The Canadian Investor - Hype ETFs, Accenture and inflation headlines

Episode Date: November 1, 2021

In this monday release of the Canadian Investor Podcast, we discuss the following topics: Braden does a deep dive on Accenture, the global consulting technology firm What to make one of a company that pays a special dividend The Bank of Canada announcing that it will increase interest rates soon and start tapering quantitative easing We look at the differences between deflation, inflation and hyperinflation. More specifically the recent takes from Jack Dorsey, Elon Musk and Cathie Wood on Twitter Hype ETFs and what happens when a fund is closed What we are currently buying Tickers of stocks discussed: ISRG, SPOT, DOO, BAM, ACN https://thecanadianinvestorpodcast.com/ Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital See omnystudio.com/listener for privacy information.

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We are right in the thick of things with earnings, but today we're not going to talk about earnings. We got that on the Thursday release. So much more news coming out of the companies that we care about, that you might care about. Simon, what's going on today? We got a jam-packed show. We are going to do a couple deep dives, longer segments today. But I think that these are questions that we get a lot and we think are important. How are you doing, man? Yeah, doing well. Definitely some longer segments, a few shorter ones here and there as well. I think it'll be fun.

Some that we decided to do just based on some questions we had in the past as well. So I think it should help some people out. Let's kick it off, get right into it with Accenture. So I know you guys have liked some of these deep dives in the past. This is the research that I pull from Stratosphere and do anyways. So it's nice to be able to utilize it for the podcast and you guys can get it in this audio format. Accenture is the company that I'm going to talk about today. So Accenture is an Irish company that has a massive global consulting firm specializing in technology and innovation. The ticker on Accenture is ACN.

So this business helps other large businesses with digital transformation, software integration, cloud migration, among other things. but these are the typical types of it consulting services that a center does so before we get into what makes it great and what they do is let's set level set with some numbers first before we dive into the business so they've grown revenue on average of about 15 percent per year over the last three years. So nice double digit revenue growth. They have a really, really conservative, nice balance sheet. They have a wonderful 27% return on invested capital and over 30% return on equity. They do have a nice 20% EBITDA margin and that is climbing over time as they flex some operating leverage. It does today trade at about 38 times

earnings and four and a half times their sales number. It pays a 1% dividend that grows at about 10% a year. So some nice consistent dividend growth. Now, this is a gigantic company, Simon. It has $230 billion in market cap on the New York Stock Exchange, and no one seems to really talk about it, at least not in the circles that I'm exposed to. So that's why I think it's an interesting one to pull up because it's this technology company, but it's a professional services company, and it is ginormous. For context, Shopify is about $170 billion in market cap in USD on their New York Stock Exchange listing. So 230 versus 170 in USD for Accenture versus Shopify, just to

level set and see really how big this company is. So they are underpinned by four main things that I'm going to talk about today, among others, but digital transformation, for sure. And then right now we live in this innovate or die type economy. And outsourcing of technical skills is another trend and theme that we've seen from large enterprises. And Simon, feel free to jump in with any questions at any point because this is a fairly long segment. Yeah, definitely. Yeah, I was going to say I was surprised. I know them a little bit. And yeah, I did some research before because I knew we were going to talk about them and same thing for me. I was surprised at their market cap. That was the first thing that really jumped out. Yeah, they're huge. And for a company that kind of – a lot of people know them and know what they do and maybe have even worked with them. But I don't hear much about the stock for something $230 billion in market cap that has very consistent

compounder type qualities. So their greatest asset as a professional services business is their people. They have over 500,000 employees around the world, which is quite a staggering number. They do 20% of sales in North America, 32% in Europe, and the remaining and largest segment of 48% of sales in what they call growth markets. That basically is everything except for North America and Europe. So they are doing a lot of global business and they're doing a lot of business in developing less developed nations outside of that core North America and European market. So that is very interesting to me. So now you can get a gauge of

how big this company is and how global it is. So if you go on Stratosphere and check out their top line net income free cashflow graphs on the past 10 years. This is one of those as consistent as they come compounders. And the stock price as a result is up 500% over the last 10 years while you collected a nice growing dividend. This business is extremely profitable, bringing in about 6 billion in net income for fiscal 2021. Now I'm going to go over their roots because I find it interesting and I'm always fascinated go over their roots because I find it interesting and I'm always fascinated about how these stories start and what the founder went through. So keep in mind, now this is a $230 billion in market cap business. Accenture began its story

as part of the now defunct accounting firm, Arthur Anderson, in 1951. A partner of the firm's administration division at the time, Joseph Glickoff, created a computer prototype called the Glickyak. Glickoff convinced his fellow partners to invest in the idea and soon found himself installing the first computer system for commercial use at General Electric's Appliance Park, good old GE. use at General Electric's Appliance Park, good old GE. And at the time, GE was one of those incredibly dominant businesses, and we've seen their market cap just shrink over time. Glickoff then took over as head of the Administrative Services Division in 1957 and led the design and installation of Bank America Card. Simon, you know what Bank America Card is?

This is the earliest form of what we now know as Visa. So they have these weird kind of innovative roots of making huge impacts along the way in their story of other businesses that we know well and love. And a lot of the innovation that's come out of those companies, Accenture has been there kind of in the background as this expertise division of consultants. Consultants is such an icky word, right, Simon? And there's all these quotes about consultants. If you need to hire consultants, you just don't know what you're doing. And basically, you should be able to make those decisions on your own as an enterprise. But the reality is, and I'm going to get into this,

is that Accenture spends a lot of money on R&D and specifically is a business with the idea of making other companies better and more innovative and facing the challenges that they face. So that when you hire a censure, it's not like, let's go to the boardroom and figure out how we do a cloud migration. It's a censure. I need you to do our cloud migration. You guys have the technical skills. It's going to cost us way more money if we don't know what we're doing and make a mistake. So I think that that's an important kind of distinction to make along the way is in their history, they've had all these interesting touch points that have had profound effects in modern business today. By 1980, it was renamed and then fast forward through some shuffles, it was renamed again

to Accenture, derived from Ascent on the Future. The stock went public in 2001 on the New York Stock Exchange. So Simon, let's get into what some of their competitive advantages are. Accenture has almost 8,000 patents to protect their valuable enterprise solutions and intellectual property. They have the ability to raise prices because competitors can't replicate many of their services. And that's what makes them so great. I'm going to explain what some of those services are. Through its network of over 100 innovation hubs scattered across the globe, Accenture aims to be the first to identify new trends, new technologies, and be the first to a new concept

that directly translates to Accenture's clients being first adopters in these methodologies and Accenture's first to have a solution to some of these broad problems that a lot of the companies that you'll find in the S&P 500, the ones that they face. This gives them a scale advantage on R&D with these 100 innovation hubs, and then also distribution by having this very vast delivery network. So in 2021 today, we truly live in an innovate or die global economy. And companies have a lot of work to do on this. It is increasingly difficult to stay relevant as a company. In fact, the average lifespan of an S&P 500 company today is merely a fraction of what it was just a half century ago. Some 20% of companies are still in the early stages of cloud adoption. adoption. Yeah. It reminds me of what you just said about that Warren Buffett slide. Remember the presentation? He's showing the largest companies in the US by market cap. In 1980 versus now, and there's not a single one that was in the top 20.

Yeah, exactly. That's what it reminds me of. And that's a perfect example of this. It's a perfect valuable lesson for investors is when you buy and hold, you have to buy and monitor. You have to buy and recheck your investment thesis. That doesn't mean you sell things on bad news or bad earnings reports, but you are aware of a changing landscape. If a company is just flat out losing their competitive advantage, like we saw on that slide you're talking about, Simon, is when Buffett showed the companies from the 80s on the top 20 by market cap, and not a single one is in the top 20 now. So you can never be too sure about a company saying there's no risk, because there's always risk. All right. So in 1935, the average company in the S&P lasted 90 years there.

In 2011, fast forward way, way, way beyond 1935, the average life expectancy of a company in the S&P was 18 years. And it's expected to keep reducing. Accenture predicts it'll be 14 years by 2026. So in just five short years, we expect this trend to continue. And it's because it's innovate or die. It's adapt to a global technology or die. Because now you have the ability to capture billions of customers in this global economy. And if you're not doing that, then someone will eat your lunch. It is a very profitable company. Accenture has grown free cash flow from $4.12 in 2013 to $13 in fiscal 2021. That one really stood out for me when I was looking at their

financials, the free cash flow. I think it grew consistently in the past 10 years. One year, it went down slightly, but every other year, it just went up and up and up in terms of free cashflow. Really impressive. It's as steady as you can find. The growth metrics from the top line to net income to free cashflow, it's one of those just really satisfying financial statements on a long basis. Okay, so they make a lot of acquisitions. I'm not kidding when I say Accenture makes a lot of acquisitions. They have bought 50 companies in 2021 alone,

worth a combined $4.2 billion of capital deployed. So consulting and professional services is so fragmented. So many private owners of consulting firms are willing to sell, move on, retire, So consulting and professional services is so fragmented. So many private owners of consulting firms are willing to sell, move on, retire, or sell and keep working. It's a lot of like family private businesses, these consulting firms across the world. So on Stratosphere, if you go to onto Accenture and you type in ACN, you can legit see on the news segment that they make an acquisition every single week. Sometimes it's three or four in a week. There is a huge growth lever for them to continue to

roll up these services. And this is why I like roll-ups in professional services more than other industries. And some Canadian ideas there as well, WSP Global and like a civil engineering firm and infrastructure engineering firm. And then first service is the residential services. These are Canadian companies that trade on the TSX, but these professional services and these industries are highly fragmented means that there's lots of room for them to keep buying up these small players. And what you can do when you do professional services, you can cross sell your capabilities because you're growing your offering through acquisitions or organically. And this is really powerful. All right. So the bottom line, I've been talking for too long on Accenture here is,

is a really high quality company and it's trading at a reasonable price in my mind right now. It doesn't come without its flaws or risk, just like any company on this planet. We've seen, you know, not every company can live in the S&P forever, but it's very decentralized, very diversified while serving pretty much every industry. So they are protected in that sense. These roll-up companies are probably more safe than the average company out there. It's really well run. They have wonderful scale advantages and they are continually underpinned by being the name around the globe for the services around digital transformation, which are highly in demand right now and will be in for a long time. Like I mentioned, Simon, only 20% of companies have actually,

of large enterprises have completed a proper cloud migration. Yeah. And just looking at the balance sheet, as you were talking, very, very good looking balance sheet to very little debt on there, very good looking balance sheet, too. Very little debt on there. So that's always something I like to see. I mean, I knew of Accenture, not obviously as well as you did, and definitely impressed with what you explained over here and working in a fairly large organization. And I can understand why a lot of organizations would go for these consulting services because they just, you know, for the most part, they just don't have the expertise. And it doesn't make sense for them to train employees, hire that when they're just trying to create expertise within their business, when they can just hire someone externally already has it. It's most likely way more cost efficient, too, for these large businesses.

So makes a lot of sense. And you know what? I think the numbers are right there, too. already has it. It's most likely way more cost efficient too for these large businesses. So makes a lot of sense. And you know what? I think the numbers are right there too. Seems like they know what they're doing. They certainly do. And you touch on an important point, which is outsourcing technical skills, because the average company doesn't have these types of skills. And that's totally normal. I mean, where are people supposed to learn it? The average workforce does not have the capabilities of conducting many of these high skilled technological changes. And so if you do have those 500,000 skilled employees and people are relying on you, the results just kind of speak for themselves. Yeah. And don't forget too, there's a lot of competition for that skill set too right now. So even if companies wanted to do it on their own,

it may not be that easy. So a solution like this would make a lot of sense. That's right. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way.

As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable, and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit Questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income.

But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. All right, let's move on, Simon. What do you got for us next here? Yeah, so a topic we've had before, I think we may have mentioned it a while back, but something that we do get asked from time to time, what to make when a company is paying a special dividend. So usually companies will be

doing really well and that's a way for them to return capital to shareholders. Of course, we talked about different ways companies can return capital to shareholders. They can buy back stocks, they can pay a regular dividend. But a special dividend is something else. Of course, with excess capital too, they could look for other opportunities, reinvest in the business, do acquisitions. So there's different things you can do with capital. There's a good chance the excess capital is more short term if a company is thinking of doing or paying a special dividend. If it wasn't short term, chances are they might look at increasing the dividend or do a dividend on a more permanent

basis. And I put permanent basis in air quotes because a dividend, even if a company has a long track record of paying a dividend, is never guaranteed. I would caution anyone who is looking at dividend yield, especially different sites. They may include a special dividend that was recently paid in the dividend yield. So just be careful with that because you might, you know, part of your thesis might be based on the dividend that a company is paying. But if they include the special dividend in their number, it's going to skew your calculation and your analysis of the company when it comes to dividends. And like I said, no dividends are guaranteed special or regular, but special dividends will usually be a one-time thing. You won't see them reoccur year to year. So make sure you take that

into account for a company. And a good thing to do whenever you look at dividends for a company, have a look at the history of the dividend payouts. You can find that most companies that pay a dividend just on their IR site, you'll have just a list of the recent dividends. So if you see, you know, steady, steady, steady, steady, steady dividend or maybe a small increase and then let's say a 5x one-time dividend, that's usually a good indicator right there. Yeah, well put. With special divs, they can be great for certain div payers that have excess cash on the balance sheet that they think is not really best served other than giving it back to shareholders. So when a manager, a CFO has capital allocation decisions to make, and they don't think that using that cash to pay down debt, if they have debt, or reinvesting in the business, or whatever it may be, they think that a one-time payment to

shareholders will be the best reward for them, then that's what they'll do. And sometimes they've been great for investors. I mean, there's been lots of times where companies have just gone, look, we have too much cash. We don't really have an ability to invest it right now. And that sometimes gives investors like bearish sentiment. Like, you know, why isn't there a way for you to be able to invest this for me at a better rate? But a lot of times these companies just have so much cash. They're so profitable and they say, well, you know, we are reinvesting in the business, but even if we do that, we're still going to have 20 billion on the balance sheet. So let's reward some shareholders. So it is a very

case-by-case scenario. I think there's a lot of times where even if you look at Mark Leonard and his recent presence letter at Constellation Software, he said that one of his managers that work for the organizations for one of the business units was calling him out, telling him to stop doing the special dividends and that it was irresponsible of him to do so because he had an ability to reinvest for shareholders in more acquisitions at a higher rate of return than they could achieve anywhere else. And he agreed with them and finally stopped. He said, I'm not doing the special dividends anymore. So it really depends on the company, depends on the scenario.

It's not a good or bad thing. I mean, yeah, it's nice to get special dividends, but it's very case by case. Yeah, exactly. I think Costco comes to mind. They have been doing one every two to three years in the past, like 10 years, if I remember correctly. But again, be careful trying to find a pattern because especially with special dividend, you might think there's a pattern there and then it's not there anymore. So that's probably the one thing. But I think Costco was basically bad. They had just a lot of cash on the balance sheet and they just returned one-time thing to shareholders. And that's a perfect example of a rock solid company who can afford to do that and they might.

They have their goals of opening new warehouses at certain amounts and certain speeds. Beyond that, if they feel like returning cash to shareholders via special dividend is the best way to reward them, then that's what they'll do and I see them probably doing that for a long time. Yeah. And now we'll switch on to another subject, a bit more on the macro side this time. Some pretty big news came in today, especially if you're a homeowner, this could potentially affect you, especially if you have an open mortgage, not a closed rate. So the Bank of Canada, they are signaling that they will be increasing rates soon. The current rate is at 0.25% has been pretty much

like that since the start of the beginning. And I quote here the Bank of Canada Governor Tiff McLean. In other words, we continue to expect that inflation will ease back. But relative to our July forecast, it's higher for longer. And that's interesting because it does go with what we've been hearing from different businesses that they're seeing inflationary pressures. Warren Buffett was talking about that earlier this year. I'm going to talk a bit more about that subject as well in our next segment. But it's starting to be a pretty consistent thing that you're seeing businesses that their costs are going up higher. consistent thing that you're seeing businesses that their costs are going up higher and the whole transitionary inflation that especially the Fed was saying quite a bit this year is looking like it might be a transitory for a slightly longer period at the very least.

Transitory in air quotes. Hey look, what's going to happen is rates are part of credit cycles. Credit cycles happen. It's just their long-term and short-term credit cycles. It's impossible to predict, but there are a sign wavelength that you can kind of go with on these types of cycles. And the reality is, is that stocks will probably sell off on news that interest rates are going up as they typically do. But the reality is right now in 2021, rates are still so low. If they bump them up a little bit, rates are so low and there is so much optimism. This is me telling you, there are so many reasons to like being in stocks long term. And right now, rates are still so low. Don't worry about the macro environment. It changes part

of credit cycles. And CNBC will try to tell you that you need to focus on this stuff on a daily basis. The reality is you don't. And right now, rates are incredibly low. I am very optimistic. Yeah. And they added the Bank of Canada. Obviously, they said they would start tapering quantitative easing. So basically, the Bank of Canada, what they do is they purchase government bonds. So it keeps the price up higher. So they're going to basically stop doing that, which usually goes hand in hand with an increase in rates. So that's not surprising. So now we'll transition to a very similar subject. I had some fun looking at Twitter over, I guess, earlier this week. There was a lot of back and forth between Jack Dorsey, Cathie Woods, and Elon Musk. Jack Dorsey started the whole thing with saying

that he was essentially saying hyperinflation was happening. Elon Musk tweeted this week, again with the old inflation talk, that I don't know about the long term, but short term we are seeing some strong inflationary pressure. The first thing before I elaborate on this and before I give the take from Cathie Woods is we want to understand a bit more what deflation is and what inflation is and what hyperinflation is. So I find these terms are kind of thrown out there and people have different definitions of them. So deflation is really when general price levels are falling. It can be caused by an increase in productivity, a decrease in overall demand,

or a decrease in the credit in the economy. A lot of the times too, it'll be related to technology. So of course, if you look at computers today, if you compare that with 20 years ago, you might say, well, a computer is still around the same price, but still what you're getting in terms of performance, you're paying a much cheaper price than you were 20 years ago. And dollar per CPU computing power is like,

it's a joke, right? Like you can't even, it's off the scale. Yeah. And technology is definitely a great example when it comes to that. And deflation itself, it's not a really bad thing because it just means that the consumer will have more purchasing power if all other things are equal. Deflation defined this way is usually a positive thing. whole D word, the deflation word, is because they tend to reference debt deflation, which can cause asset deflation. So stocks or, you know, it could be real estate as well and create real economic crisis. So there's been cases of that in the past in other countries. I really won't elaborate on this because this is not where I want to go, but we can revisit that potentially in another episode, or maybe I can even bring on a guest

that's well-versed in these macro concepts. In terms of hyperinflation, that is the word that I see the most thrown around recently. The definition that I saw that is the most used is the one given by Philip Kagan, who wrote The Monetary Dynamics of Hyperinflation 1956. And he classifies hyperinflation as a 50% increase in inflation in a single month. So based on that, a lot of people saying that we're going to see hyperinflation. It's probably not that definition that they're using because 50% a month would be absolutely crazy. But you know, some people might say if you're seeing even an increase in 5% per month in prices, you're in for trouble. So back to what Kathy Woods was saying, she's on the other end, she actually has the opinion that we might actually see deflation because she

responded to the tweets of Jack Dorsey, and even Elon Musk saying that in her mind the inflation is only temporary and that advances in technology like AI, energy storage, robotics, genomic sequencing and blockchain technology will bend the technology curve. She also mentioned that millennials are foregoing spending to instead pay off student loans and invest in crypto or other assets. Another thing that she mentioned is that we would see inflation slow down after the holiday season because companies will face, will potentially face excess supply, which will cause prices to unwind because they'll ramp up production and then they may not be able to exhaust all of that inventory. The last thing that she said, she also said that in 2008, 2009, when she thought inflation would pick up because quantitative easing the Fed was doing, it really didn't materialize. So like I mentioned, it was it was something I wanted to mention because I found it interesting, especially since Cathie Woods, Jack Dorsey, and Elon Musk, as a general rule, they tend to have a similar view.

They're all very bullish on Bitcoin as well. And I think there's going to be inflation. I think we're already seeing that. So I don't agree with Jack. I don't think it'll be hyperinflation, at least not the definition I gave. The thing I don't agree with Kathy Woods, if you're comparing with 2008 and 2009, is the various global governments, you know, they didn't do direct payments to individuals the way that they did with the COVID-19 pandemic. There was a lot of different things. But if you follow me on Twitter, one of my pinned tweets is actually some calculations I did about the M2 money expansion. So the money supply with the U.S.

And the reason I did the U.S. is because it's a reserve currency. That's the main reason I did that. And the increase in the money supply went really, really way up during the pandemic. It's actually not even comparable to what we saw in 2008, 2009. So I think it's a bit ill-advised for her to compare that to then because it's a different set of circumstances. All that to say, have a look at their different Twitters. You can see what they're each responding, get some different perspective on inflation. Like I said, my view is that we will see inflation probably more than we're used to. I'm not sure if we'll see hyperinflation, but again,

it probably is like Brayden said, just another case to stay invested. Whether you want to invest in stock, put a little bit in Bitcoin like I do, invest in real estate. One thing's for sure, if you keep cash and just cash under your mattress, for example, chances are that you'll be losing on that money just because it won't appreciate in value. This is an interesting conversation because you have three very intelligent people, Cathie Wood, Jack Dorsey, and Elon Musk. Incredibly successful people. I think that's an understatement. How do I even really... We're talking about some of the richest people on the entire planet, some of the most successful, some of the most driven, some of the most innovative,

especially Elon and Dorsey. they've created billion-dollar companies a couple times each. Both of them have multi-billion-dollar entrepreneurship stints, which is something else. And they're all arriving at conclusions, which are basically like, you can't see me right now, but hands up emoji. It's hands up emoji. It's yeah. I mean, we're seeing prices increase. You don't have to be an economist to see that. We're seeing supply chain and monetary policy, inflationary pressures on the prices of pretty much everything. If we value the CPI index on Canadian housing, I think the rest of the world would be like, oh yeah, we've got some serious

hyperinflation. But let's be honest here. This is a lot of guessing, a lot of what I'm saying, hands up emoji. And what is the solution? What can you do for the listeners at home? And my answer is very simple. It's own great companies that can raise their prices over time. It's not anything more than that, really. What else do you do to combat that with your portfolio? And inflation is not a new concept. Inflation is a very old concept.

The rate that it inflates is just variant. But owning good companies that can raise their prices when they want, when inflationary pressures touch them, they go, ha ha, our costs are going up 5% in our supply chain. Take that. We're actually going to raise our prices 10% this year on their annual meeting. And that's the type of business that I want to own, especially in an environment like this. And it brings me to another point. Every single forecast is just a forecast. Every single guess, every forecast you've ever heard in the history of economic predictions is just a prediction. It's just a forecast. So treat it as such and act accordingly.

Yeah. And emphasis on great companies because there's a lot of zombie companies out there too. And I think that's where people should be really careful. So by zombie companies, usually you're looking at companies with high levels of debt that don't have pricing powers that tend to rely on governments helping them out to be able to survive. No, I'm just kidding. Hey, as long as you don't touch BRP. I like that company. Yeah. But no, I think quality is a big emphasis here because if we see those interest rates going up because governments want to taper inflation and those are the companies that will suffer the most. So keep that in mind. I think, yeah, the most important thing is not to panic. And personally, I own great companies. I'm a big believer in

Bitcoin. Everyone knows that as well. That's a discussion for another day, but there's different ways out there, but definitely holding cash is probably not the solution. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people

that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable, and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit Questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the

best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away.

hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Speaking of Cathie Wood, potentially, let's talk about some hyped up ETFs that we saw Cathie's ARK get tons of fund flows in 2020, like tons of fund flows. And there's the genomics one, there's the innovation ETF. And even if you knew nothing about investing, people knew about these ETFs. One, because they had brilliant marketing. And two, they had stellar momentum type returns. And that draws more and more fund flows. You get this positive feedback loop of more and more fund flows. And Kathy gets very rich from that. So let's talk about ETFs that are pretty hyped up and potentially face wind down eventually. But Simon, do you want to kick this one off? Yeah, yeah, definitely. So yeah, hype ETFs,

maybe I'll let you talk about that after I'm done explaining what happens when a fund winds down. So really a fund wind down or liquidation is because there's typically a lack of interest from investors and limited amount of assets. So when an ETF is getting smaller and smaller and smaller in terms of asset under management, there comes a point where it's just no longer profitable for them to operate. Because remember those management expense ratios? Well, you know, it's a percentage. So if the number of asset under management is dwindling, it makes it less and less worth it for them to actually hold that fund. And at some point, the fund could just not be profitable to operate.

And then what will happen? And that's a question I've received more than once, either on Twitter or even when people go on our website and send us questions. So what will happen is investors, you will receive a notice, usually a few weeks to potentially a month or two in advance, depending on the situation. If it happens and you receive a notice, then you really have two options. You can just decide, you say, you know what,

I'll sell my shares right now on the open market, or you can just wait. If you wait wait then whatever is left in terms of net asset value so the nav for the fund will be paid out equally to each share in the ETF and then keep in mind that this is a taxable event most likely depending on the type of ETF and what type of account of course that you it in. So if it's in a taxable account, then it could create a taxable event for you. So that's something to keep an eye on if it does happen. You know, if it does happen, it's nothing to freak out on. Chances are you'll, you know, it's hard to say whether you'll lose or not on your investment. And that's usually the question I get from people. It's like, oh, I bought at a certain price. It's getting liquidated. It's going to be a lower price. I'm going to lose on my investment. Well, usually

you're losing on your investment because the underlying securities are just, you know, have gone down since your investment. So that's really typically what will happen. But you could also profit, right? If you got in early, it got a great run, then kind of dwindled, but you're still up on your investment. So that's something to keep in mind too yeah well put wind down is it's not something you want to deal with no i mean it's not it's not ideal but yeah those high ptfs they're called high ptfs for a reason right so people get really hyped up it could be short term i think one of them the question i had had was a a junior mining etf i think a bmo one that phase that oh god yeah yeah i think it's um that's a disaster waiting to happen yeah i think it got a lot of inflows when the pandemic started i think one guy

even like was saying we knew nothing because he got like great returns in like two three months for investing in that junior mining ETF. Yeah. And then just a year later to see that the fund got wind down and closed up. Yeah. So my take on this and ETFs that are companies rolling out this product, they're packaging this fund as an ETF product. And they're collecting assets. They're collecting management expense ratios on the assets under management in the ETF. Now, this is a marketing company. ETFs, like these types of funds, they're marketing companies.

They're trying to get more and more investors into the fund. Now, some of them could be fantastic investors. I don't think Cathie Wood's a bad investor. I think she's a great investor. The problem is when she rolls out something like this ARKG, which is genomics stocks, a basket of them, a lot of them are micro, like they're small cap companies. They're like less than 1 billion in market cap. But when you flow in all the fund flows, what they have to do is go buy more and more of that stock because investors keep giving the fund more and more money. They have to go buy and buy the things that are going to be in the basket, which could be small cap,

very illiquid, small cap stocks like these genomic stocks. And if there is a drawdown, it works the exact same way where there's that positive feedback loop and momentum that makes the ETF go higher and higher, goes the exact same way in a negative way because these stocks that they actually hold in the ETF are very illiquid and not ready to handle that much volume of selling from a multi-billion dollar assets under management exchange traded fund like some of these big ones that a lot of people know about like the ARK ones. So it runs into a very difficult problem operationally. Does that cover pretty much what we're trying to talk about here? Yeah, I think so.

There's this strange dynamic happening when operating these kinds of things and investors need to be aware of that if they're buying them. Yeah, exactly. I think to track record, right? So if you have a kind of ETF that more maybe more thematic in terms of what they invest in, I mean, if it's been there for like seven or eight years or more and has a pretty steady track record, I think it's different than one that just started a year or two ago and got huge inflows. And now, you know, people got really hyped up and then you don't know what will happen in the future. I don't think I'm not personally saying don't invest in thematic ETFs because I think for

some people it could make sense if they want exposure to a certain sector of the market that's not available that much through index investing or would only represent too small of an allocation. So I'm not saying that specifically, but just make sure you do your research and the track record of a fund is a good indicator there too. Yeah, because there's a degree of separation, right? When you look at the performance of the ETF, there is a degree of separation in your mind from the actual assets held in the ETF. The actual assets held in the ETF are the companies that are owned inside of it. So those are the companies you're investing in. You're not investing in this artificial

imaginary ETF product. You're investing in the underlying assets, which are the holdings of the ETF. Simon, I didn't see you add any notes to this last segment. So hopefully- That's okay. Yeah. You could be hot off the spot. Yeah, I didn't see you add any notes to this last segment. So hopefully you could be hot off the spot. What are you buying right now? Because the market seems all these pockets of opportunities are popping up from my perspective. I've seen some great companies report and the stocks are down. It's this never ending, hey, our business absolutely crushed it. We are well above pre-pandemic levels now. We're seeing strong recovery in everything. By the way, we were already beating our numbers during the pandemic. So things are great. But for reasons

X, Y, and Z, we are being very cautious. They're giving this cautionary guidance. Whether it's supply chain or whatever it may be, the stocks seem to be selling off on good reports. Visa is a good example. I'm seeing lots of examples right now. I'm curious, what are you buying? Yeah, for me, two things. Well, actually, three things I've been buying recently. I started a position in Pinterest, so that's one I had on my radar for a while. I won't go into detail because we talked about them recently with the whole Pinterest and PayPal potential merger or acquisition, however you want to put it. But definitely Pinterest is one that I started a position. The other one would be Brookfield Renewable Partners, already a big position,

but I've been trying to have a bit more of it in my TFSA, whereas I had a lot of it in my RSP. So I'm trying to get a bit more of that income. And the shares have actually been, you know, there's been a little pullback. So I added some shares on there as well. I like to have that little dividend income tax-free in my TFSA. And the last thing that I pretty much buy, I've been buying regularly on the DCA is just Bitcoin. So that I've been just adding. I know it's not a stock, but it's something, again, I have really strong conviction in it. So I've just been DCA and I don't really get phased by any big pullbacks when it comes to that. Simon, you've been bullish on that asset longer than anyone I think I know personally,

and you've crushed it. The trade has worked. What does it go for these days? I think around 60,000 US for one. Okay. 75 Canadian. What is it? Yeah. Something like one. Okay. Yeah. 75 Canadian. What is it? Yeah. Yeah. Something like that. Okay. Congrats.

Yeah. I think and for that and a lot of the names I think you'll mention is a lot of it comes down to temperament, I think, right? So, you cannot be phased by big drawdowns. Well, I'm glad I bought some as well because i wouldn't have if i didn't you're welcome i didn't listen to you so thank you for that what am i buying right now so the best report i've seen so far is is microsoft from my perspective i mean every everything was gravy everything was good nice clean greatness what was it like% increase in revenues or something?

I think it was like 24, 27, 24. I forget. Yeah, I saw it quickly. The cloud's like 35. And then the Azure is like 50 plus percent. LinkedIn is like 40, I think 47% growth on LinkedIn, which is bizarre. What a great acquisition that was for them, to be honest. Now in hindsight, yeah.

LinkedIn is so cringe, but it was a good acquisition. All right. But I don't own a position at Microsoft, although I think it's an incredible dividend compounder like we were talking about last week. I know dividend's tiny, but I can see the cost on your yield on cost being just ridiculous in 20 years on that thing. So Visa is a very solid report and down as well. So I think there's an opportunity, but I personally am buying more Google after a solid report, finally entering intuitive surgical ticker ISRG and potentially adding to Spotify after continued growth and subscribers. Podcasts crushing it, and they're

finally starting to make a real difference in the business. The shares are up 9% today as of recording, but they're still down over 10% on the year. And this is a great founder-led business. I think Spotify is an incredible company. On the Canadian side, I'd probably add to Brookfield Asset Management because I haven't in a while. And it has been quietly getting it done, Simon. And then BRP reported pretty good numbers, but supply chain guidance is the same old story across the board for manufacturers. So it's trading lower. That's what I'm looking at. It's funny you mentioned BAM. I actually didn't even see it that you mentioned the notes and I'm there like saying I'm buying BEP a bit just for my TFSA. So, we saw the same thing pretty much. Yeah. I mean, it's one of those quietly gets it done companies. Like who talks about BAM other than us? Yeah, it's not like a sexy new business, that's for sure.

It's the opposite of sexy. It's so unsexy. But here's the thing. And I know, Simon, I know you own BEP. I'm going to get you over to the dark side and just own BAM one day. I swear I'm going to. I'm going to keep convincing you because where on earth do family offices and hedge funds get yield right now? Like from a fixed income perspective, it doesn't exist. What are you going to get? 1.4% in this inflationary environment? You can't please clients with any of these fixed income. It's like fixed no income. BAM provides a big solution to that. And I think that that is going to be huge. And the ESG fund flows going to be gravy for the asset management business. And Simon, they own 60% of BEP. I know. Maybe I'll swap some of my BEP shares in

one of my RSP accounts for a band. And then I do love it for BEP just because of the yield to have that little kind of income there coming, if ever, you know. Fair enough. Something happens. What's the difference? Is it like the difference of 1% on the yield? I think it's a couple percentage points. Maybe two. Yeah. Yeah, fair enough. But no, I get what you're saying. I think it might be a good idea to just swap some BEP for BAM and would give me more diversification because the other side of the business, it's less concentrated than just renewable, obviously.

That's right. And there's a lot of upside in the rest of the business and the asset management business is going to crush it from my perspective. All right. That was a fun chat, guys. That does it for this week. If you have not checked out stratosphere this new platform is sick i'm so happy with it and the feedback's been incredible you can go to stratosphereinvesting.com check it out everything's free now and you get the 14 days free of all the research so you want to see go ahead yeah yeah and on top of that you get to chat with us on the forums too that's right and make sure you add at me if you want me to respond because I have so much stuff going that I don't always remember to go on. Because then it goes directly to his email and then he has to respond to you.

But no props. I wanted to say, I know I told you, but really good platform. Really great to something I've always struggled with, finding a platform where you can find everything all at once. Really easy to use. You can find all the financial statements all there. Easy to read as well. So it makes it much easier to do research. Thank you so much for saying that. I appreciate that. All right, guys, that does it for this week. We'll see you in a few days. Take care. Bye-bye. If you're not following us on Twitter, it's a good place for us to communicate with you

and you can ask us questions there at CDN underscore investing. If you're not following us on your podcast player, go ahead and do that as well. Take care. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.