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Alternative Yield Strategies

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Sweetheart Opportunities do exist in February

February 15, 2017
Craig Burrows

For those who attended or watched by video the 2017 World Outlook Conference, I’m sure many of you could feel the mood at the event was one of opportunity. I was impressed with many of the keynote speakers and much of the conversation about what 2017 has in store for investors. One thing I learned at this year’s event, there are advisors at this event that are outperforming the market year after year and they are not with the big banks or mutual funds.

In January of 2016, it looked like we were in a bear market but the end of the year Canada was one of the best performing markets in the western world. If someone would have told me last year that 2016 was going to be one of the strongest TSX markets in years; well, I’d have to say you’d be smoking something that will soon be legal in Canada.

One year doesn’t make a trend. Canadian markets have performed (20%) in 2016 but one has to caution about the performance over the last 30 years. If you look at the TSX over the last 30 years, it’s averaged just under 7% per year. If you were in mutual funds or had an advisor, you probably have to deduct another 1% – 2% for fees leaving you with net returns in the 5% range. If you use the 72 factor to double your money, that would mean your money doubled approximately every 14 years. That would mean a $10,000 investment back in 1988 is worth just over $40,000. You can quickly see that if you received 8% per year over the last 30 years, your $10,000 would have doubled every 9 years meaning it would be worth today over $80,000. Based on this simple math, you can see how steady long term yield can be to a healthy investment portfolio. It’s amazing what a couple of percentage points can do to the bottom line; hence the move to ETFs from mutual funds.

There has been a growing trend with pension and institutional investors to look for alternative yield strategies that can outperform stock indexes over time. At one time, one could argue that private equity represented the “growth” part of the portfolio but today, you’re seeing private equity becoming a part of the “yield” portion of diversified portfolios.

Are there sweetheart deals in February if you want to concentrate on yield? The answer is yes. Although the market was up 20% in Canada last year, how many feel that it will grow another 20% this year or could it fall another 20% this year? If you look at current market valuations based on earnings (approx. 18x multiple), 2017 will only remain strong through profits and growth as the markets are over valued according to many prognosticators. The challenge for 2017 will continue to be politics and not economics that will affect the markets around the world. 2017 is the year of key countries in Europe vote on staying in the EU. If the EU falls apart, money will go naturally into the US markets for flight to safety. The challenge with the US market is inflationary pressures will grow with labour shortages and major infrastructure buildouts. This will increase interest rates and inflation and as the US dollar rises, it reduces exports meaning job losses in the US.

If you prefer a little less turbulence and volatility, you may want to consider investing a little into private and alternative investments that can provide targeted yields in the 8% or better. As always, find a registered advisor that has a licence to advise on adding alternative and private equity investments to your portfolio.

Respectfully,
Craig
Craig S Burrows ICD.D
President & CEO, CCO

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