Brooke Thackray, research analyst at Horizons ETF Management Canada
Focus: Seasonal investing and technical analysis

MARKET OUTLOOK

There is a battle going on between positive investment sentiment based on central bank support and the effects of the coronavirus on demand and supply. Last Monday, Apple became one of the first major companies to warn it won’t be able to meet revenue expectations due to the virus. If other companies follow suit, investors may become more concerned about the virus’ ongoing effects, which will probably have a negative impact on the stock market. Currently, investors are still content to compare the situation to the SARS outbreak.

Most companies on the S&P 500 have already reported their Q4 earnings. The Canadian stock market still has a large number of companies set to report, including the banks. Investors should expect the Canadian market to become more volatile relative to the U.S. stock market. Despite both markets being in their favourable six-month periods from late October to early May, investors should expect more volatility in the near future. Nevertheless, the market is still expected to be moderately higher over the next two to three months.

TOP PICKS

CONSUMER DISCRETIONARY SECTOR SPDR ETF (XLY NASD)

Consumer discretionary historically performs well this time of year until April 22. The sector has benefitted from Amazon’s strong performance, which is a large part of the ETF (approximately 26 per cent). The sector is dependent on consumer spending. Given that the U.S. unemployment rate is 3.6 per cent (low by historical standards), consumer spending is expected to continue to be strong.

HORIZONS EQUAL WEIGHT CANADA REIT ETF (HCRE TSX)

REITs have a strong seasonal period from March 8 to Sep. 20. The sector benefits from both economic growth and acting as a bond proxy with its distributions. In times when the economy is sending out mixed messages, REITs tend to perform well. In addition, the sector performs well relative to the broad stock market when economic growth is coming into question and the stock market is responding negatively. If the economic concerns become serious, REIT performance will deteriorate.

WALMART (WMT NYSE)

Walmart has a seasonal period of strength from January 21 to April 12. Recently, the company announced earnings results that fell short of expectations, coming in at $1.38 per share versus an expected $1.44. Investors looked past the weaker-than-expected earnings results and concentrated on Walmart’s strong online sales, which grew by 35 per cent. The stock’s positive momentum should help it perform well in the remainder of its seasonal period.

PAST PICKS: JAN. 7, 2020

HORIZONS TSX CAPPED ENERGY ETF (HXE TSX)

• Then: $16.63
• Now: $14.90
• Return: -10%
• Total return: -10%

ISHARES SILVER TRUST (SLV NYSE)

• Then: $17.17
• Now: $17.23
• Return: 0.3%
• Total return: 0.3%

TJX COMPANIES (TJX NYSE)

• Then: $61.59
• Now: $63.81
• Return: 4%
• Total return: 4%

Total return average: -2%

FUND PROFILE

Horizons Seasonal Rotation ETF
Performance as of Dec. 31, 2019

• 1 month: -0.6% fund, 2.1% index
• 1 year: 10.0% fund, 14.8% index
• 3 years: 6.8% fund, 7.6% index

INDEX: TSX 60 Total Return.
Returns are based on reinvested dividends, net of fees and annualized.                                                                            

TOP 5 HOLDINGS

1. Horizons S&P 500 ETF (HXS): 20.6%
2. BMO TSX Capped Composite ETF (ZCN): 15.8%
3. Horizons TSX 60 ETF (HXT): 15.2%
4. Vanguard S&P 500 ETF (VOO): 10.9%
5. Horizons Equal Weight Canada Banks ETF (HEWB): 9.3%

TWITTER: @BrookeThackray
WEBSITE: horizonsetfs.com/HAC