John Hood, president and portfolio manager at J.C. Hood Investment Counsel Inc.
FOCUS: Options and ETFs
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MARKET OUTLOOK
Whenever markets are volatile, I look for research or interviews with Sam Stovall, chief equity strategist at CFRA Research. Stovall was interviewed Wednesday on BNN by Catherine Murray and said the decline wasn’t over and that he expected the S&P 500 to decline further to around 2,535 points.
At Thursday’s close the S&P 500 was 2,581, down 10 per cent from its January high. Stovall’s main point however, is that he expected the U.S. GDP to grow by 3.1 per cent this year and that profits would be up 19 per cent. The economy is looking better, so he’s certainly not expecting a recession but rather economic growth. The market’s sharp correction was a result of it not having happened for too long. Stovall also remarked that the quicker a decline occurs, the quicker it recovers. In previous interviews he has observed that most declines of 10 to 15 per cent have often recovered after two to four months.
Many investors tend to catastrophize volatility and expect a return to 1987 or 2008 with every correction. This is the only industry that, when a business puts out an ON SALE sign, customers scramble for the exit. So far as the U.S. market is concerned, we’re looking for the sales.
In Canada however, I’m not enthusiastic other than for the banks; in fact, I sold about 15 per cent of my Canadian ETFs last week and I’m positioned to sell more. I simply see better growth opportunities in global developed markets and, to a degree, in emerging markets.
Unlike the U.S., which slashed corporate taxes and is accelerating deregulation, Canada’s regulatory system is out of control and business is under constant threat of tax increases. Hopefully the measures announced today to expedite the pipeline approvals will have teeth, but despite Natural Resources Minister Jim Carr’s strong assertions about the prominence of federal over provincial regulatory regimes, I remain skeptical of the government’s commitment to developing Canadian energy resources.
TOP PICKS
VANGUARD GROWTH ETF PORTFOLIO (VGRO.TO)
A new series of asset allocation ETFs from Vanguard: VGRO (growth 80/20), VBAL (balanced 60/40), VCNS (conservative 40/60); Not held in any accounts.
US: 30%, Cnd: 24%, Dev: 20%, EM: 6%, Assorted bonds: 20%. Also, MER is just 22 and includes rebalancing. Great for smaller accounts RESPs /TFSA holds other Vanguard all-cap ETFs
BMO MSCI EAFE HEDGED TO CAD ETF (ZDM.TO)
There are several developed market ETF based upon EAFE, both hedged and unhedged: XIN (hedged, no small caps), XEF (unhedged, small caps), VEF (FTSE includes South Korea and Greece). ZDM is simply cheaper at .23.
JPN: 22%, UK: 18%, SFG: 10%, each AUST: 7% and HK: 3%. MSCI no SK.
ISHARES USD MSCI CORE EMERGING MARKETS (IEMG.US)
There are numerous EM ETFs. MER: .14, HK: 21%, TW: 12%, I: 19%, SK: 15%. TECH 28, FIN 25 (Tencent/Samsung/Alibaba/Naspers). Active, factor management either EMGF or GEM Goldman Sacks.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| VGRO | N | N | N |
| ZDM | Y | Y | Y |
| IIEMG | Y | Y | Y |
PAST PICKS: JUNE 30, 2017
PAST PICKS UPDATE: I have sold all TSX-traded XEI (CDN div.) and 50% of XIC (TSX comp.) in order to raise cash for markets other than Canada.
ISHARES S&P/TSX CAPPED COMPOSITE INDEX FUND (XIC.TO)
- Then: $24.03
- Now: $23.92
- Return: -0.45%
- Total return: 0.68%
BMO EUROPE HIGH DIVIDEND COVERED CALL HEDGED TO CAD ETF (ZWE.TO)
- Then: $21.93
- Now: $20.78
- Return: -5.24%
- TR: -1.55%
ENERGY SELECT SECTOR SPDR (XLE.US)
- Then: $64.92
- Now: $66.67
- Return: 2.69%
- Total return: 4.73%
Total return average: 1.28%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| XIC | N | N | N |
| ZWE | N | N | Y |
| XLE | N | Y | Y |
WEBSITE: http://www.jchood.com
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