John Hood's Top Picks: August 3, 2021

John Hood, president and portfolio manager, J.C. Hood Investment Counsel
Focus: Options and ETFs

MARKET OUTLOOK:

Markets have been perplexing of late, slipping down two-to-four per cent on a weekly basis then climbing back up close to or at new highs. As a result it has been difficult to find an ‘undervalued’ sector and the market has not had a significant drop for months so my ‘trader’s finger’ has been dormant. Our equity positions in the S&P 500 have been up 17 per cent this year. The question is will this continue and for how long. Economist David Rosenberg, normally a market bear, has cautioned against ‘buying the dips’ and in one sense he is right, increasing equity allocation to grab a two to four per cent gain is for institutions not investors but other market analysts believe that the current market gains will continue. Sam Stovall, who has been on BNN Bloomberg many times, believes that high inflation is unlikely and that since consumers are no longer housebound, the S&P should reach 4500 points by year end. Brian Westbury at First Trust says that while holding down rates is inflationary, easy money and recovery will push the S&P to 5250! Brian Belski at BMO argues that P/E ratios on the S&P are not that high, just on FANG stocks, the rest are reasonably priced. Further, as the Globe reported last week, U.S. companies are sitting on a mountain of cash which is very positive for markets; potential for share buybacks and dividend hikes as well as increased R&D. So what do we do? I certainly have not sold any U.S. assets and will continue to acquire more on a gradual basis.

TOP PICKS

Vanguard U.S. Dividend Appreciation Index ETF (VGG TSX)
Dividend achievers based upon U.S. stocks with a history of raising dividends, 247 stocks; including, JPMorgan, J&J, Walmart, P&G. This EF lagged the S&P for several months but has been doing well of late. More conservative than S&P 500. MER 0.30 per cent. We hold a lot of VGG bought at various prices over the past 8 months, mostly around $61.87

Vanguard Large-Cap Index Fund ETF (VV NYSE)

This is a core holding in our portfolios. VV holds slightly more stocks than the SPY S&P 500 which it closely tracks. 564 stocks so a little more mid cap diversification. MERS are just 0.04 per cent

BMO Covered Call US Banks ETF (ZWK TSX)

U.S. banks with covered call overlay. Mostly bought last year for income at $21.75, currently $29.24 .It provided a yield of approximately 8.5 per cent of which dividends were treated as income but capital gain on calls so very attractive and still is with a current yeild of 7.38 per cent

PAST PICKS: April 8, 2020

Vanguard U.S. Dividend Appreciation Index ETF (VGG TSX)

• Then: $52.49
• Now: $68.12
• Return: 30 per cent
• Total Return: 32 per cent

BMO Covered Call Canadian Banks ETF (ZWB TSX) 

• Then: $14.56
• Now: $20.53
• Return: 40 per cent
• Total Return: 51 per cent

Cash

Total Return Average: 42 per cent