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Seeing bright days ahead for stocks and bonds


Financial adviser Ryan Lewenza envisions a soft landing for the North American economy in 2024

While some investors predict doom and gloom for financial markets next year, money manager Ryan Lewenza feels optimistic for stocks and bonds.

“We’re bullish,” says the senior financial adviser and senior portfolio manager, private client group with Turner Investments at Raymond James Ltd. in Toronto, who invests exclusively in exchange-traded funds (ETFs).

Mr. Lewenza is anticipating a “soft landing” for the North American economy in the weeks ahead, alongside a series of interest-rate cuts from central banks.

“The only question is when” those rate cuts will come, says Mr. Lewenza, who oversees about $1.1-billion in assets. “We see the Bank of Canada going first in the spring and then the U.S. Federal Reserve following.”

That bodes well for stocks, he adds, because lower interest rates will help spur business and consumer spending.

“We see corporate profits and PE [ratios] going higher next year,” Mr. Lewenza says, referring to the price-earnings ratio, which is the ratio of a company’s share price to its earnings per share.

He also expects bonds to have a “very good year” in 2024 given they tend to move inversely with yields.

“You’re getting 4- to 6-per-cent coupons right now, depending on what you’re buying. And we could have another 3- to 5-percent capital appreciation of bonds next year as rates come down,” he says.

Mr. Lewenza invests in stocks and bonds as part of his 60-40 portfolio approach. The 60 per cent is equities, while the 40 is broken down into bonds and preferred shares.

Mr. Lewenza says he’ll hold an average of 2 to 3 per cent cash, mostly in high-interest saving account ETFs, but will go higher in certain market conditions. For example, he sold some investments in the spring to increase his cash to about 5 to 7 per cent. He then used the extra cash to buy more equities in the fall, taking advantage of the market upswing.

“We anticipate probably doing that again next year, maybe as we approach the U.S. election, because typically, markets have a soft spot ahead of the election,” he says. “So, there’s a bit of tactical asset allocation in our process.”

Mr. Lewenza’s portfolio has returned 8.3 per cent over the past 12 months. Its three-year annualized return is 3 per cent, “because last year sucked; it was a bad year for balanced funds,” Mr. Lewenza says, while its five-year annualized return is 4.6 per cent. The performance is based on total returns and net of fees as of Dec. 15.

The Globe and Mail spoke with Mr. Lewenza recently about what he’s been buying and selling, including a recent foray into the South Korean market.

Describe your investing style.

We’re asset allocators, not stock pickers. We focus on building balanced and globally diversified 6040 portfolios using only ETFs. We start from the premise that it’s hard to beat the market. Not even Warren Buffett does it consistently. So, we buy the market using low-cost ETFs. We tell our clients that we’re trying to hit singles and doubles versus going for home runs. We don’t promise the world. Instead, we target a consistent return of 6 per cent annually, net of fees.

What is your bond investing approach?

We’ve been investing in short-duration bonds for the past couple of years. Then, about a month ago, we switched to a long-term bond ETF, specifically the BMO Discount Bond Index ETF. We bought it when the benchmark U.S. 10-year Treasury yielded 5 per cent. We thought the yield was too high, and it was time to move to long-term bonds. We’re already up about 9 per cent on that investment. It’s awesome. We also included floating-rate bonds about two years ago and played the ride-up. Those are now yielding about 9 per cent. They’re on our potential ‘sell’ watch for next year. We may cut those floatingrate bonds once central banks start cutting interest rates.

What have you been buying?

In October, we added to our existing position in real estate investment trusts (REITs), specifically the BMO Equal Weights REITs Index ETF. We also added to our investment in the Invesco Canadian Dividend Index ETF, which includes large dividend payers. Both ETFs have been beaten down in recent months, and we believe they will rally once interest rates start to come down.

We also bought the BMO Discount Bond Index ETF as a new position. It includes higher-duration bonds, so as yields come down, they should go up. Also, because it includes discount bonds, you get a coupon and capital appreciation, which is taxed at a lower rate.

What have you been selling?

As we move into higher duration, we exited short-term bonds, specifically the Manulife Smart Short-Term Bond ETF.

We also sold the Fidelity International High Quality ETF Index to take some profits. It was up 15 per cent this year, largely because of its exposure to Japan. The Nikkei had a very good year, so we took advantage of some of that strength.

We also sold the Vanguard FTSE Emerging Markets ETF because we’re bearish on China. We sold it to buy the Franklin FTSE South Korea ETF, which tracks an index of large and mid-size companies in South Korea. That market got crushed last year, and its currency was down. We see a potential for a rebound. South Korea is a highly educated, highly developed manufacturing powerhouse. Its biggest holding is Samsung Electronics Co. Ltd., which I see rebounding with the tech rebound. We’re up about 15 per cent so far this year on that ETF, and I see a lot more upside.

Name an investment you wish you owned.

I wished we owned a straight technology ETF such as The Technology Select Sector SPDR Fund or the Invesco QQQ ETF. How do you regret not having more tech after the year it had?

What advice do you have for new investors?

Don’t get emotional during market drops. They’re a fact of life. Don’t freak out. In fact, add to your investments. If you’re still working, add savings. If you’re retired, increase your equity weighting. Think of it like Boxing Day – it’s a great time to buy stuff on sale. Sure, the market is down, but it always recovers.

This interview has been edited and condensed.





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