Currently, the “sell in May and go away” theory is holding true to form, with most investors taking to the sidelines in the last few weeks. The volume of trades, both on Wall Street and Bay Street, are noticeably down from average levels. It seems that investors have been taking a wait-and-see approach with respect to their investment decisions.

 

Investors have been waiting to see how the new financial reforms coming out of the United States will affect the largest banks, while also keeping an eye on what comes out of last week's G8 and G20 meetings with respect to global financial reform. Once the rules of the game are established with respect to how the world’s financial sector will operate, I believe investors can and will be able to figure out the best way to make money going forward.

Interest rates in Canada and the United States remain at or near all-time lows. Thus, there still seems to be very little in the way of options for investors to make money today. While the stock market has provided very little growth this year, other investment options are faring no better. If investors look to the fixed income market, you could possibly earn three or 3.5 per cent (on short term investment grade or government bonds) which, after factoring in inflation, would yield very little. The volatility is not as great in a fixed income product (i.e. bonds), however the rate of return in my opinion is not worth it if you are looking to grow your wealth.

Thus, with the stock market not providing the returns investors are looking for and fixed income investment providing little in the way of growth on your capital, how can investors get ahead? At this time, I believe investors need to find somewhere to “hang out” while this market searches for direction. You want to try and get paid the best rate possible with as little volatility as possible while you wait. Under these circumstances, I believe this investment environment should lead individuals to the financial sector. There are some companies within that sector that are paying as much as five per cent dividends, plus the sector itself, in my estimation, still has room for growth. This sector historically has been one of the best and most consistent performers, making up approximately 30 per cent of the overall TSX. Thus, an investor looking for alternatives in this market should consider, in my opinion, the most stable companies in the Canadian market, the banks and insurers. There is also the possibility of dividend increases in the coming years once the G20 countries decide on how they will tackle global banking issues.

 

Even though this may seem like a boring investment strategy, it is a strategy that should provide positive results in a difficult market environment.

If you have any questions regarding the above article or are looking for an Investment Advisor to help you with your portfolio, please send me an email at asmall@dundeesecurities.com. I will be glad to speak with you.

 

Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities or Metro Canada.