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

MARKET OUTLOOK

The narrative has shifted from an inverted yield curve leading to a recession to slower U.S. growth, but no recession. This leads to a lower U.S. dollar alleviating emerging market debt and raising commodity prices. The conclusion: reduce U.S. equities and buy Canada, emerging markets and the EU.

While this very well may occur, I’m not that convinced. Despite Trump’s bravado, he has a game plan. Unlike other presidents, his weapon is not bombers and boots on the ground (about which he knows very little), but rather tariffs which he wields with efficiency. Furthermore, Federal Reserve chair Jerome Powell has recanted further rate hikes. The fourth-quarter market sell-off was clearly an overreaction that was exacerbated with tax-loss selling. Democrats appear to be chasing their green tail over 2020 nominations, so the Trump bump of tax cuts, deregulation and economic growth could be the continuing surprise story of 2019. But let’s wait to see what happens in negotiations with China, compared to which the Mexico wall issue is a sideshow.

Canada unfortunately remains hamstrung by an egregiously failed energy policy while Europe remains a thin soup of Brexit, Italian debt, France’s yellow vest turbulence and Germany’s slowing economy. TD Asset Management took the view Tuesday that central bank easing will be positive for the markets, while David Rosenberg remains gloomy.

TOP PICKS

BMO COVER CALL U.S. BANKS ETF (ZWK.TO)

ZWK does not begin trading until Friday, but it’s a covered-call take on the U.S. banks, similar in structure to the ZWB. I like the way BMO structures covered call ETFs with room for growth with income.

VANGUARD FTSE EMERGING MARKETS ETF (VWO.N)

VWO is a huge ETF with very low fee of 0.14 per cent. It doesn’t include South Korea in the index. Similar products from iShares are the EEM, with an expense ratio of 0.67 per cent; and the IEMG ETF, which has a low cost of 0.14 per cent. The difference is that the EEM is just large- and mid-caps while the others include small-caps.

BMO MSCI EMERGING MARKETS ETF (ZEM.TO)

PAST PICKS: JAN. 19, 2018

VANGUARD LARGE-CAP ETF (VV.N)

• Then: $128.87
• Now: $126.21
• Return: -2%
• Total return:-0.1%

CONSUMER DISCRETIONARY SPDR ETF (XLY.N)

• Then: $105.60
• Now: $109.31
• Return: 4%
• Total return: 5%

VANGUARD FTSE EUROPE ETF (VGK.N)

• Then: $62.44
• Now: $51.83
• Return: -17%
• Total return: -14%

Total return average: -3%

WEBSITE: jchood.com