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

MARKET OUTLOOK

Notwithstanding the potential for a black swan event from the coronavirus, markets are not showing any sign of a recession. There are many reasons for this. Jobs were up 225,000, beating the consensus, and jobless claims fell from 4 to 3.6 per cent, which is essentially full employment. Furthermore, the job market is getting tighter and pushing wages higher. As Brian Ashbury of First Trust argues, productivity is increasing and much of the technological advances (cloud, AI, apps) are not really included in government stats.

ISM reports are a survey of purchasing managers reporting on current production and new orders. A rating of 50 means no expansion or contraction. Service industries were at 55, indicating a strong expansion, while manufacturing, having been in the doldrums below 50, is now at 52. No recession there, as any declines in manufacturing were offset by new home construction.

Trade deals are a cornerstone of Donald Trump’s policy, resulting in the USMCA, Japan and China phase 1 deals. While there are many issues unresolved (not to mention the president’s mercurial style), Trump certainly knows how to wield the trade stick.

As we remaining bullish on the U.S., we have to remain defensive. That means holding adequate bond ETFs.

Canada has been closed to investments for three years, but there was some hope with two court rulings: One, that no provincial government (B.C.) can stop a pipeline because they don’t fancy it, and two, that consultation with Indigenous groups does not mean they have a veto on resource development. This is particularly important amid the Coastal GasLink protests. Since railways across Canada have been closed for five days, impacting thousands of riders and trade disruption, some leadership from Ottawa would be helpful. I still like Canadian energy stocks.

TOP PICKS

VANGUARD VALUE ETF (VTV NYSE)

VTV is a very cheap ETF with less focus on technology and more on consumer stocks like Johnson & Johnson and JP Morgan.

ISHARES TSX CAPPED ENERGY TSX (XEG TSX)

XEG is a Canadian energy ETF that had a quick run-up, but slipped to its current levels. Most of its holdings are in big oil.

BMO AGGREGATE BOND ETF (ZAG TSX)

This ETF contains cheap longer-term bonds, including the safety of federal and provincial bonds.

PAST PICKS: FEB. 14, 2019

BMO COVERED CALL U.S. BANKS (CAD-HEDGED) ETF (ZWK TSX)

• Then: $30.43
• Now: $31.83
• Return: 5%
• Total return: 11%

VANGUARD FTSE EMERGING MARKETS ETF (VWO NASD)

• Then: $40.93
• Now: $43.77
• Return: 7%
• Total return: 11%

BMO MSCI EMERGING MARKETS ETF (ZEM TSX)

• Then: $19.68
• Now: $20.88
• Return: 6%
• Total return: 9%

Total return average: 10%