In its regular feature ‘What to do this month’, the Money Reporter recently took a look at common stocks and mutual funds.
What to do about common stocks
This month, leave the US out of your search for new investments.
The outlook for the global economy has improved in recent months. But one market in particular seems to have priced in all the good news and now trades at a high valuation. We’re talking about the US market, of course. The rest of the world’s markets currently trade at substantial discounts to the US market. That includes the Canadian market whose discount to the US is historically wide, even though it’s arguable that Canadian stocks, as a whole, are not cheap.
For our part, however, we continue to see value in the Canadian market. We think all of the Canadian bank stocks remain attractive buys, trading as they do at discounts to their historical multiples.
Among insurance company stocks, Manulife Financial’s stock seems to be on an uptrend. But it still trades at just 7.8 times its 2020 earnings estimate. We view it as a strong buy.
Power Corp. is also into insurance as well as other areas such as mutual funds. We find its 4.8-per-cent dividend yield attractive for income.
What to do about mutual funds
At the Money Reporter, we rely on mutual funds especially for exposure to the US and international markets.
The US economy looks like it won’t slow down as much as was anticipated last year. But the S&P 500 index has factored in a more favourable outlook and currently trades at a high 19.3 times estimated earnings for 2020. This high multiple also reflects lower interest rates.
Since US stocks, as a whole, trade at a substantial premium to equities elsewhere, you may want to focus new purchases more on international markets than on the US. Keep in mind, though, some exposure to both is warranted at all times for diversification purposes.
Mawer International Equity is a mutual fund suited to international exposure. It invests mostly in markets outside the US. More than half the portfolio is currently invested in Europe. But it also has smaller positions in Japan, China and India. The fund has a strong track record in its category.
This is an edited version of an article that was originally published for subscribers in the January 31, 2020, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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Money Reporter •3/23/20 •