Full episode: Market Call Tonight for Friday, January 31, 2020
David Cockfield, managing director and portfolio manager at Northland Wealth Management
Focus: Canadian equities and ETFs
Early in 2020, North American equity markets hit new all-time highs. Observers called this rise a “melt-up” despite indifferent corporate earnings reports. The S&P 500 forward price-to-earnings (P/E) ratio expanded from 14 to 19 times and accounted for 92 per cent of the index gain. Equity markets are reacting to an excess of liquidity as central banks and particularly the Federal Reserve continue to pump funds into the banking system.
Equity multiples remain historically high and the phase 1 U.S.-China trade deal leaves a lot yet to be accomplished. The coronavirus outbreak is already causing economic disruption in China, and Brexit and the Trump impeachment trial are also creating additional uncertainty for investment prospects. Caution is warranted in this particular environment until there’s a better idea from earnings reports as to ongoing profits and forecasts for the rest of 2020.
BMO LOW VOLAITLITY CANADIAN EQUITIES ETF (ZLB TSX)
Last purchased in January at $35.46.
This ETF offers investors a high-quality diversified portfolio of low-beta Canadian and U.S. equities. A low-beta stock is less sensitive to day-to-day market movements and low-beta portfolios tend to perform better in volatile markets. ZLB’s portfolio is rebalanced at midyear and reconstructed at year-end. The management expense ratio (MER) is a low 0.39 per cent and it provides a yield of 2.4 per cent.
ISHARES CORE CANADIAN SHORT TERM CORPORATE & MAPLE BOND ETF (XSH TSX)
Last purchased in January at $19.41.
This ETF gives investors a means to invest in a diversified portfolio of short-term fixed income securities. Largely focused on notes issued by Canadian chartered banks, XSH offers an alternative to leaving funds in cash but provides full market liquidity. It has a low MER of 0.10 per cent and a yield to maturity (YTM) of 2.15 per cent. XSH offers a safe place in difficult markets.
ISHARES CORE MSCI EMERGING MARKETS IMI INDEX ETF (XEC TSX)
Last purchased in January at $27.68.
This ETF replicates the performance of the MSCI Emerging Markets Investable Market Index. This grants access to the long-term growth potential of emerging markets. The index captures large- and mid-cap stock performance across 24 emerging markets such as Brazil, China, India, South Korea, Mexico, Russia, South Africa and others. The MER is 0.26 per cent. It recently sold off due to the coronavirus crisis.
PAST PICKS: JAN. 11, 2019
BMO LOW VOLATILITY CANADIAN EQUITIES ETF (ZLB TSX)
- Then: $29.79
- Now: $35.64
- Return: 20%
- Total return: 23%
BMO LOW VOLATILITY U.S. EQUITIES ETF (ZLU TSX)
- Then: $32.59
- Now: $40.48
- Return: 24%
- Total return: 26%
TD BANK (TD TSX)
- Then: $68.83
- Now: $73.10
- Return: 6%
- Total return: 11%
Total return average: 20%