Getting Personal: Strong loonie prompts Portfolio Review
via A Dow Jones Newswires Column | July 2, 2011
TORONTO (Dow Jones)–With the ongoing U.S. debt crisis strengthening the Canadian dollar against its U.S. counterpart, investment experts said now is the time to find ways by which investors can take advantage of the stronger loonie–whether through rebalancing a portfolio to purchase more U.S. stocks, or buying a U.S. property for some snow birders.
“It makes accessing U.S. investment much more affordable as has been in the past,” said Gaetan Ruest, director of strategic investment planning at Investors Group. Ruest said those who have shied away from U.S. companies in the past may consider reinvesting in the U.S. now, especially if their portfolios are overly exposed to Canadian stocks.
To help clients stay diversified, Ruest said he recommends having at least 25% of an investor’s equity portion of the portfolio invested in the U.S. The remaining portion could be invested in Canada and other markets. “You don’t want more than half of your equity to be invested in Canada,” said Ruest.
Russ Visch, a technical analyst at Bank of Montreal’s (BMO, BMO.T) Nesbitt Burns unit, said investors should also be wary of certain industries that could be adversely hit by a strong Canadian dollar, which is known as the loonie.
The industrial sector, for instance, took a beating in late 2007–the last time the loonie hit an all-time high against the U.S. dollar, Visch noted.
“A lot of the big Canadian manufacturing companies really came under a significant amount of pressure,” he said. Commodities, in which Canada has such a strong weight, presented strong opportunities and basic resources weren’t hit by the volatility back then, Visch added.
But while some investors may want to cash in whenever there is a rally in the loonie, there could also be bigger opportunities in the next few months.
“Wait until the end of the year–they’ll get a better price,” said Visch, who sees the Canadian dollar getting stronger over the next three to six months.
The Canadian dollar last week traded at its highest level since November 2007 as a result of the debt crisis in the U.S. that fanned concerns in the market over a potential U.S. default. Last Tuesday, the U.S. dollar hit an intraday low of C$0.9410. The dollar has moved a bit higher this week, standing at C$0.9576 Tuesday morning from C$0.9571 late Monday, according to data provider CQG.
But while some U.S. stocks could be less expensive now, some advisers are in no rush to invest in U.S. equities, noting that investors should always take into account their long-term plans and lifestyles when making decisions.
“Investments should always be based on investment policy–risk tolerance, time horizon, age,” said Nicholas Miazek, a certified financial planner at TE Wealth.
In addition, it may be cheaper now for snow birders to purchase a home in the U.S. (perhaps in such warm climates as Florida or Arizona). However, if they don’t live there for more than six to seven months a year, Canadians may need to consider tax issues and long-term expenses in commissioning a management property to rent the place while they are away. “It’s a lifestyle issue,” said Miazek.
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