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Market 2020 Clinic Transcript:

Spring Plans: Alright. Good evening, and welcome to the Quarterly Clinic with Darryl Brown. All participants have been muted with their video feed disabled.

Spring Plans: But you can ask questions. You can use the chatbox to direct questions either to all attendees and panelists, or you can choose if you want your question to remain anonymous, you can send it to me directly. I’m Kathryn Mandelcorn.

Spring Plans: And we will ask them in the Q&A section at the end of Darryl’s prepared remarks. The clinic is being recorded and we will share the recording in an upcoming newsletter and so you’ll receive a copy of Darryl’s slides by email, following the clinic.

Spring Plans: So, I’d like to introduce Darryl. Darryl Brown is the Director of Portfolio Strategies at Spring and has 13 years of experience in the financial services industry.

Spring Plans: Prior to joining spring Darryl held the position of Director of Public Fixed Income for Sun Life Investment Management. And prior to that role was a Senior Analyst for Dominion Bond Rating Securities in Toronto. Darryl helps our clients analyze portfolios, communicate investment policies, and he’s passionate about guiding people through the noisy and often confusing world of investments.

Spring Plans: So welcome Darryl! Thank you for holding this clinic and I will pass it over to you.

Darryl Brown: Thanks Kathryn! And thanks to everyone joining us. Good evening, and good afternoon to those on the West Coast. As Kathy mentioned, my name is Darryl, I’m the Director of Portfolio Strategies for Spring. We’re going to jump into our Quarterly Clinic. So, what we are talking about today –

Darryl Brown: Looking at some of the things that have happened in the market. What does that mean – so the “so what” behind all the things that are going, on because I think we see a lot of information out there, but trying to relate that to our individual portfolios and our investment decision-making processes is the challenge. So, we’ll look at some of the considerations around there. We’re going to talk about what our clients are saying, what you should do.

Darryl Brown: Thoughts and things to watch out for. And then we’re going to finish up with a little bit of Investor Ed and Q&A. Any questions that you’ve got, please feel free at any time to drop them right into the chatbox. So, let’s get started.

What happened?

Darryl Brown: So back in April, when things started to unfold in the COVID-19 world that we’ve now entered, I came up with this chart, just to try and frame and give a decent visualization about what was going on.


Darryl Brown: The starting point being, obviously the health crisis, looking at how that impacted our economy.

Darryl Brown: Looking at how that impacted financial assets in the investment markets, and then how it really seemed at that time that we were in a bit of a downward spiral and that the back and forth between economic contraction and financial asset destruction could go back and forth.

Darryl Brown: I think at that point, adding in the impact of Central Bank intervention and Fiscal Stimulus was incredibly important to halt that decline.

Darryl Brown: And before going any further, I should probably just stop and explain what those two measures are. So, when we talk about, and these are two terms you’re going to be hearing – if you haven’t already, going to be hearing a lot about –

Darryl Brown: Central Bank measures and monetary policy, basically using tools like interest rates or open market activity to affect the price of financial assets, but more so than that, just provide some stimulus to the economy.

Darryl Brown: When we look at stuff like monetary policy and the use of interest rates, the reduction of interest rates, which we’ve seen throughout the late part of 2019 and well into 2020, those have the effect of providing support to the economy. So any kind of loans or liabilities generally that are attached to this Canadian Bank of Canada overnight rate, those have the impact of making those loans cheaper. So, it’s a way to support the economy. On the other hand, there are measures in the fiscal toolbox, which, from that point of view, what we’re talking about is looking at the difference between government revenues and expenditures.

Darryl Brown: So, typically when the economy is not doing well, the government will run a deficit to try and spur the economy, to try and get transfer payments to certain parts of the economy and households that need it, to try and get investment going again. So, there are two separate types of tools that are basically available for our policymakers. And what has happened right now, is that we’ve had the benefit of utilizing both, and they really sort of service to isolate the health crisis and economic contraction away from financial asset destruction. So away from things that are going on in the market. And we’ve seen the impact of that, by way of, you know, despite the health crisis not being resolved at this point, you have markets that are near their all-time highs at this point. So, we can see through an index like the SP 500 – last time I checked is at about 3400 for the day – so still right around the highs for the year. We’ve had the fastest 30% decline in history.

Darryl Brown: The fastest 50-day rally in history, and through all of this, we’ve ended up in a place that I’ll call the ‘great disconnect’. And that being the disconnect between basically what we’re seeing in the economy as we’re walking by empty storefronts, and then what we’re hearing in the financial markets, which are markets that are at an all-time high.

Darryl Brown: It is really quite something. And people in the investing world, I think, are really just starting to get a little bit of comfort around the explanations around this.

What’s happening?

Darryl Brown: I really do think this previous slide, actually, you know, it’s helpful in providing a bit of an explainer in how we’re able to be in this reality where on the one hand, we have still record levels of unemployment, but we also have a record stock market. It is really incredible.

Darryl Brown: But I think in looking at the different tools that policymakers have – monetary policy, fiscal policy – looking at those different tools that help explain to you where we’re at right now, and also, perhaps how that resolves over time.

Darryl Brown: So, moving a little bit forward, just taking a look at just how significant is the impact of monetary policy. This is the chart of the Bank of Canada’s balance sheet.

Darryl Brown: The Bank of Canada, in providing a number of supports for the economy, has the option of being a little bit more active and intervening a little bit more. So, purchasing assets, they can be, in effect, an additional buyer out in the marketplace, and providing support for certain types of asset classes. And we’ve seen that happen in the financial crisis, you can see the gray bar indicating a recession in 2008, and you can see the balance sheet increasing. But gradually over time, those assets tend to roll off and the bank returns to a sort of normal, gradually increasing with inflation run rate of their balance sheet.

Darryl Brown: Right now, you can see how much that’s exploded. It’s almost up to $200 billion, which is, you know, a number that doesn’t really make sense for a lot of people.

Darryl Brown: But the magnitude there is significant – they’ve almost, in effect, doubled their balance sheet.

Darryl Brown: So, in effect, providing twice the amount of support that they were previously providing.

Darryl Brown: There is some indication that some of that support is going to start to taper off and level out because conditions have improved since the beginning of COVID-19, but there is still support that’s going to be needed on the monetary front. I have there as a bullet point monetary steroids and fiscal airflow. I think both of them – monetary policy and increase government spending for a prolonged period of time – I think those are two things that investors should come to understand what they are, be comfortable with them because they are not going away anytime soon.

So, what does it all mean for you, the investor?

Darryl Brown: We’re looking at three things; we’ve looked at the kind of in the middle of the crisis, and these are things that haven’t changed over the last three months:

Darryl Brown: Diversification, being important. Acceleration of trends – and I think this is a theme we’ve heard every now and again through people in various aspects of COVID-19. The trend towards – whatever it might be: online shopping, telecommuting – those trends have all accelerated in the last three months.

Darryl Brown: It’s contributed to an interesting theme, as well, to the stock pickers market.

Darryl Brown: Not there we’re saying that. And, to be clear, it’s not a market where we think stock-picking is going to do better, but we just see that there’s quite a bit of a divergence in the performance of different companies in different asset classes. Finally, the ‘so what’ behind it – in such a weak economy, we think interest rates and I think interest rates are going to remain low for a long period of time.

Darryl Brown: I think prior to COVID-19, lower for longer was the point of view on interest rates and bonds, low for almost forever is kind of what I’m looking at this point and there really doesn’t seem to be a point in the foreseeable future, which we can expect meaningful interest rate declines. I think there will be short increases, but by and large, I think interest rates will be range-bound for the foreseeable future.

Darryl Brown: So, let’s take a look at diversification; what it means. Not having all your eggs in one basket. Having different asset classes in your portfolio, equities, and fixed income.

Darryl Brown: I think a lot of people get a little bit caught up and they tend to hear what’s going on in the market with the headlines and I think I’ve always been, you know, it’s always been important to me to keep telling investors that what you’re hearing is not necessarily representative of what’s going on your portfolio, assuming you’ve got a properly balanced portfolio, which thankfully, a lot of clients nowadays realize that benefit. And so, you can see, you know, the light blue – sorry – the darker blue line representing the VBAL, which is just the Vanguard Balanced 60/40 portfolio. You can see the performance of that relative to just the overall market. The S&P 500, not having a significant decline in the downturn of March and April.

Darryl Brown: But now you’ve seen that the markets actually surpassed that. So, you know, having a more balanced portfolio allows investors to weather those storms, and not be so leveraged to what is going on in the equity markets at any given time. So, we think that’s something that we’ve always preached – diversification has always been a key part of portfolio construction, despite the sort of theme and idea that interest rates will go up and bonds are a bad investment. Bonds are there. They’ve got a place and they need to be in portfolios to provide, not rate of return tool for your portfolio, but as a way to mitigate risk over time. They definitely need to be part of a balanced portfolio and we’re going to continue to hammer away that point.

Darryl Brown: With investors who – we get inquiries quite often – “Why do I have bonds in my portfolio? They’re not going to do well. They’re not yielding a lot.” They need to be there as part of a balanced approach to managing investments over time.

Darryl Brown: As we look at trend acceleration and the stock pickers market: a few months ago, I just kind of very quickly picked out two different companies.

Darryl Brown: One, which I thought, you know, probably not going to do very well during COVID-19, which is the darker blue line along the bottom. That is Brookfield Property Partners. They are a large owner and operator of real estate assets, and I think going through COVID-19 with the shift to telecommuting, with social distancing requirements in the workplace, and just in the overall economy, the real estate part of the economy was definitely one of those recognized as going to have challenges. So I picked this one out. And I kind of took a look at it, relative to a company that does something entirely different, which is Peloton. And if you’re not familiar with Peloton, they were not that long ago, not that big a company. They were only a billion-dollar company.

Darryl Brown: I say “only a billion-dollar company”, now their market cap is at about 38 billion last I checked.

Darryl Brown: They are a producer of exercise fitness equipment and basically, more and more becoming more of an online and media place for people who want to stay fit. As we saw, COVID-19 unfold, the trend towards exercising at home and you know, just being connected to a community.

Darryl Brown: Both being able to sell a product like that bike, which is fairly expensive – it’s like $2,000 US – but also have recurring revenue is, you know, a business that again, a billion dollars not that long ago, with the onset of COVID-19 has really taken off. So, we’re starting to see trends like this play out in the economy more and more, where you have companies that are in certain areas that are really, really going to benefit from not just the temporary change that we’re at with COVID-19, but also trends that were in place before – looking at-home exercise or telecommuting or whatever it might be.

Darryl Brown: We’re starting to see a lot more divergence in the performance of different companies.

Darryl Brown: I think kind of interestingly too, you can look at these two lines and they’re a little bit of a proxy for income and wealth inequality, quite honestly. I think it’s going to be a huge challenge for policymakers, as we continue through this crisis, and hopefully exit this crisis at some point, to try and devise solutions that both impact the economy and assets in general, and that address both sides. I think the bottom line being a real estate owner and operator, kind of being a proxy for the parts of the economy that are hit the hardest; the ones that are being impacted by social distancing – your coffee shops, your gems, storefront retail – I think those are going to continue to be a challenge. Sort of the upper line being, kind of an interesting narrative and connection to more digital jobs, and typically held by higher income-earning individuals. So, I think this is going to be a trend that will continue out through at least the next few years.

Darryl Brown: And finally, as far as interest rates go, there’s nothing exciting here to show, nothing that I think people aren’t aware of.

Darryl Brown: The interest rate environment all across the entire interest rate curve is extremely low. It’s likely going to continue that way.

Darryl Brown: Could it go lower? I absolutely think so. Canada is one of the few developing countries in the world that actually still has a positive interest rate curve across the entire curve. So, there are definitely some economies in developed Europe that have negative interest rates in a good chunk of their interest rate curve. So, interest rates are low, they can go into negative territory and you’ve even heard from Central Bank individuals that they are either talking about what the implications of that are  – not that they’re willing to go there – but they are exploring that. And that’s something that is kind of is interesting to note.

What are our clients saying?

Darryl Brown: What are our clients saying? This is kind of an evolving conversation that we have with them.

Darryl Brown: April and May: It was first, “I’m looking to take advantage of this correction and looking to get into this market” and soon, very, very soon afterward, I think the perception was that we’d come too far too fast.

Darryl Brown: People believed, very rightly, that a second wave for COVID-19 was likely to happen, and that they could perhaps wait for a pullback. Unfortunately, you know just touching on, again, the theme of this disconnect between the financial markets and the economy. That pullback in the financial markets never really happened. And I think in August, people started to realize that as case counts surged, we sort of realized that, hey, this economy and the potential slow down if case counts, you know, kind of reappear, doesn’t necessarily impact the markets on a one to one basis. So, I think that’s where people in August were saying. And now, in the last couple of months, the focus has largely turned towards the US election which has people nervous and which begs the question:


Does the US Election Matter?

Darryl Brown: Just take this for a grain of salt. They have their polls and they have their errors, but and looking at the probability of who is likely to win, it does definitely seem that the trend has changed. And I would say this is largely accelerated in the last couple of weeks. So, with more and more likelihood that the current administration may not be there, I think people are looking at that and sort of trying to understand what the implications are. Are they positive or are they negative?

Darryl Brown: Very interestingly, I think, to ask the question again: Does the election matter? And I would say the answer is: less than people think. And what I think really matters is from a policy standpoint: Where is the US going to be, as far as managing COVID-19, the economic impact and the eventual recovery.

Darryl Brown: So, this is the way of the world nowadays. The President tweeting during market hours, and I believe this was from last Monday, where he said he basically is not going to pass a stimulus bill. And very, very quickly the markets – and you can see probably where he made that announcement – were not pleased with that.

Darryl Brown: So, I think at this point, we’re looking at really the stimulus measures, the management of COVID-19, its economic impact, we’re looking at that as being, the primary factor in terms of kind of figuring out how this economy works, and what are the implications there, if any, for financial asset prices. But at the very least what the markets are telling us is that they’re not particularly a fan of waiting to any extent, for stimulus measures from the US. I’d say that, as we talk about stimulus measures, it’s helpful to keep in mind that the majority of economies throughout the world are involved in providing fiscal support, I think, at this point. So, that is kind of the expectation and so fiscal measures and fiscal stimulus are not something that is just Canada or the US, we’re seeing that globally.

Darryl Brown: I think what’s kind of interesting about the sort of dynamics playing out right now is that you probably had a certain point in time where the Democratic Party, in general, was probably regarded as the sort of socialist wealth destroyers and markets would never respond positively to Democrats prospectively getting into office. Now, what we find is that the markets are actually fairly receptive, not only fairly receptive, they’re actually responding positively to the increased likelihood of a Democratic win.

Darryl Brown: You know, just that there is likely to be fiscal support there. There is much more likelihood of there being a program that’s going to be funded. So I think that is fairly important. Those decisions lying heavily with Congress and the Senate, I think, are the areas to look forward to as we move throughout the fourth quarter.

Darryl Brown: Kind of an interesting chart you might start to see here and there in terms of what to expect from any type of administration, whether it’s Republican or Democrat.

Darryl Brown: You have a constant flip back and forth. And over time, you can see, by and large, the markets have trended higher irrespective of who wins. So, again, we’re at a point that I think there needs to be, from the investor standpoint, less attention paid on the specific election of the Presidency and more focus on how the US responds, from a fiscal standpoint, over the long-term. And I think that’s going to be very important. I think the other thing to keep a note as well, too, is I think there is starting to become conversations about what level of deficit spending, just how high the debt can be for developed nations, I think those concerns are premature. And I think at this point the focus is on getting money out the door, getting money to households that need them, getting money to small businesses that are trying to pay their rent.

Darryl Brown: I don’t foresee any issue with the investment market at this point, looking at deficit spending or debt levels and saying, ‘well, those are too high, those are unsustainable’. I think that the focus right now is still administering basically kind of emergency support to the economy. So that’s where the focus is on, and for quite some time I think; it’s going to be at least a number of years before the conversation starts to turn to kind of what level of deficit spending is reasonable, what credit ratings make sense.

Darryl Brown: Could the Canadian Government lose its triple-A rating? Definitely. I think it’s going to happen. But in the meantime, I think the markets are, and definitely, the economy will respond well to fiscal stimulus spending.


So, what should you do?

Darryl Brown: For the three different types of investors that we chat with: the DIYers – How are you doing?

Darryl Brown: The last four to six months have been incredibly stressful, in terms of getting all the data that you can find, trying to understand what it means for you specifically, and then asking if that results in any type of investment decision-making or investable action on your part. How are you doing? That is incredibly stressful.


We definitely recommend that before starting to manage your own portfolio – setting up an investment policy statement, setting asset allocation targets – that’s an incredibly important aspect of managing investments and that’s something that professional managers do. We encourage DIYers to do that as well.

Darryl Brown: For those invested with Robo advisors, did you leave the robots alone? It’s kind of like a bit of a joke, but the Robo advisors are – part of what you’re paying them to do – is rebalance your assets. And so hopefully you know managed to make it through the crisis over the last number of months without, perhaps, pulling all your money out or making any rash decisions, and we definitely think that Robo advisors are a great option for investors, just as long as you’re allowing that relationship with your old Robo advisor to work properly. And by that, I mean you’re not in there meddling with your asset allocation, or how much you have invested on a month to month or week to week basis.

Darryl Brown: And finally, for those with managed portfolios – just asking are you with the right partner? Did you feel like you were getting the right communication, the right levels of communication, and the type of communication that you needed?

Darryl Brown: We think that’s something to continue to consider as you move through this crisis and then ultimately think about managing or having your investments managed over the long-term. So that’s a really key question that we’re having with our clients. They’re asking and we’re asking them, and we feel like it’s important for your long-term health as far as your relationships go with your investments.


A bit of Investor Ed

Darryl Brown: – we were chatting on Slack about some of the themes that are going on right now: value versus growth investing, which is a really interesting kind of look at two different styles of investing. And my response here – that I just copied and pasted, or just took a screengrab of Slack – which is my concern about talking about value versus growth investing and it really comes from what I perceive as almost an obsession in trying to pick “should I be a value investor now or should it be a growth? Which is better and which am I likely to make more money?

Darryl Brown: And my concern, as I raised it in the group before deciding to talk about value versus growth investing anyways, was just this obsession over what I think is just one factor; I think ultimately looking at value versus growth investing is something for investors to note, to know what it is, but to not obsess over picking one over the other, because it’s only one aspect of creating a portfolio that works for you. So looking at value versus growth investing in isolation, I think, leads to poor investor-decision making, but it is important for people to know basically the difference between the two. And so broadly speaking, in value investing we find you’re looking at trying to find stocks that are trading for less than their intrinsic or book value, should have quotations around both those because we’re looking at intrinsic or book value from an accounting standpoint and the way assets are priced are based on perception.

Darryl Brown: At times, there can be a disconnect between perception versus sort of intrinsic or book valuations. And that’s kind of what value investing is looking to do is sort of pick up assets for 80 cents on the dollar – that are 80 cents for assets that are worth $1 – versus growth investing – typically these are younger companies poised to expand.

Darryl Brown: You’re hoping that if you’re buying $1 of earnings, you might be paying a little bit more than that now, but that dollar is going to translate into three or four dollars in earnings down the line. So slightly different styles in terms of sort of the metrics that you’re using to select investments that are reasonable from a valuation standpoint and overall you end up with a whole bunch of tech companies that are typically on the growth side and you see sort of more Old School companies – legacy companies, banks, utilities, telecom, and so on – on the value side. And exactly how that’s translated if you’re looking at a couple of broad baskets. So, if you’re looking, these two lines representing the S&P 500 Value ETF and the S&P 500 Growth ETF, if you look at these two ETFs over time, which represent a basket of companies in each of their respective spaces, you can see how one category has performed relative to the other over time.

Darryl Brown: We saw value investing doing incredibly well in the aftermath of the tech crash in the early 2000s. You’ve seen value investing perform for basically the 15 years post-tech crash.

Darryl Brown: You’ve seen value investing basically outperform and that has sort of switched into the last three years, where now we’re seeing a lot more performance from growth companies. And you can see that gap widening out substantially in the last couple of years, especially the last few months, we’ve seen this huge trend, this huge push, in favorability around growth investing. So, it’s something to keep in mind. It’s not something to kind of feel like you have to select one or the other, but definitely know that there is a place for both styles of investing in portfolios. It’s helpful to understand kind of how each of these styles kind of can play out, what the types of companies are that are represented in each different style, and how they respond to crisis situations and periods of either strong economic growth or weaker than average growth.

Darryl Brown: One final note on the growth versus value sort of trend: I don’t think these two lines as you’ve seen them split kind of in recent months, I don’t think there is a strong reversion towards the mean play here. I do think that valuation will stay wide. And I think that trend is going to be around for quite some time. So, it’s not that I see value investing as being a bad place to be, but my concern is that I don’t see any catalyst for this trend to sort of reverse itself as far as growth versus value stocks.

And finally, things to watch out for:

Darryl Brown: Don’t forget about the trade war. I think this is something that has been talked about for quite some time. It’s been a hallmark of the current administration. It’s weirdly enough, one of the things that the administration probably has – if I can say it – broad support across the aisle.

Darryl Brown: It is in a trade war but it ties into a couple of other themes: De-globalization – sort of like a decoupling of kind of global supply chains. I think these are themes. These are large themes that don’t get talked about as much. They kind of pop up in the media and then they go away. But I think this is a long-term trend that people need to be aware of. 

Darryl Brown: It is likely that the trade war and the tensions with the US and other large economies are likely to continue, irrespective of the administration or who is in Congress.


Darryl Brown: So, I think that is something to definitely keep an eye out on. The second point and I made it in our last quarterly presentation, is that people need to be aware of the stock market. It’s a reflection of what investors are willing to pay for a stream of cash flows, and not necessarily a reflection of the economy.

Darryl Brown: There’s, I would say, broad and previous sort of economic thought around, and kind of investor thought around the economy in the stock market, is that the stock market at many times has been viewed by people as a leading indicator of the economy, and I would invite investors to view that connection as being completely off. And I don’t think that the two are going to move in lockstep with each other.

Darryl Brown: I think there have been points in history where their connection has been probably, in retrospect, a bit coincidence.

Darryl Brown: But I think at this point in time it makes sense to get rid of the idea that the economy and the stock market are linked. I think that they most definitely are not.

Darryl Brown: If you look at the makeup of the stock market – mainly tech, healthcare companies, telecom, consumer discretionary – it is significantly different from the actual companies, small businesses,  that make up our economy – more wholesale, manufacturing, real estate – they’re different, and I would expect them to act differently.

Darryl Brown: Even in the absence of extraordinary fiscal and monetary support, but I think even more so now where you have monetary support effectively kind of inflating financial asset prices. You’ve got two separate tools at work here: monetary support and you’ve got fiscal tools. And they’re going to result in this disconnect, I think, being a lot more persistent than people are prepared for.

Darryl Brown: Keep in mind, your portfolio isn’t an island. And by that, again another point that I made in our last quarterly call, I think investors need to be aware that your pot of money, whatever it is, it needs to be connected to something, there needs to be a purpose behind it.

Darryl Brown: Just trying to invest and beat the markets for the sake of investing and beating the markets is a really challenging strategy that I don’t think is effective.

Darryl Brown: Making sure that your portfolio is connected to some type of plan.

Darryl Brown: Whether it’s an investment plan over time, or whether it’s a financial plan that figures out how to fund your life, or figures out what you’re saving for, I think that those – looking at your portfolio as a connection to your broader financial picture – is incredibly important. And finally, just keeping a note on central banks and fiscal stimulus. There’s going to be a lot of chatter over time, about what measures, and how much, and when those measures will stop, if ever. I think the prevailing point of view at this point is, whatever it takes for as long as it takes on both the monetary support front and the fiscal stimulus support front. So, with the exception of the US going through what the administration says is the negotiation process, I do think that investors need to be comfortable with hearing about fiscal stimulus (ie. government spending) for quite some time. I think the overall investment markets are going to be receptive to that.

Darryl Brown: And there’s no concern from my standpoint, at least for now, that increased fiscal stimulus spending will result in any issues as it relates to the sort of fixed income side of the balance sheet for now. We’ll keep in mind the Bank of Canada is effectively financing the government deficit with money that is basically zero percent. So, from a deficit spending standpoint, it is going to be manageable, at least in the near term. And I think it’s going to be supportive for the economy overall, with those super low-interest rates basically funding our fiscal situation.

Darryl Brown: That’s it for me as far as prepared remarks go, and if you’ve got any questions, please feel free to send them into the chatbox and we’ll give you all a few minutes or a few seconds just to gather thoughts, and please definitely send through some questions if you have them.

Market 2020 Q&A:

Spring Plans: We’ve got a couple of questions already, so I will read those to you. And just as a reminder and a change to my written instructions, if you would like your questions to be anonymous you can choose to send it to panelists, rather than all panelists and attendees.

Spring Plans: So, first question, Darryl, I’m just going to go back up here, is: do you foresee an opportunity in investing in green energy sectors now that several infrastructure initiatives are outlining stimulus and subsidies for this type of recovery?

Darryl Brown: I think the opportunity around green energy is, it’s been around for quite some time. And going forward, I know the government, as part of their existing mandate and what will be part of their future mandate, will have a focus around green energy. So, I definitely see an opportunity there in terms of the availability of green energy projects for client portfolios. Now, it’ll be a little bit trickier for clients to directly access a lot of those investments. Typically, they come through investments in existing companies, whether they’re renewable energy companies, you even see traditional sort of companies in hydrocarbon complex get involved in the renewables spaces, they try to manage their transition through a low carbon economy.


Darryl Brown: So, I don’t foresee an opportunity by way of investors having a sort of direct investment in new kinds of projects that are supported by government spending. But I do see the availability and the prevalence of green energy projects showing up in a number of companies that either already has a or are already entirely involved in the green energy space, or unfortunately, you might see these as part of other companies that are trying to manage their existing presence, whether they’re an oil and gas producer or pipeline company, you’re starting to see some green energy projects show up in their portfolios, because of them managing their long-term risk. But I do definitely see just overall terms of the availability, the presence – Yes.

Darryl Brown: I would say the rates of return on green energy projects are going to be similar to what they were in the past, and I’m not foreseeing any type of opportunity by way of outsized returns on that front.

Spring Plans: Second question that we received was: Can you speak generally about real estate investing, resale, or new builds?

Darryl Brown: Yeah.

Darryl Brown: I can speak to it from a more anecdotal point of view. I spend time looking at it as much as most Canadians do, in Toronto, just looking at – and then the economy as a whole – you’ve definitely seen over quite a significant period of time, the trend of prices seemingly disconnecting from their sort of underlying fundamentals, whether it’s local incomes or local economic activity.

Darryl Brown: For the overall real estate sector, there’s a huge positive in interest rates remaining significantly low for a long time.

Darryl Brown: A really interesting sort of point of view that I had someone tell me, is that people don’t buy homes for a price, they buy a series of payments.

Darryl Brown: And in house hunting a number of years ago, you’d see real estate agents post – yeah, they’d post the price – but they would also really want to emphasize just what the payments are per month.

Darryl Brown: What your actual sort of cash flow might be. And so, whether it was 600,000 or 700,000 or whatever the price might be for the home, is less relevant than the fact that to carry that home is, could be 2000 or 2,500 dollars or whatever amount it might be. So, interest rates are going to be hugely supportive for the overall sector, and within the sector, it’s going to be really a challenge towards some asset classes which are going to be challenged, quite frankly. The downtown condo that is 500 square feet at King and Bathurst, I don’t think there were a lot of buyers for that. I think there’s pressure for people who are already in there, from an owner-user standpoint and from an investor standpoint. I think there are pressures where the owner is saying – the owner-occupied person – is saying; “Well, I’m going to just move to Peterborough and not have a mortgage” or just looking at other areas and saying “This represents better value for me”, now that people can telecommute and reasonably so. So, I think there are going to be sectors like that that are going to be challenged.

Darryl Brown: I think there are sectors that are going to continue to remain strong against sort of your semi-detached/detached Toronto residence. I still think there’s going to be a bid for that. I don’t think that is going to be a 20-person, 150-over-ask situation like it was four years ago, or even into last year. But I think prices will sell for around ask, is anecdotally, what I’m seeing around here where I am in Toronto. But I am seeing a challenge on the investor-owned side, so rental properties are going to continue to be a challenge. And I think the underlying theme here is just looking at payments from tenants and trying to understand, well how do you adjust that for risk

Darryl Brown: So, I don’t see doom and gloom overall for the real estate sector, but I think it’s really going to bifurcate which areas are going to be somewhat supportive, and then obviously the areas that are going to be a challenge. I think the theme of telecommuting is going to be huge, and I’ve already heard, and just kind of know firsthand, you’re starting to see bidding wars show up in places like Peterborough, Hamilton, Guelph, York Region. That’s where people are saying, “Hey, I want to be out here and I want more space”. So, I think there is support in that asset class within the real estate complex, but downtown residential, I would say downtown office space, is going to be a challenge.

Darryl Brown: Anything that is kind of within the GTA and within commuting distance, I think it’s going to have a ton of support. And I would say that the only thing sort of holding up sales, and kind of further outflow from Toronto, is probably just the lack of inventory in some of those surrounding areas relative to the demand coming from Toronto. So, I think there’s broad support for space, but definitely be careful and definitely know that the entire space is not going to travel in lockstep with each other.

Darryl Brown: That downtown condo for – there are certain buildings that every now and again I look up on MLS and I’ll just see a blob, it’s like 30 units or 22 units and it’s all in the same building, and more so, so many of those units have such similar floor plans. So that’s going to be such a challenge for investors who hold those properties, whether they’re either trying to sell or trying to rent them out, which from the sound of things, rental rates are going down at the moment.

Spring Plans: Thank you so much, Darryl, that is, that’s it for the live questions that we’ve got.

Spring Plans: Just a reminder to all our attendees, is that we are recording this quarterly clinic and we will send it out in an upcoming newsletter.

Spring Plans: And you will get a copy of the slides email to you, following the clinic.

Spring Plans: So, if there are no more questions, then we will – I don’t think you had any in advance, right Darryl?

Darryl Brown: No questions in advance on my end. Great.

Spring Plans: Excellent. Thank you so much. And you’ll hear from us shortly.

Darryl Brown: Have a great evening, everyone.

42:13 End of Recording



Darryl Brown
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