Canada’s S&P/TSX Annual Total Returns From 1948 To 2020: Chart

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Equities tend to go up in the long term measured in decades. This is true for most equity markets. Many studies have shown the US equities for instance have yielded positive returns in more years than negative returns. Canadian stocks have also performed in a similar fashion. In the years from 1948 to 2020, Canadian stocks as represented by the S&P/TSX Composite Index have returned positive Total Returns in more years than they have returned negative returns as shown in the chart below:

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Source: Time in the market, not timing the market, is what builds wealth by Stephen Rogers, IG Wealth Management

The key takeaway is staying invested is more important than trying to time the market. Markets can turn abruptly and it is not possible for any investor to predict which direction it will go.

Related ETF:

  • iShares MSCI Canada Index Fund (EWC)

Disclosure: No positions

Five Foreign Stocks With High Dividends To Consider For Potential Investment

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Investing in equities seems like a unwise decision these days due to a variety of reasons. Buying foreign stocks sounds even more imprudent with US equities performing very well so far this year. An investor looking to put money to work, can easily earn over 5% simply by buying a 1-year CD. Or to earn higher returns they can invest in an S&P 500 index fund. However in order to earn higher returns and diversification purposes it is critical to consider overseas equities also. Compared to the traditional low dividend yield of 2% for the S&P 500, investors looking to expand their horizon can earn higher income from going abroad. In addition to higher dividend yield, there is also the potential for price appreciation.

Five foreign stocks that have dividend yields of over 5% are listed below for further research and considering for potential investment:

1.Company: National Grid PLC (NGG)
Current Dividend Yield: 5.43%
Foreign Dividend Withholding Tax Rate: 0%
Sector: Multi-Utilities
Country: UK

2.Company: Bancolombia SA (CIB)
Current Dividend Yield: 10.63%
Foreign Dividend Withholding Tax Rate: 0%
Sector: Banking
Country: Colombia

3.Company: Statoil ASA (STO)
Current Dividend Yield: 11.33%
Foreign Dividend Withholding Tax Rate: 25%
Sector: Oil
Country: Norway

4.Company: Banco de Chile (BCH)
Current Dividend Yield: 16.51%
Foreign Dividend Withholding Tax Rate: 35%
Sector: Banking
Country: Chile

5.Company: ING Groep NV (ING)
Current Dividend Yield:  6.30%
Foreign Dividend Withholding Tax Rate: 15%
Sector: Banking
Country: The Netherlands

Notes:

a. Foreign Dividend Withholding Taxes will reduce the effective Dividend Yields shown above.

b. Dividend yields noted above are as of Aug 28, 2023. Data is known to be accurate from sources used. Please use your own due diligence before making any investment decisions.

Disclosure: Long CIB, ING and BCH

Diversification Is Necessary Because Market Leadership Changes: Chart

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Diversification is one simple way to reduce risk. A well-diversified portfolio among various asset classes tend to perform well over the long run. Another reason why diversification is necessary because market leadership changes over time. A few years ago we discussed this topic in my post titled The Largest 10 US Stocks at the Start of Each Decade. With that brief introduction, let’s review the below chart that shows why diversification is necessary:

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Source: Putnam Investments

A classic example of this scenario is S&P 500 was the top performer in 2021. But the following year cash earned the best returns while large cap companies(LCC) declined by over 18%.

Related ETFs:

  • SPDR S&P 500 ETF (SPY)
  • iShares Core S&P 500 ETF (IVV)
  • Vanguard S&P 500 ETF (VOO)
  • SPDR Portfolio S&P 500 ETF (SPLG)
  • Vanguard Total Bond Market ETF (BND)
  • Vanguard MSCI Emerging Markets ETF (VWO)
  • Vanguard Developed Markets Index Fund ETF(VEA)
  • iShares TIPS Bond ETF (TIP)

Disclosure: No positions

Why Sector Diversification Is Important

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Allocating assets among various sectors is one way to implement the diversification strategy. This is because the sector that earns the best returns in one year might end up turning the worst the following year. For example, the below chart shows the annual sector returns of the S&P 500 index from 2013 to 2022. We can easily see that not one sector is the consistent best performer year after year.

Energy for instance had the best returns in 2016 but in 2017 it was the second worst performer. Similarly the sector plunged heavily in 2020 when the Covid-19 pandemic hit and had a loss of 34%. The following year however energy rebounded sharply and was the best sector in the S&P 500 with an astonishing return of 54%. Energy again surprised many investors in 2022 when it earned the highest sector returns of 66%. The sector is not having a great run so far this year. It is the second worst performer with a loss of 5.5% after utilities.

Annual Sector Returns of the S&P 500 from 2013 to 2022:

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Source: Thrivent

Related ETFs:

  • SPDR S&P 500 ETF (SPY)
  • SPDR Consumer Discretionary Select Sector SPDR Fund (XLY)
  • SPDR Consumer Staples Select Sector SPDR Fund (XLP)
  • SPDR Energy Select Sector SPDR Fund (XLE)
  • SPDR Financials Select Sector SPDR Fund (XLF)

Disclosure: No positions

On the Performance of Auto-Parts Retailers Stocks

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One way to profit from the growth of the automotive sector is to invest in auto parts companies. This includes auto parts markets and retailers. Auto makers are not a great investment especially for the long-term due to many issues including legacy obligations and other factors. Auto parts makers and retailers benefit benefit during good and bad times. During normal periods, consumers depend on them for regular maintenance and during recessions people tend to hold on to their existing vehicles longer which inevitably requires parts maintenance and replacement.

The biggest of the three auto-parts retailers in terms of market capitalization is O’Reilly Automotive Inc (ORLY) which has a market cap of over $56 billion based on Friday close. The next top firms are Autozone Inc (AZO) and Advance Auto Parts, Inc.(AAP). AAP is the smallest with a market cap of just under $4 billion.

O’Reily stock is the top performer so far this year with a return of over 10%. Autozone is flat. But Advance Auto Parts has plunged by nearly 58% as shown in the chart below:

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Source: Google Finance

The following chart shows the 5-year returns:

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Source: Google Finance

In the past 5 years also AAP has been the worst performer. Autozone beat Advance Auto with a return of 220%.

AAP had poor earnings in the first quarter and also slashed its dividend. Consequently its stock had the largest single-day decline ever in May. The company missed its second quarter earnings miss and lowered the forward guidance. With major management changes announced including the replacement of the CEO, it will be a while before AAP recovers. Given its past performance it will be a hard slog. From an investment perspective it is better to avoid AAP.

Disclosure: No positions