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November 2017

Health & Wealth Forum

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On Saturday November 25th 2017, the Tetrault Wealth Advisory Group along with CrossFit Winnipeg hosted their very first of what we hope will be many more events together. It was the first time the brother and sister duo (Rob & Tania) hosted a forum style Q&A with various health experts of the community and we are proud to report a great turnout, with over 50 attendees.

We were particularly excited to be able to team up with some other local businesses to come with a pretty diverse panel of experts, including the following.

Liz Jones / Cranio Sacral Therapist & Owner of Jellyfish Float Spa – Stress & Pain Management Specialist
Dr. Kailey Murphy / Health & Wellness Coach – Goal Setting & Habit Change Specialist
Dr. Christopher Notley / Chiropractor and Athletic Therapist – Specializing in spine and sports injury care
Gary McLeod / Registered Massage Therapist & Nutrition Coach – Movement & Mobility Specialist
Chris Gair / CrossFit Level 1 Trainer – Weight Loss Specialist

We’d like to thank everyone who attended and we’d like to thank our panel of experts for donating their time as well as some swag for our attendees and draw prizes.

From left to right: Rob Tetrault, Chris Gair, Liz Jones, Gary McLeod, Tania Vrga, Kailey Murphy, Christopher Notley

 

Wealth Preservation

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The concept of wealth preservation and the discussions that surround that concept usually happen with my clients either at or approaching retirement. Generally it’s a discussion that also happens concurrently with a risk tolerance analysis, but that doesn’t need to be the case. For example an advisor who’s hearing a young couple saying they want to preserve capital might confuse that with a conservative risk tolerance. Although that may be the case, it’s also quite possible that the client has a significant risk tolerance in the purest form of the discussion equity/fixed income ratio, but still wants to preserve wealth using defensive equity strategies. That client may have a need for higher returns, and a desire to preserve capital, and it may not be necessary, depending on risk tolerance, to move to a fixed income portfolio.  In other words, preservation of wealth and risk tolerance are not the same thing, and most advisors will often interchange the two. Assuming the discussion is actually one of preserving wealth, and not one of reducing risk tolerance, the below factors apply.

The preservation of wealth discussion usually happens at the late stages of saving or in the retirement years for most clients because that’s when they start drawing on their income or are starting to think about it. The easiest way to move to a preservation of wealth strategy is to change the asset allocation in a portfolio and to increase the fixed income component. The problem with that solution is that forces the client to be willing to accept reduced returns, and most people can’t afford that. In reality, in my view, there are better ways to do it without sacrificing returns.

Staying away from speculative stocks and sectors. This is a fairly simple and obvious one, but if investors want to preserve capital, they should stay away from speculative sectors, stocks that aren’t profitable, stocks that are trading a crazy multiples, and stocks that haven’t yet clarified or explained what their revenue model will eventually look like. Many of the pure growth plays in the markets would have these characteristics. If you can’t explain how your company is going to make money, if you aren’t currently making money, or if you don’t have a plan on how to monetize your idea, it’s probably best to stay away if preservation of capital is important. In this case, I would suggest sticking to sectors that have proven long term track records of generating profits and sustained growth, along with a slowly increasing dividend.

Replacing higher Beta equities with lower beta equities. Generally, this would be equivalent to replacing growth equities with dividend paying equities. For example, there’s an index that exists called the TSX Low Volatility index, and it targets the 50 stocks in Canada that have the lowest volatility. Not only has it historically done as good or better than the larger TSX index, but it has done it with less volatility. In theory, the way it protects wealth is that if ever there’s a market correction, the stocks should drop less than the broader index.

Adding Real assets to the portfolio. Specifically, REITs and Infrastructure are two sectors that I’ve liked for a long time. Real assets typically don’t correct as much in downturns, and provide consistent tax efficient income. If you actually take a step back and think about what you actually own when investing in these types of companies, you own actual buildings or infrastructure projects with proven long term cash flows. I always ask myself, in 20 years, what will my asset look like, and generally when considering these types of investments, they look good and have a strong likelihood of having kept its value.

Using alternatives such as Equity Linked GICs. This would be for a client who wants to have equity exposure while having the comfort of the guarantee associated with GICs. Clients can participate in the upside of the markets while having 100% of their principle protected. An easy way to preserve capital is to have the entire amount protected, and this allows for that.

Using a consistent rebalancing strategy. This is another oldie but goodie, and a simple way to protect capital. Every time the market rallies and your asset allocation get out of whack, by rebalancing, you take some profits off the table, reduce your exposure to markets, and protect yourself in the event of a market correction.


National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada. The National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX). The particulars contained herein were obtained from sources we believe to be reliable, but are not guaranteed by us and may be incomplete. The opinions expressed herein do not necessarily reflect those of National Bank Financial.

Transcription: Rob gives his insight on the marijuana market

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Paul Bagnell with guest host Rob Tétrault

Click here to view video

Paul:  We are back with my guest host Rob Tétrault. He’s a Portfolio Manager at National Bank Financial. He’s based in Winnipeg, but we’re lucky enough to have him right here in Toronto today. You told me during break that you get all kinds of phone calls from clients who want in to the marijuana stocks. I guess they’re asking you which ones are the winners. What do you tell them?

Rob: It’s kind of a phenomenon right now. We’re getting a whole bunch of phone calls. In Winnipeg where I am a proud Manitoban and proud to be from, Delta 9 this week, a CEO John Arbuthnot…actually John, great guy, he used to work for me and got into the business as a cold caller, now he is a CEO of an IPO listed company, $60 million company on the TSX Venture. That fueled some news in Manitoba. So, people are picking up their phone, they’re saying, “Wow, I want to be part of this. I want to be part of this.” People think you know, “If I had got on to Tech early how much money would I have made?”

Paul: Yeah.

Rob: So, a lot of people that don’t necessarily understand what he sector looks like and how it works, but I’m getting a ton of phone calls and you’re right, they’re asking me which ones to buy.

Paul: What is your response? You see risk here.

Rob: I do see risk. I think it’ll happen. I think there’s going to be retail recreational marijuana. It’s going to be sold. I do think that the provinces are going to control distribution. I think it’s the only way it can work. I think in Manitoba, my view is, we’re going to see Manitoba liquor and lotteries. You know, in Ontario it’s going to be the liquor distribution.

Paul: It is.

Rob: And I think the other provinces will follow suit. Maybe Alberta and Quebec won’t, maybe they’ll do private. But regardless, now at the end of the day you’re simply a farmer. You’re simply growing these plants to bring them to someone to sell. So, we know how big that market is. Much like the liquor market in Canada, you know, the gentlemen at the Seaport Motor Hotel in Churchill, Manitoba can only drink so many beers and the individual who’s, you know, smoking his marijuana is only going to smoke the same amount of marijuana he smoked last year. So, if you’re making that assumption, the Market Cap, if we’re spending $200 a year on marijuana, the Market Cap, the total Market Cap in Canada for recreational marijuana, should be a six to ten billion dollar valuation somewhere in there. If we look at the top, call it five stocks on the TSX, Canopy is at 3 billion, Aphria is at 1…I want to 4 or 5, and Aurora is at another 1.3. Just those three companies are already at that Market Cap.

Paul: So the sector you’re saying is overvalued?

Rob: I am saying the sector is overvalued as a whole. Now something needs to work itself out. Maybe Canopy will be the best player in there, maybe it will be Aurora. The thing is we don’t know the rules of the game yet. We don’t even know what the rules are going to be and yet people are already assuming that they are going to have all those profits. They are not even producing this marijuana yet. So, that’s a concern of mine.

Paul: There is a marijuana ETF. It’s called, The Horizons Marijuana Life Sciences IDX ETF ticket symbol HMMJ on Toronto. Is that a better way to play it if people insist on getting into this? Would you guide them towards an ETF rather than trying to pick individual stocks?

Rob: Yeah, because we don’t know the management right now. Whenever you’re looking at a company, it’s always important to look at the management, the track record, what the leverage is, how they’re doing, and what their vision is for the company. We have very little indication as to how they’re going to play it, the large players. These were very, very small companies that became large very quick. Canopy is a three billion dollar company. So, the ETF, you get everything. You get the small ones, you get the big ones, if you want to play the sector that’s what it’s going to be, but in my view, in five years when this whole thing is setup the whole sector will be worth 10 billion. That’s my view. So, if you’re buying Canopy or one of those, you’re either of the view that they will outperform their competitors, or maybe you’re of the view that Canadians will start smoking more marijuana, I don’t know, that’s possible, or you’re of the view that these companies will get a higher valuation than for example, the liquor equivalent. So, one of those things could happen, but if you’re doing that, that’s what you’re expecting.

Paul: That’s Rob Tétrault on the marijuana stocks and the risk he sees there.       

CTV: Future Outlook of Marijuana Market in Canada

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Rob was interviewed by CTV on Wednesday November 1st 2017. He spoke about his take on the marijuana sector and the future outlook of this market in Canada.

Transcript

Rob: It’s a new industry, so people think, “Oh, imagine if I were to have got in on the tech industry at the start.

National Bank Financial Portfolio Manager, Rob Tetrault says, Investors are keen to get in on cannabis. He says, with several new companies trading publicly, people looking to invest should proceed with caution.

Rob: These companies, you’ve got to look at how much capacity they have. Are they actually licensed already? Do they have distribution? Are they going to be able to produce? Are they going to be able to expand? Well, at the end of the day, Canadians can only smoke so much marijuana.