What to do about common stocks and mutual funds now

Every month the Money Reporter, the newsletter for income-oriented investors, publishes its list of 24 recommended common stocks and 16 recommended mutual equity funds.

What to do about common stocks now

North American stock markets have pulled back from the all-time highs they set in February and early March. Consequently, year-to-date gains look less impressive than they did when we last reported in March. The S&P/TSX, for example, is now up about two per cent on the year.

As we report in more detail elsewhere in this issue, it appears that investors are now beginning to doubt the ability of U.S. President Donald Trump to deliver on his pro-growth agenda after a vote on a Republican health-care bill was recently pulled.

This alone suggests a cautious approach to stock investing might be wise right now. But even with the market pullback, price/earnings ratios, in many cases, remain high. Buy gradually.

Investors who want current high income can still finds stocks with generous yields such as CIBC (TSX—CM), Power Corp. (TSX—POW), BCE Inc. (TSX—BCE), Enbridge (TSX—ENB) and Emera (TSX—EMA).

Investors who want stocks for growth and income might want to consider Loblaw (TSX—L), Royal Bank (TSX—RY) and Waste Connections (TSX—WCN).

What to do about mutual funds now

While the rally in stock markets these past several months has been largely attributed to President Trump and his economic plans, it should also be remembered that global markets have been rallying since about the middle of last year, thanks to an improving world economy.

A stronger global outlook, in turn, has propelled a strong upward move in resource stocks. And, though energy stocks have retreated so far this year, materials stocks have continued to perform strongly. Provided the global economy does indeed continue to improve, it seems likely that energy stocks will eventually catch up to the materials stocks.

This is something to keep in mind when choosing Canadian equity funds. If you want high leverage to resource stocks, you might consider iShares S&P/TSX 60 Index Fund from our list of recommended mutual funds. About a third of its portfolio is invested in resource stocks, and its fees are low too. Among our managed Canadian equity funds, Fidelity True North and Franklin Bissett Canadian Equity have the highest leverage to resource stocks.

This is an edited version of an article that was originally published for subscribers in the April 7, 2017, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

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