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

MARKET OUTLOOK

I have been overweighting the U.S. market for years and I have not reduced these holdings at all. In fact, on the last tax-loss selling day last year and on Boxing Day, I added VTV, the Vanguard Value ETF, which has done very well. When dealing with new clients however, I have been cautious for several weeks, not initiating new positions. I want to see how this trade issue settles before entering the U.S. market.

There are two conflicting views at work here. The first is that the global economy appears to be slowing with fewer purchasers, and so will the U.S. economy. The counter, more bullish argument is that the U.S. economy is “decoupling” from other economies by drastically cutting corporate tax rates and deregulation, a very pro-business agenda. After all, unemployment is the lowest in 50 years.

Trump is the self-proclaimed Tariff Man: he doesn’t understand nor care about diplomatic niceties nor does he express military policy with “boots on the ground.” He doesn’t get it, but he sure knows how to use tariffs to get what he wants. Let’s see if it works.

TOP PICKS

ISHARES S&P/TSX CAPPED ENERGY ETF (XEG.TO)

The marginal expense ratio (MER) at 0.61 per cent is unnecessarily high. I want XEG, which is cap-weighted, unlike ZEO, which is equal-weight because I want the heavyweights: Canadian natural gas and Suncor at 25 per cent each; it also has Cenovus, Encana and Imperial Oil for recovery.

BMO EQUAL WEIGHT HEALTHCARE ETF (ZUH.TO)

ZUH has an MER of 0.35 per cent, which is OK. I have recommended this ETF before, but healthcare has suffered as of late with over-charging by big pharma, uncertainties over dumping Obamacare among other factors. However, ZUH is well diversified: 28 per cent healthcare equipment, 24 per cent biotech, just 12 per cent pharma, plus managed healthcare services and facilities.

BMO ULTRA SHORT BOND ETF (ZST.TO)

With an MER of 0.17 per cent, this is a low-cost fund. I recently recommended this as a safe place to park money.  Approximately 3 per cent yield, all investment-grade, ultra-short duration to protect against rate increases, which seem unlikely now.

PAST PICKS: MAY 22, 2018

ISHARES S&P/TSX CAPPED INFORMATION TECHNOLOGY INDEX ETF (XIT.TO)

• Then: $18.54
• Now: $24.21
• Return: 31%
• Total return: 31%

VANGUARD LARGE-CAP ETF (VV.N)

• Then: $125.31
• Now: $126.05
• Return: 1%
• Total return: 3%

BMO COVERED CALL CANADIAN BANKS ETF (ZWB.TO)

• Then: $19.35
• Now: $17.81
• Return: -8%
• Total return: -3%

Total return average: 10%