Vice President & Portfolio Manager at Dynamic Funds, Jason Gibbs, tells us about his ‘investment stew’ and why the average mutual funds investor doesn’t get close to the market
The current low interest rate, low inflation landscape is being caused by a number of long-term factors, which are forcing financial advisors to adapt. Debt to GDP ratio is at an all-time high; more people are not willing to take on risk and are putting their money into savings; and technology is causing a lot of jobs to be made obsolete, which makes things cheaper for consumers and causes inflation and interest rates to remain low.
So, what should investors do? “We have to accept that fixed income is overvalued, it’s fairly obvious,” says Jason Gibbs, Vice President & Portfolio Manager at Dynamic Funds. “When you have inflation at 1 – 2 % in Canada, and the highest marginal tax rate in Ontario is 54%, I don’t know how we can say cash and bonds are good long-term investments… although I’m not saying you don’t need cash and bonds altogether. That leaves you with dividend stocks – and it’s still a good time for those.”
Gibbs also believes that investors will need to turn their return expectations down a notch. “We are in the later stages of a credit cycle and a bull market, and stock valuations in general are not cheap, but I would call them relatively fair given where inflation and interest rates are,” he says. “Investors who are going to win in the long-term in this environment will be the ones who can handle owning more dividend stocks, and that means dealing with the emotions.”
Although attractive investments are out there, advisors are being forced to search across all sectors and stocks in order to deliver the best possible client service. “There are fresh opportunities every day and you can build yourself a pretty good portfolio out of 40 – 50 stocks generating a 2.5 – 3% dividend yield,” Gibbs says. “That will grow every year and you’ll also get the dividend tax credit.”
With the funds he manages, Gibbs follows a strategy he likes to call the ‘investment stew’. He has representation in all 11 sectors and believes that’s imperative for all investors. “I’m always underweight resources because I think they will be a tough place to be over the next ten years and beyond,” Gibbs says. “We just saw Exxon write down a huge amount of their reserves, a lot of which is in Canada.”
He tends to be overweight in utilities and telecoms stocks, but doesn’t load up. “I think you can safely have more than the market (2 - 3% in utilities and a little more in telecoms),” Gibbs says. “I’ve also got representation in banks, insurance companies, industrials, consumer.”
During his 15 years in the industry, Gibbs has never witnessed investors be more short-term focused than they are today. “The horrendous short-termism that’s going on in the markets doesn’t get reported on enough, and it’s an area that advisors can add so much value,” Gibbs says. “Recent research shows that the average mutual funds investor doesn’t get anywhere close to the market because they’re always buying high and selling low.”
Ultimately, people are trading too much and, as a result, the trading period of stocks has never been so low. “People who try to market-time and trade too much get it wrong,” Gibbs says. “You have to think long-term and block out the noise. If you don’t, people will fail.”
Related stories:
Why a mix of exceptional and technical is essential in a modern portfolio
Why it’s time to guide your clients away from ‘safe’ investments
So, what should investors do? “We have to accept that fixed income is overvalued, it’s fairly obvious,” says Jason Gibbs, Vice President & Portfolio Manager at Dynamic Funds. “When you have inflation at 1 – 2 % in Canada, and the highest marginal tax rate in Ontario is 54%, I don’t know how we can say cash and bonds are good long-term investments… although I’m not saying you don’t need cash and bonds altogether. That leaves you with dividend stocks – and it’s still a good time for those.”
Gibbs also believes that investors will need to turn their return expectations down a notch. “We are in the later stages of a credit cycle and a bull market, and stock valuations in general are not cheap, but I would call them relatively fair given where inflation and interest rates are,” he says. “Investors who are going to win in the long-term in this environment will be the ones who can handle owning more dividend stocks, and that means dealing with the emotions.”
Although attractive investments are out there, advisors are being forced to search across all sectors and stocks in order to deliver the best possible client service. “There are fresh opportunities every day and you can build yourself a pretty good portfolio out of 40 – 50 stocks generating a 2.5 – 3% dividend yield,” Gibbs says. “That will grow every year and you’ll also get the dividend tax credit.”
With the funds he manages, Gibbs follows a strategy he likes to call the ‘investment stew’. He has representation in all 11 sectors and believes that’s imperative for all investors. “I’m always underweight resources because I think they will be a tough place to be over the next ten years and beyond,” Gibbs says. “We just saw Exxon write down a huge amount of their reserves, a lot of which is in Canada.”
He tends to be overweight in utilities and telecoms stocks, but doesn’t load up. “I think you can safely have more than the market (2 - 3% in utilities and a little more in telecoms),” Gibbs says. “I’ve also got representation in banks, insurance companies, industrials, consumer.”
During his 15 years in the industry, Gibbs has never witnessed investors be more short-term focused than they are today. “The horrendous short-termism that’s going on in the markets doesn’t get reported on enough, and it’s an area that advisors can add so much value,” Gibbs says. “Recent research shows that the average mutual funds investor doesn’t get anywhere close to the market because they’re always buying high and selling low.”
Ultimately, people are trading too much and, as a result, the trading period of stocks has never been so low. “People who try to market-time and trade too much get it wrong,” Gibbs says. “You have to think long-term and block out the noise. If you don’t, people will fail.”
Related stories:
Why a mix of exceptional and technical is essential in a modern portfolio
Why it’s time to guide your clients away from ‘safe’ investments
