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

MARKET OUTLOOK

A divergence has occurred between the performance of the stock market and economic growth and earnings. The stock market has been rising, up until this week. At the same time, global growth has been slowing, including countries such as Germany, Japan and Italy all having poor growth rates. In the first quarter, China showed improving economic performance, but recently China has indicated that is starting to be more cautious about its credit expansion. In addition, earlier this week, China announced a net export number that was substantially less than expected. It appears that the “green shoots” in China are fading. In the U.S., first-quarter corporate earnings have been better than expected, but they are still weak on a year-over-year basis coming in at a growth rate of 1.9 per cent. A lot of the earnings per share growth is the result of companies buying back their own stock.

The big question that is yet to be answered is, will there be a positive outcome from the U.S.-China trade negotiations? So far, there has been a lot of posturing on both sides. Although the announcement of a constructive trade deal would probably push the stock market up in the short-term, longer-term the positive influence may not be strong, as it looks like the stock market has probably already priced in some sort of trade deal. In addition, it’s possible that the fine print may be disappointing with extended periods of tariff removal and adjustments taking many years. The stock market is showing waning momentum after reaching all-time highs, just as it is entering the six-month unfavorable period for stocks (May 6 and Oct. 7). In this period, the stock market on average over the long-term tends to have muted gains and can suffer large losses. The combination of a weak economic backdrop, weak earnings, technicals showing that the stock market is losing momentum and weak seasonal support, investors should be cautious at this time.

TOP PICKS

Brooke Thackray's Top Picks

Brooke Thackray of Horizons ETF Management Canada shares his top picks: XLV, HCRE and ITE.

HEALTH CARE SELECT SECTOR SPDR FUND (XLV)

After outperforming for most of 2018 and then underperforming in 2019, the health care sector has recently started to show some strength. The sector underperformed in the first quarter as investors were attracted to growth sectors of the stock market, such as technology. The sector has a seasonal period that lasts from May 1 to Aug. 2. It’s attractive at this time of the year because of its defensive characteristics. In addition, the sector is attractive as it has reduced exposure to negative outcomes from the U.S.-China trade negotiations.

HORIZONS EQUAL WEIGHT CANADA REIT INDEX ETF (HCRE.TO)

REITs tend to perform relatively well in a slow growth environment and with interest rates range-bound or declining. The current North American economy is well suited for REITs. On a seasonal basis, they tend to perform well from May 20 to Sep. 20.

SPDR BLOOMBERG BARCLAYS INTERMEDIATE TERM TREASURY ETF (ITE)

Government bonds tend to perform well from May 6 to Oct. 3. In this period, investors tend to be more cautious in the stock market. On the margin, some investors rotate into the fixed income market, helping to push bond yields down and bonds higher. So far this year, bonds have been positive as expectations for central bank interest rate increases have dissipated. Their positive performance on a year-to-date basis does not take away from potential of government bonds to perform well over the next few months.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
XLV N N N
HCRE N N Y
ITE N N N

 

PAST PICKS: APRIL 3, 2019

Brooke Thackray's Past Picks

Brooke Thackray of Horizons ETF Management Canada reviews his past picks: XLP, XLE and XLB.

CONSUMER STAPLES SELECT SPDR FUND (XLP)

  • Then: $55.19
  • Now: $56.31
  • Return: 2%
  • Total return: 2%

ENERGY SELECT SECTOR SPDR FUND (XLE)

  • Then: $65.89
  • Now: $63.17
  • Return: -4%
  • Total return: -4%

MATERIALS SELECT SECTOR SPDR FUND (XLB)

  • Then: $57.26
  • Now: $53.85
  • Return: -6%
  • Total return: -6%

Total return average: -3%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
XLP N N Y
XLE N N N
XLB N N N

 

FUND PROFILE

Horizons Seasonal Rotation ETF (HAC.TO)
Performance as of: April 30, 2019

  • 1 month: 3.0% fund, 3.9% index
  • 1 year: 10.6% fund, 11.5% index
  • 3 years: 8.2% fund, 10.1% index

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

TOP 5 HOLDINGS

  1. Horizons U.S. 7-10 Year Treasury Bond ETF: 25%
  2. Horizons Active Floating Rate Bond ETF: 20%
  3. Horizons S&P 500 Index ETF: 15%
  4. Consumer Staples Select Sector SPDR Fund: 10%
  5. Horizons Canadian Select Universe Bond ETF: 5%

WEBSITE: horizonsetfs.com/HAC
TWITTER: @BrookeThackray