Avoid overrated investments

Six of the top money managers across Canada offer their expertise on the most overrated investments.

Real estate investment trusts, a security that invests in real estate directly and sells like stocks on major exchanges. In the perennial search for yield, many people treat them like bonds but there is neither a promised certainty to the income stream nor a guaranteed return of capital. –Margaret Franklin, President and CEO, Kinsale Private Wealth, Toronto

Small-cap mining (gold, copper, and even oil) stocks are selling at much higher prices than they are earning. –Denis Durand, Senior Partner, Jarislowsky Fraser Limited, Montreal

Read: Exempt offerings require care

Government bonds. Rates are low and there is a lot of demand from an aging population. As baby boomers retire they will require people to take care of them, which will not favour government bonds over the next five to 10 years.— Francois Bourdon, Associate Chief Investment Officer, Fiera Sceptre, Montreal

Commodities. Lots of folks get giddy on gold. I like to think of it from an investment perspective rather than a speculation perspective. What will gold pay me to own it? Other overrated investments are high-yield bonds, also called junk bonds [which exchanges a higher potential for added risk].— Elizabeth Hamilton-Keen, Director and Senior Portfolio Manager, Mawer Investment Management, Calgary

Read: Is gold overvalued?

Government bonds issued by countries that have high debt-to-GDP ratio, such as the U.S. and Japan. For the first time in history, there is a question whether these entities will be able to repay you because the currencies may be worthless due to loose monetary policies.—Constantine Lycos, President, Lycos Asset Management Inc., Vancouver

Read: Closer look at frontier markets

Residential real estate as a second property or purchased with a view of being an income-generating property, particularly in the U.S. The U.S. housing market is still struggling to stabilize, unemployment remains a threat, and at some point interest rates have to rise. Plus there are fees, taxes, and risks with being an absentee landlord.—Mark Williams, Vice-president & Head, Aboriginal Services Group Phillips, Hager & North, Calgary

Lesley Young is a freelance writer based in Toronto.

This article was originally published on capitalmagazine.ca.