Investment blahs will linger: expert

TIRED of getting those monthly statements from your investment adviser showing little or no growth in your portfolio?

Had enough of the constant worries about the eurozone crisis and its potential impact on the world's financial system?

Get used to it. The fundamental problems that are affecting financial markets and creating extreme volatility aren't going away anytime soon, says Serge Pépin, vice-president for investment strategy at BMO Global Asset Management.

"It's been a very tough slog for investors, perhaps less so for institutions than for individuals -- especially those who are close to retirement," he said in an interview Thursday.

"And it will continue to be tough. What we are seeing in Europe is the tip of the iceberg at this point. This is a generational problem" that will take years to resolve.

"The steps they've taken so far are good and positive, but the problem is that the 1999 euro project wasn't fully thought out." A monetary union without a fiscal or political union is just too difficult to function effectively, he argues.

And the average investor is just fatigued by all the talk about Europe's troubles and about the uncertain prospects facing the U.S. or China, Pépin says.

"I can talk until I'm blue in the face about this... at the end of the day, people want to know: 'Can I still pay the rent and keep the lights on?' "

Compounding the problem, the average investor is getting older and most baby boomers are simply not financially ready to retire. A recent survey showed 60 per cent of Canadian workers are not covered by pension plans and will have to rely on their own savings in RRSPs.

"You end up not ready, or you're delaying retirement. And your aspirations have to be re-examined... to a lot of people, it's a shock."

Financial pundits have long talked about the possibility of a lost decade for investors. Depending on how you measure it, we're already there. Stock market indices are essentially unchanged from 10 years ago.

And there's no quick way to make up for lost time. As Pépin points out, current times call for conservative strategies that are more about hitting singles or doubles than home runs.

Buying dividend-paying stocks is one example of such a strategy. "Those are the kind of companies you want to own. We still believe that is a great avenue, and Canada is relatively well-positioned.

"We went through a very nervous period where we did see cuts. But the number of companies that have increased dividends is pretty impressive and we expect that to continue. Most companies are cash-rich."

In other sectors of the market, he still likes energy stocks despite a recent weakness in the price of both oil and natural gas. "We still think Canada is extremely well-positioned and can be a major exporter to the United States and Asia."

Current forecasts for oil prices range between US$85 and US$93 a barrel -- unless there's a blow-up between Israel and Iran. That price range will continue to favour higher-cost projects such as those in Alberta's oilsands.

"We like the oil service companies, and we like some of the integrated producers, to a point, such as Canadian Natural Resources."

Exposure to gold stocks also makes sense, he argues, even if gold stocks lagged the big run-up in bullion prices.

"As far as gold companies go, we see that as prices have come down to the $1,600 level, companies such as Barrick Gold and Kinross Gold have come back."

The spread between gold prices and stock valuations is narrowing. "Unless we see a big fall in the U.S. dollar or inflation ramping up, we don't expect to see the gold price move significantly."

In the financial services sector, Pépin cautions that a low-interest-rate environment is not great for banks and insurance companies.

Even so, he likes what many of the Canadian banks are doing to diversify. BMO and TD are moving aggressively into the U.S., Scotiabank is big in Latin America, National Bank is moving beyond Quebec's borders and RBC is focusing on wealth management.

-- Postmedia News

Republished from the Winnipeg Free Press print edition July 7, 2012 B11