What wealth advisors are telling their clients in preparation for 2019

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Left to right are John De Goey, David Boyd, Joel Clark and Christopher Dewdney.What wealth advisors are telling their clients in preparation for 2019

Red might be associated with the holiday season, but this year it’s looking a bit less festive to investors.

Stock markets are down, the Canadian dollar has dropped against its U.S. counterpart and Canada’s energy sector continues to struggle, pulling down the S&P/TSX Composite Index with it. Even gold, that safe-haven asset, has taken a hit and isn’t expected to bounce back until at least the middle of 2019, according to J.P. Morgan.

Volatility is causing concern among all investors, including Canada’s wealthier, especially for those nearing retirement. Here’s what four wealth advisors are telling their clients. They also offer a few predictions for 2019 and advice for keeping sane in turbulent times.

John De Goey, portfolio manager, Wellington-Altus Private Wealth Inc., Toronto

‘Portfolios are like a bar of soap,’ John DeGoey says. ‘The more you touch them, the smaller they get.’

Mr. De Goey points out that markets have had a strong run until recently, and that managing investors’ expectations is key.

“Before this, there were a couple of dips of extremely modest consequence, but this is really the first time in almost a decade when people have seen their accounts go down. So I keep telling people, ‘You know, you’re going to have a correction every seven or eight years, and you’re going to have a drawdown every three years. You’ve gone a decade without a correction.’

“I would say the majority of my clients are fine and they get it. They understand that it’s been a good run and that things don’t always go well.

“But there will always be a moderate-sized minority – I’m going to say 15 or 20 per cent of my clients – who are saying, ‘Well, don’t just stand there, do something.’ But good financial advising is about, ‘Don’t just do something, stand there!’ You have to resist the temptation to do something just for the sake of doing it because the evidence shows that the more people tinker with their portfolios, the worse they do.

“Portfolios are like a bar of soap. The more you touch them, the smaller they get.”

David Boyd, vice-president and portfolio manager, Boyd Wealth Management Group (BMO Nesbitt Burns)

Mr. Boyd is reminding clients that a good time to buy is when others are selling.

“People look at the headlines. We’ve seen interest rates rising on the U.S. side. We’ve seen the price of crude oil down. We’ve seen the [trade] issue between the U.S. and China. I’d be naive if I said there aren’t people watching the volatility on the news and asking, ‘What’s going on?’

“Do people see this as a buying opportunity? The notion of ‘buy low and sell high’ is easier said than done. If you hear from your financial advisor who is saying, ‘I understand your accounts are down, but I need you to add some more money,’ people aren’t going to answer the phone.

“But it’s one of those things. Would you rather pay retail or wholesale? If you like to buy things on sale – which is one way to build wealth – then keep sending money because at some point in the cycle, like now, you’re going to get volatility. You can buy stuff a bit cheaper than you could in the summer.”

Joel Clark, chief executive officer and portfolio manager, KJ Harrison Investors, Toronto

If you are prepared for a market downturn, you can make hay with it, Joel Clark says.

Mr. Clark predicts a multiquarter slowdown in 2019, partly because of the popularity of exchange-traded funds (ETFs) and the use of artificial intelligence (AI) in trading software.

“It’s going to be upon us quicker than we anticipated. You can see it in the rest of the world, which is falling apart big time, and the markets are down 25 to 30 per cent. The only ‘best house in the worst neighbourhood’ is the U.S., and it’s only been break-even for the year. So our view is you’re going to have a multiquarter slowdown.”

Two factors at work here will be “this massive trend of exchange-traded funds and quants [quantitative trading that uses computer algorithms], which grew out of the last financial crisis. We’ve never gone into a true bear market with this level of AI and index type of trade. People are so long on indexes they’re not really looking at fundamentals and risk management.

“So you yell, ‘Fire!’ and it’s an instantaneous push-button effect. I worry about the market structure being able to handle a true bear market.

“But if you’re prepared for it, then you get a chance to reload. While everyone’s dying, you’re ready to make hay [by buying distressed investments]. But you’ve got to know your playbook. It’s like a football analogy: The quarterback has got a play for every scenario – and right now the playbook is cash and income [investments such as government bonds, investment grade bonds, utilities and REITs]. It’s the defence.”

Christopher Dewdney, principal, Dewdney & Co., Toronto

We’re definitely due for a haircut, Mr. Dewdney says. But diversification can help control the damage.

“There are all kinds of headwinds south of the border, which is our number one trading partner, and when they sneeze we catch a cold. But in addition to that, you have an unpredictable – and some might say irrational – president. Plus trade wars and terrorist attacks. There is a lot of instability in the market that reflects this.

“Diversification is key right now. I know that sounds like beating a dead horse, but you definitely don’t want to be the guy with all of his eggs in one basket, and then he trips. My clients have faith in the markets and economy. We sleep well at night knowing we are diversified, not just by asset class or sector, but also by geographic location.

“And we know that this too shall pass.”

3 Top Growth Stocks to Buy Right Now

3 Top Growth Stocks to Buy Right Now

3 Top Growth Stocks to Buy Right Now

Two years ago, Bank of America/Merrill Lynch released its findings of a 90-year analysis comparing growth and value stocks. While the report showed that value stocks have handily outperformed growth stocks on an annual basis (17% versus 12.6%), the tables have turned over the past decade, with the low interest-rate environment providing an extra boost to growth stocks. Given the recent market swoon, certain growth stocks may be ripe for the picking.

With this in mind, we asked three of our fool.com contributors to name one growth stock they believe investors should consider buying right now. Making the list were cancer-focused drug developer Exelixis (NASDAQ:EXEL), software-as-a-service provider to the wellness industry Mindbody (NASDAQ:MB), and payment solutions provider Square (NYSE:SQ).

A 30% compound annual sales growth rate through 2021? Yes, please

Sean Williams (Exelixis): I may pound the table on Exelixis a lot, but I believe I have some pretty good reasons to do so.

In recent months, Exelixis stock has been pressured on the idea that Bristol-Myers Squibb and its immunotherapy combo of Opdivo and Yervoy would eat into the company’s market share in first-line renal cell carcinoma (RCC). It surprised a lot of folks on Wall Street just how well Bristol-Myers’ combo therapy did in first-line RCC.

However, many of these fears have proven overblown — at least so far. In Exelixis’ most recent quarterly report, the company recorded 69% net product sales growth, which was driven almost entirely by Cabometyx. For those who may not recall, Cabometyx was the first drug to deliver the “trifecta” in second-line RCC of a statistically significant improvement in median overall survival, progression-free survival, and objective response rate. Having beaten Bristol-Myers to pharmacy shelves in first-line RCC, it doesn’t appear that Cabometyx will cede much of its market share.

Exelixis’ lead drug is also less than two months away from an expected label expansion into advanced hepatocellular carcinoma (HCC). The HCC market is a bit smaller than RCC, but it nevertheless should give Exelixis an opportunity to grow sales and profitability after Cabometyx easily met its primary endpoint in the phase 3 Celestial trial.

Ultimately, we’re talking about a biotech company capable of a compound annual growth rate of 30% through 2021 that, if its share price were to remain stagnant, would be valued at just 10 times projected 2021 earnings per share. It’s not often that a company can be considered both a growth and value stock, but that’s exactly what investors get with Exelixis.

High growth at a value price

Brian Feroldi (Mindbody): Yoga has become an increasingly popular exercise in America. Meeting the demand has turned into a very big business. The North America Studio Alliance estimated that spending on activities related to yoga grew from $10.3 billion in 2012 to $16.8 billion in 2016. The popularity of the fitness program has caused scores of small studios to pop up everywhere.

A hidden winner in the yoga boom is a software-as-a-service business called Mindbody, which provides its customers with all of the tools that they need to run a successful operation. Tasks such as scheduling, marketing, and payments can all be handled through Mindbody’s platform in a cost-effective manner.

The allure of Mindbody’s offering has already convinced more than 68,000 customers to sign up. That number might sound big, but the company is already looking beyond yoga and has started to target the larger fitness and beauty industries. The company estimates that there are more than 300,000 potential customers in its target markets, so the opportunity ahead is still substantial. What’s more, Mindbody has a history of introducing new tools that convince its existing customers to spend more on the platform.

Mindbody should be able to continue to grow its revenue at a greater than 20% rate for the foreseeable future as it continues to win new customers and roll out new features. Meanwhile, Mindbody’s stock has been heading in reverse in part because of the marketwide sell-off. With shares currently trading more than 40% below their 52-week high, I think right now is a great time to buy this growth stock at a value price.

Reaping rewards from the revolution

Keith Speights (Square): You could focus on the short term. If you do, the departure of Square’s CFO to become CEO of NextDoor might worry you. Square’s lower-than-expected Q4 earnings guidance could be concerning as well. So could the stock’s steep valuation. Even after a significant pullback, Square’s shares still trade at a whopping 94 times expected earnings. But investors should focus on the long term.

We’re in the midst of a financial revolution as society transitions away from cash to digital payments. Square is positioned as a key player in this revolution. Customers love the ease of use of its products and how easy Square is to work with as a company. This makes Square an attractive partner to go to for other products and services. And the company is rapidly adding them to its lineup.

Square thinks that it has tapped less than 3% of the addressable market in the U.S. The company should be able to capture more of this market by selling more products and services to existing customers, moving upmarket to larger customers, and making strategic acquisitions.

Even better, though, the global market is at least six times larger than the U.S. market. This gives Square a tremendous opportunity for growth. With momentum already picking up in Australia, Canada, Japan, and the United Kingdom — and more markets to come — Square looks like a great long-term growth stock.

Brian Feroldi owns shares of Mindbody and Square. Keith Speights owns shares of Square. Sean Williams owns shares of Bank of America and Exelixis. The Motley Fool owns shares of and recommends Exelixis and Square. The Motley Fool has the following options: short January 2019 $80 calls on Square. The Motley Fool recommends Mindbody. The Motley Fool has a disclosure policy.