyTalkLive@TD.com.
That's all the time we have for the show today. On behalf of everyone in front of the camera and those behind the scenes to bring you the show on a daily basis, thank you for watching and we will see you next week.
[theme music]
Coming up on today's show, Susan Prince is going to join us. We are going to wrap up the trading weekend take a look back at last summer at this time, take a look at the evolution of inflation and interest rates.
Pretty interesting stuff. We'll get to that in a moment. We'll also discuss why not all parts of the real estate market will benefit from lower rate. Colin Lynch will wait on that and Andres Rincon will take us through the fund flows in the ETF space amid the recent spike in volatility.
Plus in today's low broker education segment, Caitlin Cormier is going to walk us through how fractional shares work and how you can use them on the platform.
Before we get to all of that, let's get you an update on the markets. We will start from Bay Street. We have had some nice gains on both sides of the border today but we are pretty much just flat.
Six points to the upside on the TSX Composite Index, good for three tics.
You can see that dip about two weeks ago when we had that big selloff, the TSX seems to be right back where we started, a round-trip in a short period of time.
I want to take a look at some of the big names on the move today. Barrick Gold, what was up to? I chose this one because it was to the upside. Sometimes you forget your process. Barrick is up 2.6%. Want to check in on Cenovus. The price of West Texas intermediate crude has pulled back today, but it's been a choppy trade in crude recently. We have Cenovus down about 1.2% on lower crude prices. South of the border, big gains for the S&P 500 and the NASDAQ this week. At 5545, we are in the green and you can see that swoop of just two weeks ago and haven't recovered all of the ground that was lost but still making some pretty impressive gains.
The NASDAQ with the same story as well, not much happening today. You are down 1/3 of one point, basically flat.
Pretty impressive move off of the recent lows.
Applied Materials, going to tell you a little bit more later in the show, they came out with their earnings, it seems like the sales forecast is underwhelming.
You got applied it down to .6%. And that's your market update.
Of course, we talk about market moves on a daily basis here on the show. Sometimes we forget to pull back the lens, take a look at perhaps so far we have come on some of the fights that have been fought out there, including inflation, borrowing costs. Susan Prince joins us now. You are pointing out to me this morning that it was a year ago to the day that we were discussing these matters and you found some interesting comparisons.
>> I found my notes from our conversation last year and thought why not take a look at what happened?
You been talking a lot about the volatility, we look at day by day what's happening in the market. I took a look at my notes from last year and what we focused on was the U.S. Treasury tenure number rate indicator about what people's sentiments are about inflation and a year ago, the US 10 year yield was about 4 1/4%. Today, it is 3.9%, so it's down about 35 basis points. A bit of a move.
If high yields are an indicator that market traders want to be compensated for inflation risk, the fact that it's lower suggests that they are a little bit more comfortable with the direction of inflation. So that's interesting.
I 35 basis point move, that's meaningful but not holy Hannah.
Then you look at the year and the 52 week high for the yield was about 100 basis points higher than it is now.
>> Last fall was pretty consequential when you think about the trade and yields and what it did to equity markets.
>> Was pretty close to 5% and it had people very nervous. It had me thinking about the kinds of things you talk about.
Certainly with MoneyTalk wealth magazine, looking at the long term, looking through the ups and the downs of the market. In fact, if you had purchased S&P and next this time a year ago when we were talking about the inflation concerns and that sort of thing, you'd be up about 26% year to date. If you are looking at the TSX, you'd be up about 16%. That notion of make a decision but then commit to it and don't get worried about the bad weather days.
>> I always liked that saying: time in the markets beats trying to time the markets.
>> Absolutely.
>> If anybody was smart enough, not me, to know the exact entry and exit points, it would be easy, but clearly it's not easy.
The last couple of weeks have been interesting to. We think about sometimes in the summer, volumes are thin, you get some sort of event, this time it was recession fears in the states based on that jobs are for, they added jobs just not as many as they wanted, sometimes it takes at least in my experience a few days to shake things out. That was a very quick sort of selloff and a very quick rebound.
>> Yeah, and it is interesting because you are seeing more at play then institutions coming in and out of the market. We have so many ETFs and so many mutual funds.
There's a gearing that happens where moves are bigger and faster because there are formulas that are set up's, the algorithmic formulas, if this happens in this happens, we will do this, if this happens in this happens, we will do that.
If you take it back to some of the things, we look at it a year ago and look at the numbers, the US inflation numbers, we know that central banks like to see inflation at about 2% year-over-year. We know that the conversations have been that central bankers will look at cutting rates as they get closer to 3% or 2% and see it in that direction. A year ago, US inflation was 3.2%. We are now looking at a tiny bit below 3%. Clearly, the right direction.
It's a month earlier. Everyone likes to compare US and Canadian at the same time.
Data is different. We are looking at different time frames. But even looking at those, Canadian inflation for June was 2.7% compared to a year ago of basically 3.3%. If you want to look at the big picture stuff, it's moving in the right direction.
So then, what people look at in the markets is what can tell us that can get us ahead of any decisions? Every year in August, the Kansas City Federal Reserve has a symposium and the symposium is Jackson Hole. They don't often refer to it as the Kansas City Federal Reserve symposium, but Jackson Hole is a time where the chairman of the Federal Reserve usually gives a talk and usually gives some sense of what the direction is and that something people will be paying attention to next week.
>> Anytime we can hear from Jerome Powell and what may or may not be on his mind is pretty substantial. We will have that, it knew inflation numbers out of Canada and retail sales. It's going to be a busy one.
I consider this little period of this week was the summer lull. It wasn't much of a lull this summer.
>> An up week on what has been a down month but a little bit quiet.
>> Will be a lot busier next week. Thanks for that, Susan.
Susan Prince from MoneyTalk.
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.
We have shares of Applied Materials losing some ground today. The semiconductor equipment maker did beat on the top and bottom lines for the most recent quarter but it appears investors are more concerned with the sales forecast.
Applied supplies the likes of Taiwan Semiconductor, Intel and investors may been expecting a stronger revenue outlook given the boom in AI. Applied Materials is down 2.5%.
Checking in on shares of H&R Block, we don't look at them much on the show but they are in the spotlight today, getting a pretty big boost, up 16.5%. What's going on?
This is the tax services company. They beat expectations in their latest quarter, forecasting stronger than expected full-year results and they also announced a dividend hike and it's bringing out a $1.5 billion share buyback program. The street liked the sound of all of that.
E-commerce company JD.com recording a sales before its most recent quarter. This is China's largest online retailer which attracted customers the platform with price cuts.
JD.com's New York listing is up more than 5%. Quick check on the markets, on Bay Street and Wall Street.
We covered a lot of ground from last week selloff in recent sessions and today it's a bit calmer. Six point to the upside for the two home, good for three tics. The S&P 500, not a lot happening there today either. Three tics as well, 1.5 points to the upside. But it's been a good week overall for the S&P 500, the NASDAQ and the TSX.
The prospect of lower borrowing costs has been putting the spotlight on some sectors which may have been out of favour, including real estate.
Colin Lynch, managing Dir. and head of alternative investments at TD asset management joining earlier to discuss the potential opportunity.
>> Prospect of potential cuts in the states, Kitir in Canada and in other geographies around the world eases the pressure off of real estate just a bit. We haven't seen it fully filtered through because generally put, these things take time to filter through but a couple of big things to look at. Number one, if you are an investor and you got an opportunity to invest in many different things, what is the bar for competition for real estate?
That bar for competition is a dividend yield off of equities and potential for upside, it's the yield off of fixed income, so those yields off of fixed income have been elevated because you can effectively invest in what was perceived to be lower risk assets but to get a pretty attractive yield. Now, as those yields come down, the equivalent, which is in real estate cap rates, which is effectively at your net operating income divided by your value, those have been going up as income has been going up and values have come down.
So what's happening today?
As those costs, as those bond yields come down, as Rates go up, real estate becomes incrementally more attractive. That's the big point 1.
The second big point, debt is used a lot in the real estate world. Not just income producing assets where people may choose to own debt in addition to an equity position. You also have things like development or value add where you are doing retrofitting, renovations, etc.
that is used sometimes extensively in those activities. So the cost of debt is coming down and frequently that debt is variable-rate debt. As that cost comes down, the attractiveness of doing some of those activities increases.
So we are at the start of this journey because for instance in Canada, we have had to rate cuts and relative to historic highs, we are pretty much near those historic highs still, so I'm not going to the whole world has changed but what I would say is there is a dose of greater optimism today than there was just 1/4 ago.
>> There are the macro conditions and what we are seeing out there in terms of the bigger landscape. We know we can break down real estate in so many different ways. I think the first row we are going to break it down is by geography, the US versus Europe versus Canada.
>> In Europe, we saw certain countries move ahead of the rest of the world. Two years ago, if we go back a couple prime ministers in the UK to Liz Truss… >> We don't have to go back that far, do we?
>> That's true. It was interesting. A lot was going on. One of those things had to do with the budget and the impact of the budget and what that did was impact the pound but it also impacted borrowing costs in the UK. So that plus a proclivity of appraisers in the UK to adjust real estate values meant that the real estate market declined faster than the rest of the world. That was a very interesting test case for the rest of the world, not just in terms of what the rest of the world has seen and declines but what is the magnitude of those declines. We have seen about 20 to 25% in terms of income producing properties, in terms of declining values in the UK. That has happened. The market I would say has effectively reached the bottom and we are seeing a bit of optimism on the other end.
Why? Because we see more buyers in the market from around the world looking at properties that are attractively valued go back to a Rate perspective, from a Great point of view. So UK, the Nordics.
Very interesting.
Moving through that bottom and inflecting.
Other areas, such as German offices, not so much. Come to the US, we have also seen significant value adjustments in the last year that have followed what we saw in the UK and Nordics. We now believe we are reaching a point of potential attractiveness as well in the US. We have seen a decline around that 20% range, weighted average across all the property types. Canada has followed the US. We have been a little bit slower than the US but again, here, we are beginning to approach some of those values that we are seeing in the US. But in Canada, the fundamentals are a little bit more attractive. We have less retail per capita than the US, less industrial per capita than the US and we have a housing shortage here. The fundamentals are a bit stronger in Canada than the US. The last place of interest is Asia-Pacific. The dynamics are little bit different. In Japan, we saw a rate hike.
There still is, we look at bond yields relative to cap rates and is Rates are above bond yields, it's positive. There still is a positive spread in Japan but that has narrowed because of Bank of Japan moves. So we're watching that and then lastly in Australia, Australia has followed Canada. If you look at the order, the UK, Nordics first, and then other parts of Europe such as Germany, in particular offices, the US, Canada, then Australia.
>> Now in the geographic breakdown, you mentioned another way to think about the real estate, residential, commercial, etc.
How do you start seeing those different sectors in the context of lower borrowing costs?
>> Very good question.
Different impacts across the sectors. In areas where there is the most supply demand pressure, meaning limited supply and a lot of demand, i.e. housing, we have seen movement in cap rates but that movement has not been as pronounced as other areas. Conversely, if the borrowing costs go down and debt tends to be relatively extensively in the residential space, so think new construction, developers tend to lose a lot of leverage, or even income producing properties, people tend to lose a lot of leverage.
Therefore the cost of debt is coming down, there is a more material impact on the residential space relative to other spaces. Plus significant demand. And yes, there has been supply incrementally in certain places but overall, still, not just in Canada but in the US, the UK, Australia, etc., relatively insufficient supply relative to demand.
Pretty big positive in the residential rental condominium development space. In the industrial space, relatively positive in Canada. In the US, you see a lot of supply and that is of some concern in certain parts of the US. In the UK, relatively positive because supply is constrained and did over parts of the Nordics. So in the UK, Nordics, parts of Europe like France and Germany and Canada, parts of Australia, generally quite positive. At retail, essential retail, very positive. Why? Demand is very high.
We all know, we've been paying a lot for our essential goods, think grocery, pharmacy, those prices have been high.
The cost of debt has come down.
That means the ability for buyers to buy into the spaces increases demand for those spaces, increases prices over time. That's a relatively positive space. Then you have shopping malls which have been stressed, think enclosed shopping centres, in the last 10 years. If they have survived the last 10 years, generally put, their business models are generally strong. I say generally. There are some exceptions.
And the key point is, what is the potential for the shopping centre is to develop residential? And if there is potential, go back to what I said about residential.
Lastly, office.
Lower rates is not the cure-all for the office challenges. The cure-all for the office challenges are the propensity of people to actually physically be located… >> Go back to the office.
>> Exactly.
And if that office is, well located, high quality, close to transit and attractive, then people will be more likely to actually want to be in those offices and the tenants, therefore, the companies that are in those spaces, will be more likely to want to pay good rents. And if it's not that, then guess what?
The lower rates is not, in my view, going to be a cure-all for a challenged office.
>> That was Colin Lynch, managing director and head of alternative investments at TD Asset Management.
Now, look at our educational segment of the day.
TD Direct Investing has recently launched fractional share trading on the platform.
He did tell us how it works is killing me, senior client education instructor with TD Direct Investing. Always great to see you.
Walk as to why an investor might want to use fractional shares.
>> Yeah, absolutely! Definitely exciting news for us here at TD Direct Investing.
We are excited to launch fractional shares just to get flex ability to investors when it comes to getting their money in the market.
There are a few different things in a few different reasons why investors might want to think about using fractional shares.
One of the things is that you get to invest more of your money right away.
When you think about buying a stock, typically you're buying the whole share.
If it costs, if you have say $1000 you are looking to invest in the total of the shares comes to 910, that's all you get to invest, you have to keep the extra $90 in the account and wait until you have enough money to invest that.
So fractional shares is going to allow you to take the majority of that money and have only a little bit left over and get your money working for you right away.
Maybe there's a company you are looking at investing in that you want to have a piece of, you want to get in on the action but you don't have enough money to buy a whole share. There are some stocks out there that are a couple thousand dollars.
Maybe you want to at least own some of that company but you don't have enough for a full share or for more than one share, for example. So you can go ahead and just purchase a fraction of the share and not even have a full piece of that share.
It's a way to get in on the action without having the full amount.
In cases like that, if you are looking to buy a fraction of a share, it's a reduced cost for trading. It will cost you $1.99 if you are purchasing anything less than one full share. Anything under one share is gonna cost you $1.99. Anything over, one chair and above, it's gonna be the $9.99 transaction fee. There is no additional cost, it's the same trading price but you're getting a fraction on top of that.
So that's a couple of the things to consider. I want to quickly hop onto web broker and show you one of the things to you because not every single share is going to be eligible for fractional shares. What we are going to do to find out which shares are eligible is we are going to click on trading here at the top of web broker and were gonna come under buy and sell.
We are going to click fractional stocks and ETFs. ETFs can also be fractional.
It's not the shares.
You can see there is a listing here for all the different companies that are eligible. There are 140 pages, quite a lot to go through. There are a lot of shares that are eligible.
For example, if you are looking for a specific company, you can go ahead and type the name and and it will pop up here and you can see whether they are eligible for fractional or not. Pretty straightforward process to find that out.
That's some of the reasons why we have fractional shares, why we have introduced them and why it might be a benefit to some investors to look at fractional trading.
>> We have a better understanding of fractional shares, the rationale for using an instrument like that, how to do some research. What about when a client wants to perhaps use the order entry box for fractional shares, what happens then?
>> There are a couple of things that are a bit different in the order entry process now that we have fractional shares so let's go ahead and go through the process of putting an order through and see what the differences. I am already on the screen. I can click on the buy sell button on the top right-hand side of the screen but I'm just gonna go ahead and click buy here since I have a stock up already.
You're going to see this I, chose fractional. That will indicate whether the company is eligible for fractional trading or not.
I'm going to type and one that I know did not show fractional before. In this example, Pinterest is not eligible for fractional trading. This across through the symbol which is how you know it's on eligible.
To go back to the one we were looking at, I click on Apple and it will show me that it is eligible for fractional. I have to use a price type of market. If I choose limit, you will notice that the fractional gets crossed out. It's only market order types that we are able to do fractional trading at this point in time.
I have a choice between either investing a dollar amount or a quantity or number of shares and in this case it showing you US because it's a US stock. For example, I can say I want to invest 10,000 US and will tell me how many shares that will get me and you'll notice that it showing, it's going to be 44.18327 so I can see exactly how many shares I would be able to get with that dollar amount. Previously, we would have to put the number of shares and then do the calculation so it's nice to already have the consolation done for us to take it out of her hand.
And that's really the majority of things that you need to kind of know on the screen here to make sure of. When you go to the process and hit preview order, it's gonna show you what your cost would be. In this case, instead of typing in a dollar amount, if I just said I wanted to buy .75 of Apple, it's gonna show me how much is going to cost me in US and then when I click preview order, it's going to show me my commission and because it's not one full share or more, it's gonna be a 199 to actually process this trade but if I had one full share plus a fraction, it's gonna be the standard commission of that 999. If I were to come in here and instead switch over to a limit order, it's going to erase everything that I have, I am not able to go through this fractional piece. And the last thing I wanted to mention to you is that we can do fractional shares through our mobile app, you can do it through easy trade as well as advanced dashboard, so it's not just web broker that you can do this trading on, we have encompassed a lot of our different areas of trading to make sure that you can do that trading on whichever platform is best for you.
>> All right. Great stuff as always.
Thanks for that.
>> Thanks so much.
>> Caitlin Cormier, Senior client education instructor at TD Direct Investing. For more educational resources, check out the learning centre on web broker or use this QR code to navigate to TD Direct Investing's YouTube page and once you are there, you will find more informative videos.
It's been an interesting summer in the markets, we saw some sector rotation and a brief but dramatic sell off. What has this meant for fund flows in the ETF sector?
Andres Rincon, managing director and had a VP of sales and strategy at TD Security join me earlier to discuss.
>> What we can clearly see is trend where ETFs are dominating. They continue to be the driving force of flows in the fund industry in Canada and the US. Also to your comment earlier, they are also very much in a risk on environment which is really interesting given all the volatility we are seeing as of late. Just to give you some perspective, in ETF land, we have seen about $33 billion in inflows this year and mutual funds have out flowed $8 billion this year.
This is a trend we have seen since COVID, really. In Canada, COVID was a turning point. In the US, that turning point happened many, many more years before, but we don't really see a way back were mutual funds come actively and consistently bring in more inflows than ETFs. What's really interesting is the mix. See you are seeing inflows and fixed income across both vehicles, mutual funds and ETFs.
We are seeing a lot in equity ETFs and balance ETFs and we believe a lot of that is interest rates.
If interest rates are high, people want to be and yielding products instead of balanced portfolios. Now it's rates going the other way, perhaps resting a bit of a shift into mutual funds on the balanced side but for now, mutual funds are seeing a lot of outflows in the balanced side and the equity side while both vehicles are seeing a lot of inflows across all products in ETFs but also very strong on the fixed income side. So it's very interesting and also really interesting to see is that the ETF side is a little bit lagging when it comes to fixed income compared to mutual funds and there still a lot more money going in there. As we have seen over the last few years, ETFs are starting to dominate.
>> Hume mentioned balanced funds there. As I was going to your report, I'm not sure if I got this right, but people don't seem as interested in balanced funds as they were and are getting into things themselves.
>> Investors are switching out of mutual fund balance funds into balanced funds on the ETF side. So what we call the asset allocation ETFs are very popular here in Canada, they are treated heavily by retail.
They are very popular. But you're right, a lot of investors are choosing to pick their own tools, they are buying the equity ETF, fixed income separately and then building their own portfolio.
>> Covered call ETFs, we have talked about it with you on the show before. You say that spaces can heat up in terms of competition.
>> Not just covered calls. If we step back, we have 40 issuers here in Canada which is a significant number but we have seen a slowdown in new entrants from Canada into the Canadian market. Now, we are seeing a couple of new interesting entrance from the US which has many large issuers that are not necessarily in Canada today.
We have some large ones already here but many of the US issuers are not here. So recently we had filings from two very large asset managers in the US that are coming into Canada, they have already filed, one of them is J.P. Morgan asset management, the largest active manager in the US, or one of the largest, and you also have capital, which is a very big equity and fixed income player in the US too.
Most notably, in the case of J.P. Morgan, they are coming in with two of the most popular product, the two largest cover call products in the world are managed by JP Morgan, JP and JPQ. These two funds basically give you exposure to the broad market, be at the S&P 500 and the NASDAQ, in an active portfolio. These funds are now being brought here to Canada. It's very interesting. What we are seeing now is a lot of new entrants. Equity just filed, another company just launched two, these are the first in Canada that UCL ends. Equity linked notes.
>> Is it a new generation of covered calls?
>> In the US, they are more common. In the US, JP and Jay peak you use those. It favours the US market which is why they are used a lot more in the US. They are now bringing them here to Canada. It's very exciting. There are a lot of new issuers coming to Canada with these products.
>> Maybe viewers watching are going to start doing some research. What's the risk?
>> I think people need to rubber that when you have a covered call fund, there is still downside exposure. They provide some yield back to the investor that can buffer some of your downside exposure but at the end of the day, you're still holding a box of securities that will have some volatility and it's important to understand that. It's also important to understand that you are giving up upside.
There is an opportunity cost when you are selling calls and generating yield.
The investor is making an active decision to move away from gross into yield.
Because they are giving away that growth, you are giving up that opportunity cost, the opportunity cost is there. That's very important to understand when you have ETFs or are investing in that space.
>> Interesting stuff in that space.
Regular viewers of this program are gonna know that Andres also has his own show called Buyside Views where he interviews prominent voices in the finance industry and in his most recent episode, he was joined by Tim Wiggan, the group head of wealth management and insurance at TD Bank Group. They discussed the big trends that he is focused on in wealth.
>> So first off, demographics. I've always been fascinated in studying demographics and the impact it has on capital markets generally.
We have an aging demographic and that's grading a lot of themes. One major one is the move from accumulation to decumulation and I like to think of that as converting your assets and income. You stop working and you are basically using your savings and investment dollars to create an income stream for you. Demographics as well has a part to play with a younger demographic.
They might have a different set of principles as it relates to the financial institution that the issues to deal with.
They may not want to deal with the bank that mom and dad have, so that's a major factor.
>> Interesting points there on how demographics can change the investment landscape. They also discussed how high interest rates have impacted the wealth business.
>> High interest rates can affect things like investment allocation versus savings allocations so with a very high level of interest, it might dissuade swarm one, I think to their detriment, but might dissuade someone from starting their investment journey relative to just having savings which may not be as efficient from a long-term return perspective and a tax perspective. It's obviously part of the package.
>> Lots of interesting stuff there, Andres, and I know that was just too little threads of a really fascinating interview that I had a chance to check out as well. What else could you take from that chat?
>> The first thing that stood out was how interconnected all of the businesses are that Tim works on and it's very important to leverage all of the businesses to service the end clients in the end clients can be anyone from retail to family offices. He also talked about insurance which is a very interesting area right now with a lot of natural disasters happening in different areas.
That was fascinating for me to listen to you. There is also the growth of wealth and how it being diversified globally and changing quite rapidly so Tim and I go back a long way. We both worked on the trading floor for quite some time.
>> He has a history at TD Securities.
>> He worked one row away from me for many years. He was an equity sales a long time ago and then he did many roles in banking and capital markets. He has a wealth of experience and I do encourage your DI audience to log into the TD Securities website, listen to the video and they can also listen to it on spot if I and Apple podcasts. It's really fascinating what he has to say about the wealth industry.
>> That was Andres Rincon, managing Dir.
and head of ETF sales and strategy at TD Securities.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This is the heat map function, and a few of the market movers. We will start with the TSX 60. A lot happening on the top line number today but we have made impressive gains for the week. There are still some standout names, whether it's a Barrick Gold or Neagle Eagle making gains in the materials basket.
It sort of a mixed picture out there as the headline is basically flat. South of the border, we are starting to pick up a little bit. The S&P 500 is up slightly. We are seeing upside momentum. The Dow is moving higher in the NASDAQ as well. What is going on? The S&P 100, it will give us a clearer look, you got Nvidia up almost a percent, and he is up, Cisco, a big tech name, is up more than 2%. You got some strength on the board from their and also the financials, they're not taking up a lot of real estate but J.P. Morgan, Bank of America, Wells Fargo, all up between 1/2 and a full percent.
That's what's happening in the afternoon session of Wall Street.
It's been a challenging year for the electric vehicle market, some major automakers are pulling back on their investment in the space due to slowing demand. The question becomes, is this a speedbump or longer-term trend? David Mau, VP and Dir. for portfolio research at TD Asset Management joined me earlier to discuss.
>> For the overall market, EV demand has certainly come down a little bit. We are seeing a slowing. Like you said, it started probably midway, halfway through last year and it has continued into this year and we are talking about the US and Canada. It doesn't mean that sales growth is actually negative, it's just that the pace of sales growth has slowed significantly. A lot of people think that-- or maybe people are hoping that this is just a temporary blip and we will recover back to you a positive long-term trend.
As to exactly what's going on in the industry, it just seems that the market is a bit saturated now and demand from people who are not first adopters has definitely slowed people. Among be players, Tesla's always up there when you mention big players, Tesla is actually experiencing declining sales this year, something that they haven't really seen.
Another big competitor out there is BYD, a Chinese company.
I would say they are probably Tesla's closest competitor. They mostly sell their cars in China and other parts of Asia but BYD actually haven't seen a decline in sales. But again, that's a function of their geography, where their biggest market is, because in Asia and particularly in China, demand hasn't slowed as much as it has here in North America. The other thing is BYD actually sells hybrid vehicles as well which Tesla doesn't so that's been supportive for BYD as we know demand for hybrids has been very strong in the last couple of years.
>> You mentioned Hazlett, they are all in on electric. You saw Ford, GM, other big automakers said we are not going to let Tesla have all the fun in this market.
They came out with their own EVs but I look back over the last year and there were announcement saying we have not abandoned the EV strategy but we are pulling back a little bit and we are going to focus on a mix, whether it's hybrids or whether there is still demand for the internal combustion engine. Interesting was happening with North American players.
Not necessarily stopping everything but saying maybe we need a different mix.
>> That's definitely true.
I think all of the names you mentioned, they are seeing the market change right before them and what they are trying to do is maintain the most likability that they can't so flex ability meaning in terms of production so like you said if EVs slow even more from here, they will probably cut more in EVs and increase or hybrid production instead of cutting back on internal combustion engines as much, they might slow that and continue to produce those gasoline cars.
>> These are the big automakers, obviously, but we know, you're at home, Southwestern Ontario, but through a large part of the state, there are a lot of suppliers to the big names. There so many we don't even know the names.
Surely they must be starting to feel this in terms of what these big companies want from them.
>> That's absolutely true. There is some disruption going on throughout the EV supply chain.
An example here, in Ontario, is there is a European battery materials company called Uni core. They were in the middle of building and EV battery plant out by Kingston so really not too far from here.
They have seen the change in the market and they have recently decided, you know what? We are going to pause on building at this plant because the industry is simply not growing as fast as they thought it would. Keep in mind, this plant is going to cost almost $3 billion and once it was up and running was going to provide about 600 jobs in the Kingston area so that's pretty impactful. Another Canadian example is Magna. It Magna is a Canadian auto parts supplier. They also assemble cars for OEMs.
They had a partnership with an EV startup, Fisker automotive, which is a US EV company.
Fisker recently announced I think it was in June, they filed for bankruptcy. So this is going to have an impact on Magna and Magnus future sales and the prophets.
Not only that, with Fisker going into bankruptcy and that partnership or relationship ending, Magna is going to cut about 500 jobs. These are just two examples here that are close to home but there are numerous other examples out there of companies either cutting back existing production capacity or delaying spending plans. It is starting to have a very real impact on the economy in terms of jobs and capital spending.
>> I want to get back to the China story.
You mentioned BYD. There are some others.
They've mostly been telling to the Chinese market and other Asian markets. This seems to be concern over the last several months among some of the major automakers on the shores that those cars would start coming over here.
>> Yeah, that's a very real concern.
The way the companies in Europe and North America responded is by announcing their intentions to slap tariffs on imported Chinese electric vehicles.
The Biden administration recently said that they will impose a 100% tariff on any Chinese EV coming into America. The European Union is also putting tariffs on Chinese EVs. There tariff rate is a bit lower, I think it's gonna be around 38%.
But still meaningful. And Canada, we will probably follow with the US is doing and impose a 100% tariff on any Chinese electric vehicle coming into the country.
And the reason that these Western governments are looking at these tariffs or are intended to put these tariffs so it is they have felt that the Chinese EV industry has been unfairly subsidized by the Chinese government, giving these Chinese companies kind of an unfair playing field over the domestic companies we have here and in Europe. Their solution to that is basically to double the price of any car that's coming in with the intention that this will make the appeal of Chinese EVs less appealing to consumers. Once this 100% tariff is in place, the selling price of the Chinese EVs will be comparable to the lower end EVs that we have right now in North America and in Europe.
>> That's incredible. You double the price of the Chinese EV coming in and that just gets it to where this market figures the price should be. That tells you the price points that may be coming into this market.
>> To be honest, the electric vehicles coming out of China now are quite good.
That was not the case maybe five years ago but China has made significant, the Chinese automakers have made huge improvements over the last few years in terms of quality and build and driver experience. Also what they offer is quite competitive.
>> Going forward, we put all that together, there is the competitive threat from the Chinese EV market, was going to happen on the tariff front, the slowing demand here, if an investor is looking at the EV space and trying to form a thesis, I don't see a clear path right now.
>> It is definitely a bit murky here but what I would say is that I don't think this EV, I don't think EVs are simply a trend. There is a similar change happening in the industry so it's always can be hard to project anything for one year or two years but with a long-term view, I think the outlook is still pretty positive.
There are going to be bumps along the road, people go out of business or things will happen but ultimately, I do you think that we get to a point and it might not be as soon as what people think, it might not be the 10 to 15 year targets that are if there right now home but more than 20 years, but I think that electric vehicles will become the most dominant form of cars or automobiles.
>> That was David Mau, VP and Dir. for portfolio research at TD asset management.
As always, make sure you do your own research before making any investment decisions.
Coming up on Monday show in the wake of that spike in volatility we sell recently, we will be joined by Emin Baghramyan, VP and Dir. for quantitative equity at TD Asset Management. You can get a head start with your questions.
Just email MoneyTalkLive@TD.com.
That's all the time we have for the show today. On behalf of everyone in front of the camera and those behind the scenes to bring you the show on a daily basis, thank you for watching and we will see you next week.
[theme music]
