Canadian MoneySaver - Canadian MoneySaver October 2022

OCTOBER 2022

SPECIAL FEATURES Good Things Come In Small Packages: Why We Like Small And Mid-Cap U.S. Stocks

Ryan Modesto 6

Why I Am Not A Bitcoin Investor

Matt Poyner 9

Putting The RRRRR! In RESPS What to Do If Your Kids Aren’t Too Cool for School, Part 2

Colin Ritchie 13

EDITOR-IN-CHIEF:

Lana Sanichar

EDITOR:

Peter Hodson

CONTRIBUTING EDITORS: Ed Arbuckle, Isabelle Beaudoin, Dan Bortolotti, John De Goey, Donald Dony, David Ensor, Derek Foster, Benj Gallander, Janet Gray, Robert Keats, Kelley Keehn, Ken Kivenko, Marie-Josée Loiselle, Moez Mahrez, Ryan Modesto, Richard Morrison, Caroline Nalbantoglu, Brian Quinlan, Wynn Quon, Rino Racanelli, Barkha Rani, Colin Ritchie, Scott Ronalds, Norm Rothery, Rita Silvan, Allan Small, Barbara Stewart, Kornel Szrejber, Brian Tang, Becky Wong.

MEMBERSHIP RATES: All rates for Canadian residents are printed on the inside back cover. Non-residents of Canada may purchase the online edition only at $19.99 for one year’s service.

ADVERTISING: Canadian MoneySaver does not endorse or recommend any commercial products, processes, or services other than those specifically copyrighted and marketed

by Canadian MoneySaver. The advertising of products and services in Canadian MoneySaver does not imply an endorsement of any kind. All brands advertised are the trademarks of their respective owners.

For advertising inquiries please contact Nancy Laviolette at advertising@canadianmoneysaver.ca

Game On: How Mobile, Mega-Caps, And The Metaverse Are Transforming Video Game

Rita Silvan 18

You’re Paying More For Everything Else: Pay Yourself More Too The Second-Best Jobs In Canada Not Everyone Can Be A Doctor Or Lawyer

REGULAR FEATURES

Julie Petrera 21

Richard Morrison 24

Sharing With You

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Dividend & Company News

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Model ETF Portfolio

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Annuities Offer Income For Life

20

Money Digest

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Top Dividend Yields For U.S. Companies

27

Ask The Experts

29

Portfolio Confidential

30

Insights From Sector ETFs

32

TSX 60 - Constituents listed by Dividend Yield 34

Canadian MoneySaver (CMS) is published by The Canadian Money Saver Inc., 470 Weber St North, Suite #104, Waterloo, ON N2L 6J2 Office hours: 9:30 am to 1:30 pm EST Website: http://www.canadianmoneysaver.ca E-mail: moneyinfo@canadianmoneysaver.ca Canadian MoneySaver publishes monthly with three double issues (July/Aug, Nov/Dec and March/April).

Canadian MoneySaver is an independent magazine.

The information contained in Canadian MoneySaver is obtained from sources believed to be reliable. However, we cannot represent that it is accurate or complete. The views expressed are those of the writers and not necessarily those of The Canadian Money Saver Inc. Neither the information nor any opinion expressed constitutes a solicitation by us for the purchase or sale of any securities or commodities. Canadian MoneySaver is distributed with the explicit understanding that Canadian MoneySaver, its publisher or writers cannot be held responsible for errors or omissions.

Shareholders of The Canadian Money Saver Inc, editors and contributors may at times have positions in mentioned investments/securities.

Copyright © 2022. All rights reserved.

No reproduction, transmission or publication of any of the contents of Canadian MoneySaver is permitted without the express prior consent of the copyright owner. To obtain permission to use any part of Canadian MoneySaver, contact Lana Sanichar. ® – Canadian MoneySaver is a Registered Canadian Trade Mark of The Canadian Money Saver Inc. Printed in Canada. ISSN: 0713-3286

Canadian DRIPs

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We acknowledge the financial support of the Government of Canada.

Top Funds

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Canada Post Publication No. 40035485

Canadian ETFs

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OCTOBER 2022 Volume 42, Number 2

Sharing With You

I

nterest rates continue to rise in Canada, finally offering a break for savers.

GIC rates of nearly 5% can now be found at smaller trust companies, for 5-year terms, and fully guaranteed up to $100,000.

When I bought Canadian MoneySaver magazine back in 2011, I really never thought I would ever talk about GICs. After all, I love stocks, and they provide solid long-term returns, if you can handle volatility.

But as investors get older (like me!) GICs paying 5% start to look more attractive compared with a near-20% loss on stocks this year (referencing the S&P 500, as I can only buy US stocks because of my role at Canadian-research firm 5i Research).

GICs are taxed at the highest rate, will never provide ‘more’ interest than stated, and are still below today’s inflation rate. In real dollar terms, even at 5% you are still losing money. They clearly are not perfect. But then again, neither are stocks. Sometimes, after a tough year, investors just might want to sleep, and not have to worry about part of their investment portfolios.

GICs can offer you more sleep and can help stabilize an overall portfolio. For some investors, it is probably time to start looking at them again.

Peter Peter Hodson, CFA

4 | Canadian MoneySaver | https://www.canadianmoneysaver.ca | OCTOBER 2022

MoneySaver DIVIDEND& COMPANY NEWS In this column we list recent news, events, dividend income news and any other relevant information for MoneySavers. News items are those received after our last publication date.

Please go to https://www.5iresearch.ca/dividend-updates for a more comprehensive list of dividend updates.

■ Magellan Aerospace (MAL) lowers dividend by 37%.

■ Boston Pizza Royalties (BPF.UN) raises distribution by 17.6%.

■ Open Text (OTEX) raises dividend by 10%.

■ First Majestic (FR) raises divided by 1.7%.

■ Enerplus Corp. ($ERF) raises dividend by 16%.

■ Pine Cliff Energy (PNE) raises dividend 20.4%.

■ Ritchie Brothers (RBA) raises dividend by 8%.

■ Capital Power (CPX) raises dividend by 6%.

■ Canadian Natural Resources (CNQ) declares a special dividend of $1.50.

Canadian MoneySaver MODEL ETF PORTFOLIO SYMBOL

CATEGORY

PRICE

# OF UNITS

iShares 1-5 Year Laddered Corporate Bond

CBO

Fixed Income

17.15

506

8,677.90

4.9%

iShares DEX Universe Bond

XBB

Fixed Income

27.49

280

7,697.20

4.3%

iShares S&P/TSX Canadian Preferreds

CPD

Fixed Income

12.20

738

9,003.60

5.1%

iShares S&P/TSX Capped Composite

XIC

Equity: Canada

30.61

740

22,651.40

12.7%

iShares S&P/TSX Cdn. Div Aristocrats

CDZ

Equity: Canada Div.

30.07

613

18,432.91

10.3%

iShares U.S. High Yield Bond Index ETF

XHY

Fixed Income

15.84

350

5,544.00

3.1%

Vanguard FTSE Emerging Markets Index

VEE

Equity: Emerging

32.40

285

9,234.00

5.2%

Vanguard FTSE Developed Europe All Cap

VE

Equity: Interntional

25.81

304

7,846.24

4.4%

SPDR S&P 500

SPY

Equity: U.S.

396.42

41

21,376.23

12.0%

Vanguard US Dividend Appreciation Index

VGG

Equity: U.S. Div.

66.49

217

14,428.33

8.1%

iShares Russell 2000 Growth

IWO

Equity: U.S. Growth

224.45

45

13,283.85

7.5%

BMO Covered Call Utilities

ZWU

Equity: N.A. Div

12.63

604

7,628.52

4.3%

Vanguard Information Technology Index

VGT

Equity: U.S

346.22

27

12,294.41

6.9%

Consumer Discretionary Select Sector SPDR

XLY

Equity: U.S

156.93

60

12,383.66

6.9%

Cash

Cash

Cash

7,731.15

4.3%

ETF

Total Portfolio Exchange Rate Inception value: Inception date:

TOTAL

% OF PORTFOLIO

178,213.40 1.32

$ Gain/(Loss):

78,213.40

100,000.00

% Gain/(Loss):

78.21%

October 18, 2013

% Annualized:

6.72%

Prices are at market close on September 1, 2022.

Individual prices are in USD$. Portfolio values, $Gain/(Loss), % Gain/(Loss), % Annualized all reflect USD$ values are converted to CAD$ Returns include foreign exchange gains/losses Current notes: Added a 4.0% position of SPY and a 2.0% position of VGT, trimmed a 4.0% position of XIC, and switched VIG with VGG as of Dec 03, 2021 market close.

Other notes: Keep in mind all investors are different. This portfolio is designed as a guide in setting up your own personal portfolio. Unique considerations and adjustments need to be made to reflect your personal situation. Please perform your own due diligence before making investment decisions. For use by Canadian MoneySaver subscribers only. Not for redistribution.

Analysts do not own a financial or other interest in any of the above securities. Past performance is not an indicator of future performance.

Not for redistribution. Please direct portfolio questions to moneyinfo@canadianmoneysaver.ca.

Canadian MoneySaver | https://www.canadianmoneysaver.ca | OCTOBER 2022 | 5

Investing

Good Things Come In Small Packages:

Why We Like Small And Mid-Cap U.S. Stocks Ryan Modesto

W

e all know that good things come in small packages. It might be the element of surprise—almost anything could be contained in a small package. The big stuff like a car, T.V., or maybe a dog is all great but obvious the moment you see it. Maybe it is the fact that if someone is gifting a small item, you know it is going to be something that is big in another way. No one is going to give you a paper clip or toothbrush as an individual gift. Rather, it is either going to be sentimental or of high value! Well, we think small-cap stocks offer a similar type of proposition: full of surprises and can have a great deal of value.

way to gauge this is if we look at the U.S. SMID-cap index, Russell 2000, compared to the Venture composite and/or TSX composite. The TSX Venture Exchange has about 160 constituents within it. Only three constituents have a market-cap of over $1 billion, and the list reaches sub-$300 million quickly, with 52 names below $100 million in market-cap.

Closer to the end of 2020, Peter Hodson and I, with Belco Private Capital Inc., launched the i2i Long/Short U.S. Equity Fund, a fund focused on small and mid-cap U.S. stocks. Naturally, being Canadian and operating in Canada, it begs the question of why U.S. small and mid-cap (SMID-cap) stocks are in the first place. So, let’s look at some of the reasons why we like U.S. SMID-caps.

So, using a generous scenario, the SMID-cap investable universe in Canada (excluding CSE and so on) is about 354 companies. The Russell 2000 has about 1,975 constituents with market-caps ranging from $10 billion to $130 million. This puts the U.S. SMID-cap space at roughly 5.5 times the size of Canadian markets.

More Opportunities The first reason is obvious; the SMID-cap space in the U.S. is multiple the size of the Canadian SMID-cap space. One of the reasons we like small and mid-cap names, to begin with, is that they tend to fly more under the radar, and markets tend to be slower to catch on to promising companies. As an example, we count roughly 57 analysts who cover Amazon. That is 57 people whose full-time job is to know every detail about Amazon, and that’s only formal analysts, not other market participants.

Meanwhile, the typical SMID-cap name tends to have somewhere around five analysts covering them. This is not unique to the U.S. but is a general reason why we like SMID-cap in and of itself.

The set of opportunities available in the U.S. for SMID-caps is far larger compared to Canada. A simple

The TSX 300 composite actually consists of 238 companies, according to Refinitiv Eikon, and we consider a SMID-cap name in Canada as sub $20 billion in market-cap. This gets us to roughly 194 companies within this index.

More Growth With a larger opportunity set in the U.S., it also makes sense to expect the list of high-growth companies in the U.S. to be larger. The economy and population in the U.S. are larger, so companies operating in this area might be exposed to more growth naturally. Casting a wide net using a screen from Refinitiv Eikon, we see 1,238 companies trading in the U.S. with an expected revenue growth rate of 15% or greater. For Canada, this list consists of 271 companies. So, there are about 4.5 times more companies that fall into the growth category in the U.S. vs Canada.

U.S. SMID-Caps Are Cheap We think the graph below is worth a thousand words, as it shows us the price-to-earnings ratio for mid-caps

6 | Canadian MoneySaver | https://www.canadianmoneysaver.ca | OCTOBER 2022

(top) and small-caps (bottom) for the last 20 years. We are using the S&P 600 and 400 as it tends to be a higher quality SMID-cap index with less noise compared to something like the Russell 2000. If you extend it out to 30 years, you get essentially the same result, which is that outside of 2008, SMID-caps have almost never been this cheap. What is particularly surprising is that mid-caps are even cheaper than the valuation trough in the heart of COVID-19. To put this another way, midcap stocks are cheaper now than when we were facing a global pandemic and literal global economic shutdown!

Things might not be great in the world right now, but we don’t think it is controversial to say that they are not as bad as in the middle of the emergence of COVID-19.

While mid-caps are not at trough levels of the 2008 great financial crisis (GFC), the valuations are again at least flirting with those levels. Again, while things might not be great currently, we think most would be stretching to try to draw parallels to the GFC. SMID-caps trading at levels that investors have not seen for nearly 30 years or more is another reason we like the SMID-cap space.

U.S. Smid-Caps Are Cheap Relative To The Alternative While the chart below is self-explanatory, the one on the next page might require some preamble. Here, we are comparing large-caps (S&P 500) to mid-cap stocks based on the dividend yield (upper chart) and the P/E ratio (lower chart). For dividend yield, the higher the yield, the cheaper you might expect stocks to be. The downward sloping chart shows that relative to large-caps, mid-caps are at lows from a valuation perspective. While the bottom chart is moving in a different direction, it tells us a similar thing. A lower P/E ratio for mid-caps relative to large-caps means an upward sloping line because, again, mid-caps have seldom been this cheap relative to large-caps.

We think this is a nice feather in the cap for mid-cap stocks. Not only are they cheap on an absolute basis historically, but they are also cheap when compared to the other primary option in stocks, large-caps.

Canadian MoneySaver | https://www.canadianmoneysaver.ca | OCTOBER 2022 | 7

U.S. Dollar Exposure Can Be A Good Hedge For Canadian Investors For the sake of brevity, we won’t spend too much time on this point, but the U.S. dollar (USD) tends to be a flight to safety asset. This means that when things look bad, assets flow to the U.S. dollar, increasing relative to other currencies. In turn, for Canadian investors, in a market downturn, the USD tends to rise, making assets worth a bit more in Canadian dollar terms. Over the last five years, there has been a negative correlation between the S&P 500 and the USD/CAD exchange rate of about -0.5. So, when the S&P 500 goes down, the USD tends to go up, offering a bit of a natural hedge.

These are a few reasons why we find the U.S. SMIDcap space so interesting and rich with opportunities while being a space that tends to be overlooked by Canadian investors. One of the reasons we think it gets overlooked is because the opportunity set is so large that it can be a

bit overwhelming. Fear not, because just like that gift in a small package, U.S. SMID-Caps could be the gift that keeps on giving!

Belco Private Capital Inc. (“Belco”) is the investment fund manager, portfolio manager and exempt market dealer for the i2i Long/Short U.S. Equity Fund. Ryan Modesto is a Portfolio Manager for the i2i Long/ Short U.S. Equity Fund and CEO of 5i Research.

Ryan Modesto has a financial or other interest in Amazon (AMZN).

The i2i Long/Short U.S. Equity Fund does not hold a financial or other interest in any securities mentioned at the time of publishing.

Nothing in this article should be construed as investment advice or a solicitation to take investment action. Further inquiries and information can be found via email to Ryan at ryan@belcopc.com.

8 | Canadian MoneySaver | https://www.canadianmoneysaver.ca | OCTOBER 2022

BTSX

Why I Am Not A Bitcoin Investor Matt Poyner

I

have been slow to get on the Bitcoin train. In truth, I’ve kept a safe distance and watched that shiny Bitcoin engine gain speed and momentum, hurtling through space, careening around corners, all the while gaining more and more white-knuckled followers, hanging on for dear life.

My scepticism has kept me off that train. Something so new, so volatile and, most importantly, so hard to understand is just not where I feel comfortable putting my money. In my experience, not understanding an investment is a good reason not to invest, but that didn’t stop me from watching and waiting for some good critical analysis to balance the hype. Finally, the last year or so has produced some thoughtful commentary.

We all know the internet is full of Bitcoin sensationalism.

But this is the article I’ve wanted to find for years: a concise rational explanation of Bitcoin and why it might not be a good investment. I couldn’t find that article, so I wrote it. I won’t pretend to be an expert. This is also not an exhaustive analysis—there’s just too much to cover. But for those who share my scepticism, I hope this will help you understand why your doubts are likely well-founded.

A Short History Of Bitcoin Bitcoin was the first cryptocurrency. Invented by the mysterious Satoshi Nakamoto, it reimagined money as computer code, independent of banks, governments, and central oversight.

Even though it’s been around since 2009, Bitcoin hit my radar hard in 2017—that was the year it gained traction in popular culture and, not coincidentally, the year its price started to skyrocket. There is no more interesting story in finance than new price highs, and the value of a Bitcoin went from about $1300 to $22,000 that year. Bitcoin millionaires popped up all over the internet almost overnight. Forbes called 2017 “The Year of Bitcoin”.

Then it all came crashing down. By the end of 2018, Bitcoin had lost more than three-quarters of its value. We’re likely all familiar with the story since then: depending on how you look at it, it’s either been a thrilling or nauseating series of surges and crashes. Since the start of 2017, Bitcoin has had a rate of return of 59%. But that’s a little deceiving since it has lost 50+% of its value six times in the last ten years and is currently sitting at only 31% of its peak value just a few months ago. (See chart on the next page).

Who Is Investing In Bitcoin?

I’ve talked to a lot of people about Bitcoin and cryptocurrencies over the last five years. Some were Crypto Converts: usually in their 20s and 30s, they were clearly drinking the crypto Koolaid and talked about it with frenzied enthusiasm. Others, the Crypto Curmudgeons, were usually 50+ years old and saw it as a fad that they didn’t understand but didn’t need anyway.

But most were Crypto Curious—they’d heard enough to be interested, and even though they didn’t understand how any of it worked, they’d salivated over the success stories and were afraid of missing out on what might be “the next big thing”.

If it seems like a lot of people bought Bitcoin for the first time in the past year, that’s because they did. It’s hard to watch an asset class rocket higher and higher and not try to grab your little piece of it. Fear of missing out (FOMO) investing is alive and well among crypto investors. According to a study published at the end of 2021, 55% of investors who currently owned Bitcoin began investing within the previous 12 months when Bitcoin was at all-time highs, with an average price over double what it is presently. So, even though Bitcoin’s long-term rate of return is impressive, the fact is that the average Bitcoin investor has been crushed.

Canadian MoneySaver | https://www.canadianmoneysaver.ca | OCTOBER 2022 | 9

Why I’m Sceptical About Bitcoin Like tulips, railways, and dot-com start-ups of years gone by, Bitcoin fever has been nothing if not contagious.

In my hunt for the other side of the story, I have come across 10 big reasons to remain sceptical of Bitcoin as an investment. Most of these apply to other cryptocurrencies, too.

1. Bitcoin ownership is highly concentrated.

One of Bitcoin’s primary value propositions is decentralization, but its ownership is actually highly concentrated, with 95% of Bitcoin being controlled by just 2.4% of the accounts.

2. Bitcoin mining (i.e., processing) is geographically concentrated.

The processing of Bitcoin transactions, commonly referred to as “mining”, is also highly concentrated— although the location of that concentration can change rapidly. By September 2019, 75% of mining operations were in China. Due to government crackdowns, China’s mining operations are now about 20%, while 49% are in

the U.S., with Kazakhstan and Russia also having large operations. This concentration poses risks not just to investors but also to the environment.

3. Bitcoin is an environmental disaster.

This is a big one. The verification of every single Bitcoin transaction is dependent upon solving ever more complicated math problems. This verification process is called “Proof of Work” and is baked into the design of Bitcoin. Bitcoin “miners” compete to solve these problems and certify the transaction. The fastest miner wins and receives a small amount of coin in return. As more people use Bitcoin, the complexity of the problems accelerates along with the environmental impact. To make matters worse, 99.99% of the computational work is thrown away since there can be only one winner. It is estimated that Bitcoin’s wasteful processing currently consumes as much energy as the country of Argentina (population 45 million)—an environmental nightmare on a global scale.

4. Massive price volatility.

We all know crypto is volatile, but how volatile? In 2011, Bitcoin lost 99% of its value in one day. From

10 | Canadian MoneySaver | https://www.canadianmoneysaver.ca | OCTOBER 2022