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

MARKET OUTLOOK

When I emailed my monthly newsletter to clients over the Thanksgiving weekend, I cautioned that although I remained bullish on the U.S., the extreme volatility that we witnessed before Trump’s election could be repeated over the mid-term elections this November, with interest rate concerns adding fuel to the fire. We certainly saw some of that last week followed by a shallow rebound. I remain bullish, but this could be a very rocky month. That being said, we’ve had two corrections of 10 per cent or more, one in February and another one earlier in Jan. 16, and everything moved to higher highs. Any major correction however, provides opportunity. I remain underweight Canada except for banks and industrial ETFs. I have very little emerging markets due to a strengthening U.S. and rates, and little EU, which is a perennial morass.

TOP PICKS

U.S. HEALTH CARE SECTOR SPDR FUND (XLV.N)
Last bought at $91.07

I continue to like this ETF. It’s cheap at 0.13 management expense ratio (MER). XLV is a huge ETF with no liquidity issues and tends towards mega caps:  pharma, 42 per cent; equipment, 25 per cent; healthcare, 17 per cent. It holds J&J, Merck and Abbott. For a Canadian-hedged alternative, see ZUH. See also VHT, with a 0.10 MER, but broader.

2-YEAR U.S. TREASURY BOND

The bond return is 2.8 per cent. I have been disappointed with the total return of many index-based ETFs in this rising rate environment and actively managed funds have difficulty justifying their higher fees. I still hold some, but I want to hold some bonds directly and with no fees.

BMO EQUAL WEIGHT BANKS ETF (ZEB.TO)
Last bought at $28.32.

Usually I dislike ZEB because its MER at 0.62 is excessive. In larger accounts, I just buy the bank shares so they pay no fees. But ZEB has declined from its high of $30.60 to $28.72 and it’s a great ETF for exposure to Canadian banks of which thankfully most have diversified beyond Canada. Further increasing rates improves the banks’ net interest margins.

PAST PICKS: OCT. 10, 2017

VANGUARD FTSE EUROPE ETF (VGK.N)

While I still have a little VGK, I usually run for the exits in Europe.

• Then: $58.74
• Now: $52.72
• Return: -10%
• Total return: -7%

VANGUARD FTSE CANADA ALL CAP INDEX ETF (VCN.TO)

The trade wars weren’t as intense, so buying a very low cost Canadian ETF like VCN made sense. I continue to hold.

• Then: $31.93
• Now: $31.30
• Return: -2%
• Total return: 1%

BMO EQUAL WEIGHT OIL & GAS INDEX ETF (ZEO.TO)

We sold ZEO in January after it declined to $10.00 from $10.50. I did not like the Canadian oil outlook.

• Then: $10.83
• Now: $9.85
• Return: -9%
• Total return: -7%

Total return average: -4%

WEBSITE: http://www.jchood.com