The Bank of Canada normally steers clear of commenting on the stock market. So when it does, we need to pay attention. That happened recently with the publication of the Bank’s semi-annual Financial System Review. The report identified three vulnerabilities in our economy. Two have already received a lot of attention: our high levels of household debt and imbalances in the housing market, especially in Vancouver and Toronto. The third one was new, and here’s why we should pay attention.
* Market wrap: Markets on edge over Greece, Fed outlook
* NEI adjusts fund’s risk rating.
* Aston Hill proposes fund reorganization.
Stock markets ended the week on a downbeat in Friday’s trading, as the Greek/European Union debt crisis remained unresolved ahead of a June 30 debt-repayment deadline, while senior Federal Reserve Board governor Jerome Powell opined earlier in the week that conditions may be ripe for not one, but two, rate hikes by the end of this year. The S&P/TSX Composite Index lost ground in the latter part of the week as crude oil prices fell on concerns that a U.S. deal with Iran could set the stage for even more oil to flood the market, but still managed to eke out a 1.1% advance on the week overall. The S&P 500 Composite Index posted a marginal loss on the week, while the Nasdaq Composite Index dropped 0.7%, led by a decline in semiconductor stocks.
Q – We’ve owned a cottage for about 30 years. Our kids have all grown up and moved away, and aren’t interested in maintaining the cottage. And as we grow older, neither are we. So this year, we are seriously considering selling it. We’ve heard that we might have to pay capital gains tax on the cottage when we sell. But we’re not quite sure how this would work or how much we’re likely to pay. Is there some way of working this out in advance? – Rick L., Winnipeg, Manitoba
In this low yield environment, investors are increasingly reaching for yield, some turning to exchange-traded funds (ETFs) to over-weight corporate bonds, substitute dividend-paying stocks for bonds, or execute a duration tilt.
PowerShares Canadian Dividend Index Fund is one of the first fund-of-fund mutual funds whose holdings consist solely of exchange-traded funds. This fund invests in its sister ETF,PowerShares Canadian Dividend Index ETF (TSX: PDC), which invests in the 45 largest Canadian listed companies that have had stable or increasing dividends for at least the past five years. The fund provides low-cost exposure to higher-yielding Canadian equities and has outperformed the benchmark S&P/TSX Composite Index. While I like the fund for its performance, I don’t see it as a core portfolio holding. Here’s why.