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 25 recommended common stocks and 16 recommended mutual equity funds.

What to do about common stocks now

Common_Stocks_and_Mutual_FundsThere’s been very little good news on the common stock front for investors this year. The S&P/TSX Composite Index has declined 6.1 per cent year to date. In March, however, the S&P/TSX has outperformed the S&P 500. The latter should end the month in a deeper hole than the former. The loss of confidence in tech stocks caused by Facebook’s woes has weighed on the tech-heavy S&P 500.

At the beginning of April, markets appeared to be vulnerable to further near-term setbacks. The number one issue weighing on them seemed to be the potential for trade wars to develop in the wake of the Trump administration’s announcement it will impose tariffs on $60-billion worth of Chinese imports. But inflationary concerns could also cause market jitters.

Our advice is to buy gradually, stressing high-quality stocks such as those on our recommended list, and to diversify your portfolio across industry sectors. Our best buys for April are Bank of Nova Scotia, Canadian Tire, Teck, TransCanada and Waste Connections.

What to do about mutual funds now

Overall, we recommend a balanced portfolio contain about 60 per cent of its assets in stocks and the remainder in fixed income and cash. You may wish to place up to 25 per cent of your equity exposure in global stocks. Right now, we like European, emerging and US markets in that order. These are based on stock valuations and the prospects for the various individual markets going forward.

Mutual funds and exchange-traded funds (ETFs) are one way to make the needed allocations, especially for your US and international holdings. At the same time, for your domestic holdings you can buy Canadian equity mutual funds, closed-end funds and ETFs to add exposure in those areas.

On the international front, returns this year show that emerging markets have been the best place to be, even though they’re up just 2.1 per cent. We recommend RBC Emerging Markets Equity Fund for exposure to these markets. European markets, meanwhile, are still playing catch-up with the US. Here we recommend Trimark Europlus.

This is an edited version of an article that was originally published for subscribers in the April 6, 2018, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846