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How to invest a sudden cash windfall

Say you inherit $10,000, and you already have a fulsome, well-balanced portfolio. How should you invest it? Four advisors offer suggestions

By: TERRY CAIN

Date: September 27, 2017

It's a dream situation for just about anyone. You are given $10,000, perhaps from an inheritance. You already have a decent, well-balanced retirement portfolio, so this money is really the frosting on the cake.

How should you invest it?

We asked a number of fund managers and investment advisors for their response to this scenario. Here are four replies that we found intriguing.

Keith Richards, portfolio manager, ValueTrend Wealth Management, Barrie, Ont.

A person in this situation can use one of two approaches, Mr. Richards says.

An aggressive strategy would be to take higher risk positions and trade them based on short-term moves. For an investor comfortable with this kind of approach, Mr. Richards recommends buying shares of Cineplex Inc. He notes the stock has been "massively oversold" after a weaker-than-expected earnings report in early August. Using technical analysis of the stock's ups and downs also leads him to believe it will "pop" higher.

Mr. Richards acknowledges there is risk to this investment, as the movie side of Cineplex's business has had a slow year, and its new venture into "game rooms" is taking its time to get a foot-hold. He also notes that his reading of the stock's chart indicates the expected rally may not be a long-term move.

For a more stable investment, yet one that has upside contrarian potential, Mr. Richards recommends Costco Wholesale Corp. "Most retail stocks that carry groceries got hammered after Amazon announced their acquisition of Whole Foods," he says. He notes Costco recently reported solid earnings and has an "almost cult-like" following. He feels the Amazon threat to Costco is probably nowhere near what the market has perceived.

Mr. Richards also notes that hypothetical scenarios like this are for illustrative purposes only, and that investors should consult a professional financial advisor before making personal investments.

Barry Schwartz, chief investment officer, Baskin Wealth Management, Toronto

Mr. Schwartz has a more straightforward take on the $10,000 windfall scenario: "I would put it all into National Bank," he says. Mr. Schwartz notes some investors have been questioning the outlook for Canadian banks, saying they are too expensive because of risks related to the Canadian housing market, falling profitability in the oil patch, customer losses through fintech and automated solutions, and more onerous capital requirements set by international regulators.

However, Mr. Schwartz points out that in the seven years since the Great Recession, all the Canadian banks have delivered consistently rising profits, along with rising dividends and excellent shareholder returns. He also notes the banks' balance sheets are in "the best shape we have ever seen," which bodes well for rising dividends, share buybacks and potential acquisitions. And all of this is as the Canadian economy hums along, and interest rates inch higher. "This is exactly the type of news you want to hear if you are a bank shareholder."

Mr. Schwartz acknowledges that Canadian banks will be hurt if the housing market experiences a significant price drop. But he says a drop in one business line may be balanced by gains in another.

National Bank of Canada is Mr. Schwartz's top pick because of its exposure to wealth management. "National Bank has quietly created a powerhouse in fund management and administration," he says, and he notes the bank's wealth-management business is more fee and annuity-revenue oriented, and as a result less cyclical than its peers. "We greatly admire National's CEO, Louis Vachon, and I believe he is just getting started with his vision to expand National's reach outside Quebec."

Ryan Lewenza, senior vice-president and portfolio manager, Turner Investments — Raymond James Ltd., Toronto

"The combination of us being pretty boring at Turner Investments and generally expensive valuations around the world means there is not a lot of screaming buys right now," says Mr. Lewenza.

Despite that assessment, he says his firm has become quite positive on emerging-market equities after a long period of being neutral, and sees good upside over the next few years.

Among the reasons for this view is that emerging markets have underperformed developed markets for seven consecutive years, Mr. Lewenza notes, but this trend has recently reversed. He also points out that global commodity prices are starting to rebound, and emerging-market equities tend to outperform when commodities are in an uptrend.

Similarly, he notes the U.S. dollar has been falling in value against most other currencies, which also tends to indicate a positive performance for emerging markets. And finally, valuations are attractive for emerging-market stocks. The preferred vehicle Mr. Lewenza cites for investing in emerging-market equities is the Vanguard FTSE Emerging Market ETF.

Stan Wong, director and portfolio manager, Scotia Wealth Management, Markham, Ont.

Mr. Wong says that outside his core positions, he often looks to add "satellite" investments that have the potential to provide superior returns in client portfolios. This allows him to consider fascinating investment trends and themes that have the potential to be the next Amazon, Facebook or Visa.

Mr. Wong says investing in disruptive and nascent industries such as robotics and artificial intelligence fits that strategy. He believes factors such as aging populations and increasing labour costs will lead to a "rise of the machines" over the next decade. Some of the industries that are expected to be most impacted by AI include manufacturing, military and defence, health care, transportation and agriculture.

The Global X Robotics & Artificial Intelligence ETF is Mr. Wong's preferred way to play this trend. Nearly 75 per cent of the portfolio is allocated to companies in Japan and the United States that are considered to be leaders in the robotics and AI theme. Top company holdings include Nvidia Corp., Mitsubishi Electric Corp., Intuitive Surgical Inc. and iRobot Corp. Over the past 12 months, the fund has provided a 40-per-cent return.

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