David Cockfield's Top Picks: Oct. 4, 2019

David Cockfield, managing director of Northland Wealth Management
Focus: Canadian equities and ETFs

MARKET OUTLOOK

After a brief selloff in August, the Dow and the TSX recovered, with the Canadian index reaching a new high just under 17,000 basis points. In reality, North American equity markets have made little progress since April of this year. The reasons remain the same: negative interest rates in Europe and Japan, a trade war between the U.S. and China, Brexit and the yield curve inversion. Despite a relatively positive economic environment, corporate profits have been under pressure for the last two quarters and expectations for the third quarter are not enthusiastic. Surveys of corporate management are pessimistic, with many predicting recession in 2020. With the potential for a minority government in Canada rising and the U.S. presidential impeachment movement gathering momentum, the political background for markets is anything but positive. A cautious approach to potential volatile equity markets is warranted. Emphasis should be on investments that provide safe cash flow and diversification.

TOP PICKS

BMO LOW VOLATILITY U.S. EQUITIES ETF (ZLU:CT)

This ETF provides exposure to a portfolio of large-cap U.S. stocks with large domestic exposure and low sensitivity to market fluctuations (low beta). Utilities, consumer staples, health care and consumer discretionary stocks make up 68 per cent of the portfolio. The portfolio is rebalanced in June and reconstructed at year-end. The expense ratio is low at 0.30 per cent. Last purchased in August at $37.95.

BMO COVERED CALL CANADIAN UTILITIES ETF (ZWU:CT)

This ETF gives investors exposure to a portfolio of Canadian and U.S. utility, telecom and pipeline stocks. Call options are written on securities in the portfolio to generate additional income. Canadian stocks are 64.6 per cent of the portfolio; U.S. stocks, 31 per cent; international stocks, 3.9 per cent and the remainder in cash. Utilities such as Emera make up 47 per cent of the portfolio, communication services such as Telus make up 24 per cent and energy (mainly pipelines such as Pembina) 26 per cent. The portfolio is rebalanced in June and reconstructed in December. This ETF yields 6.5 per cent with an expense ratio of 0.7 per cent. Last purchased in August at $13.64.

ISHARES CORE MSCI ALL COUNTRY EXCLUDING CANADA ETF (XAW:CT)

This ETF offers global portfolio diversification by investing in a number of ETFs, each representing particular countries or sectors not including Canada. Country weighting are: U.S., 56.98 per cent; Japan, 8.05 per cent; U.K., 5.08 per cent; China, 3.42 per cent; France, 3.15 per cent; Germany, 2.20 per cent; and other countries, 5.13 per cent. The ETF is rebalanced quarterly, yield is 2 per cent and MER a low 0.22 per cent. Last purchased in September at $26.80.

PAST PICKS: OCT. 5, 2018

SCOTIABANK (BNS:CT)

• Then: $75.27
• Now: $74.27
• Return: -1%
• Total return: 4%

ISHARES S&P TOTAL MARKET ETF (XUU:CT)

• Then: $28.71
• Now: $29.80
• Return: 4%
• Total return: 6%

ISHARES CORE MSCI EMERGING MARKETS IMI ETF (XEC:CT)

• Then: $24.86
• Now: $25.38
• Return: 2%
• Total return: 5%

Total return average: 5%

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