IT manager finds ETFs the way to go

Saturday, September 1, 2007

TONY MARTIN
JARETT HAILES
AGE: 25
OCCUPATION: IT Manager


HOW HE DOES IT

Because he's young and is investing for the long term, Mr. Hailes is quite comfortable having all his money in equities. The bulk of it is in exchange-traded funds. He likes how they passively track the indexes, and given historical returns, his forecasts for the future have a fairly high probability of happening. In addition, they're an efficient way to regularly invest a set amount, unlike individual shares, with the inefficient spreads and trading costs associated with buying odd lots.HIS FAVOURITE ETFs

His major holding is iShares S&P/TSX Capped ETF (XIC-TSX), which tracks the capped S&P/TSX composite index. He also holds iShares S&P/TSX Financial ETF (XFN-TSX), which focuses on financial institutions.

He limits his international exposure because of concerns about currency risks. "You just can't predict which way it's going to go." He does have some international exposure through iShares MSCI EAFE ETF (XIN-TSX), which invests in Europe, Australasia and the Far East, and is looking at the newer BRIC funds, so-named because they invest in Brazil, Russia, India and China.

He feels there are opportunities to beat the market, which is why he actively manages anywhere from 10 to 30 per cent of his portfolio, investing in value stocks.

HOW HE FINDS VALUE PLAYS

Mr. Hailes uses stock screens to find his value plays - companies with low price-to-earnings multiples and book values. He also likes companies with good free cash flow as well as profit margins that are above the industry norm. He prefers to use a good deal of data - 15 or 20 years' worth - but likes to see how a stock behaved through an entire business cycle.

A typical buy was the IBI Income Fund (IBG.UN-TSX). The fund holds a 50-per-cent interest in IBI Group, a Montreal-based company that provides architectural, engineering and other professional services to builders and developers.

He also likes the fact that the company is only followed by one analyst. "It's pretty illiquid and there are enormous spreads."

Another buy was Addendum Capital (ADV-TSX). A bond management firm, Addendum has had strong dividend growth in the past four years, pays a good dividend and has fairly strong growth, he says.

WHAT'S NEXT

Mr. Hailes is doing his homework in order to add a third method of investing, trading options on U.S. stocks. The method he's keen on is called a bull put spread. Recently, he made a premium by selling a $60 (U.S.) put on Tesero Corp. (STO-NYSE) and buying a $55 put, which netted him a gain. At the time, the stock was trading around $61, and as long as the stock stayed about $59 or so, he would stay in the black. BEST MOVES

Trading biotechs shorter term has proved profitable for Mr. Hailes, who likes to pick up their shares when they've dropped. because of investor impatience.

WORST MOVES

Going long on Edmonton-based Isotechnika Inc. (ISA-TSX) when it was in Phase II trials for an immunosuppressive drug. But the company's collaboration deal with Roche went south and the stock tanked.

Special to The Globe and Mail