Ask The Experts - September 2025
All answers are provided by 5i Research.ca
Q: I understand it is impossible to predict, but do you feel itís wiser holding cash at these all-time highs? Should I wait for a drop and pounce? Or buy at these numbers as all-time highs indicate excellent businesses, assuming a long-term hold.
I am about 25% cash. Is that too much in this market?
A: It has been proven that all-time highs are not a bad time to keep buying. Cash does underperform long-term, and because it is essentially impossible to time the market, we are comfortable continuing to invest, assuming one has a decent timeframe (5+ years). The market will continue to be volatile, but background conditions (rates and earnings) remain generally positive. There is a lot of money on the sidelines that may still come back into the market. There are risks (debt, war, inflation, tariffs), but there are always risks. Cash levels need to be personal, but we would see 5% to 10% as more appropriate than 25%. But - the right amount of cash is the 'sleep at night' level. The worst thing for an investor is to be nervous and sell during a market downturn. If a higher cash level prevents this, it is still acceptable. If an investor is confident enough to buy during that downturn, even better. However, many investors with a lot of cash freeze up in a market downturn, which is why consistent investing generally works better.
Q: There is a lot of rhetoric coming out of Ottawa about going all in to boost the Canadian economy with major growth projects, reduce internal trade barriers, and mitigate tariff impact. If this in fact all comes to fruition, do you think this would positively affect Canadian ETF values and would this be a good time to buy into those?
A: There is a trade-off of course between spending and debt, and Ottawa needs to be careful. Canadian productivity is low right now, and there are other signs of economic weakness. Infrastructure and other programs are typically long-term deals, so there may not be a big immediate impact to corporate earnings. Earnings, and interest rates, are more likely to drive investor sentiment over the next year or so. Programs can be positive longer-term, but we would not expect a huge move here. The Canadian market is nicely ahead of the U.S. this year, and some of any sentiment impact may already be partially embedded in valuations.
Q: Often when someone asks an opinion on 5i Research’s Q&A about your opinion between two similar stocks, the response comes down to “both for diversification”. I totally agree with diversification, however you also often comment that more than 20-30 positions is not necessary or manageable. I have struggled trying to have a balanced portfolio, including some income as well as growth, and including all sectors. It doesn't seem possible. But your answers do make me consider other possibilities.
A: When asked questions like “Should I load up on company XYZ over buying a different sector company ABC”, we will typically defer to diversification. Many investors cannot handle, say, a 7% position in one stock, and two positions at 3.5% is more likely to make the investor stick around for the long term, which is needed for success. With 11 investment sectors, one can have two stocks in each sector for a total of 22 positions. We think that's a good general outline. But then again investors have different accounts, where different (growthy) stocks may be in a TFSA and this could add to the stock count. We are fully comfortable with 'more' stocks: they do not 'hurt' a portfolio. But after a certain number they do not add anything to risk-adjusted returns, and a portfolio becomes more 'index like'. So, there is a balance between risk adjusted returns, investor goals and managing more positions.
Q: There's been a lot of noise lately about widening bond market spreads and their potential implications. From your perspective, is this a meaningful early signal of broader market stress and if so, how might it impact public equities in the months ahead? Appreciate your take.
A: It is really not that new of an event. Bond stress happened last year, and, more significantly, in 2022. With the tariff flip-flops, there has been an 'avoid the U.S.' mentality globally, and this has pushed up 10 year and 20-year yields. The 10-year is at 4.14%, and it did go above 5% last year. So, in terms of 'stress' right now, it is more talk than reality. The U.S. has been fortunate so far this year as inflation has stayed under control and corporate earnings have been quite good. This may change, of course, with tariffs potentially impacting both of these metrics negatively. So, it is not a time to ignore the bond market, but for now, we think things are okay. Recent declines in oil prices and the M2 money supply may be deflationary, and this could alleviate some pressures.
Q: In the Globe and Mail on July 16, there was an article by Scott Barlow called "Valuations and market concentration are reasons for concern". He likens the current Technology sector to mirror many of the same realities as the 2000's - before the dot-com bust. What is your opinion?
As always, thank you for the fantastic service and helpful guidance.
A: We agree there are pockets of the market that have high valuations, but we would not agree on the dot-com comparison. In dot-com days, most companies had weak earnings, weak balance sheets and not much in the way of technological advantage. Today, the 'expensive' stocks have massive amounts of cash and cash flow, are hugely profitable, and most are buying back stock hand over fist. Some AI, quantum and crypto stocks are current investor favourites and expensive, certainly, but if we take out some of the mega-cap stocks and speculative names the overall market is not too expensive at 22X forward earnings (S&P 500) considering expected earnings growth (good) and lower interest rates (likely).