Cameron Hurst, chief investment officer at Equium Capital Management
Focus: U.S. equities

MARKET OUTLOOK

It would be easy to suggest the political drama unfolding in the U.S. was largely responsible for recent market moves. President Trump’s impeachment inquiry and Elizabeth Warren’s presumptive ascent to the lead Democratic candidate may have exacerbated a souring mood, but they remain the noise obscuring the economic data signal.

The spark on Tuesday was a surprisingly weak U.S. manufacturing ISM print, showing a non-discrete plunge into contraction territory and “catching down” to contracting European and global PMIs. Following that eye-opener was an underwhelming ADP jobs number on Wednesday, which served to fan the flames of a growth scare.

Today’s notable decline in the U.S. non-manufacturing ISM index further compounds the growth concerns because the services index, and consumer generally, tend to be lagging indicators. Accordingly, the concern is the leading manufacturing indications are now being confirmed on a lagging basis by the rest of the economy.  Tomorrow we have non-farm payrolls to fuss over, though suffice it to say confidence has been shaken this week.

If there is a political input to the market reaction function, it’s most related to China’s strengthening negotiating position on the back of Trump’s shrinking domestic political capital. The thinking goes like this: a tougher Chinese stance will meet an unyielding U.S. administration, leading to a more protracted trade war and weaker global growth. So again, it really comes back to growth – and there’s less of it every day.

There’s no shortage of data on the horizon, from jobs to corporate earnings, but don’t expect it to save the day. There’s nothing in it for managements to suggest this is a blip and growth will resume imminently; if they’re wrong, they lose investor confidence and possibly even their jobs. And speaking of employment and the impenetrable consumer, one of the best forward indicators of jobs suggests slower growth ahead.

Bottom line is, until we see marked, quantitative and sustainable improvement in leading economic data, we will remain cautious with our positioning. For us, that means about 30-per-cent core equity exposure. We’re not hiding in a bunker just yet and indeed may never need to, but the door is unlocked just in case. We continue to favour real estate, especially multi-family where slow growth, low rates work just fine. Gold continues to work in our process and benefits from declining yields. Lastly, we hedge our conservatism with high-quality/high-cash flow equity exposure with structural support, such as in medical devices and mobile payments.

TOP PICKS

ISHARES U.S. MEDICAL DEVICES ETF (IHI:UW)

Although we have reduced our healthcare exposure, we remain positive on medical devices as both fundamentals and technicals continue to be strong.

VANECK VECTORS GOLD MINERS ETF (GDX:UN)

Although neutral on materials, we’re positive on precious metals and specifically gold as fundamentals and technicals are positive.

REAL ESTATE SELECT SECTOR SPDR ETF (XLRE:UW)

We maintain the market environment is more aligned with late-stage than mid-cycle timing and accordingly use real estate to balance portfolio risks, particularly on interest rates.

PAST PICKS: OCT. 10, 2018

ISHARES U.S. MEDICAL DEVICES ETF (IHI:UW)

• Then: $208.84
• Now: $240.55
• Return: 15%
• Total return: 16%

ALERIAN MLP (AMLP:UN)

• Then: $10.72
• Now: $8.97
• Return: -16%
• Total return: -9%

MICROSOFT (MSFT:UW)

• Then: $106.16
• Now: $136.05
• Return: 28%
• Total return: 30%

Total return average: 12%

FUND PROFILE

Equium Global Tactical Allocation Strategy

Equium Capital’s Global Tactical Allocation strategy combines the best elements of traditional and alternative investing. The investment team views markets and investments through the unemotional lens of technical analysis and then supports those findings with bottom-up fundamental research.  This conservative investment process minimizes risk by allocating capital only when and where managers find compelling risk-return opportunities. Accordingly, portfolios should be better protected during market declines while still participating during market upswings.

Performance as of: Sep. 15, 2019

1 month: 0.5% fund, 4.5% index

3 months: -0.1% fund, 3.1% index

1 year: -1.2% fund, 7.5% index

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

TOP HOLDINGS

Cash: 15.8%

iShares Canadian Short-Term Bond Index ETF (XSB): 15.5%

Vanguard Intermediate-Term Treasury ETF (VIGT): 15.0%

iShares 1-3 Year U.S. Treasury Bond ETF (SHY): 13.4%

Real Estate Select Sector SPDR ETF (XLRE): 6.6%

WEBSITE: equiumcapital.com