MARKET OUTLOOK:

I remain bullish on U.S. markets, although with new clients coming in, I have not been in a rush to maximize their equity asset allocation. Nothing is “on sale” in this market! Since the August highs, markets have been treading water, with any downside quickly overcome by the “buy the dips” throng. A 1-2 per cent decline is not sufficient for retail investors to overload their equity allocation. 

The U.S. Fed said they would be tapering their bond purchases indicating rising yields on 10 years to 1.45 and a renewed confidence that the economy could weather slightly higher rates, perhaps as early as this fall. This would bode well for banks as they can increase their net interest margins so I remain positive towards Canadian and U.S. banks. 

Some economists such as Brian Westbury at First Trust have raised their S&P 500 targets from 4500 to 5000. Westbury believes that job growth will accelerate now that U.S. COVID benefits ended on Labor Day, there will be many more job seekers and available employers that are having trouble finding employees.


TOP PICKS:

BMO Equal Weight Banks Index ETF (ZEB TSX) 
This is BMO’s equal weight Canadian bank index including all six major banks. Until very recently however, I have been reluctant to purchase this ETF because fees at .65bps was simply too high. BMO has reduced the fee to 25bps which is reasonable. Previously I had been buying ZWB, TD and RY. Bank earnings will improve with higher rates despite Ottawa’s “virtue signaling” aping the “tax the rich” mantra of the NDP. 

BMO US High Dividend Covered Call ETF (ZWH TSX) 
A yield play plus upside from solid dividend payers. U.S. dividends treated as income but capital gains on calls.

Industrial Select Sector SPDR Fund (XLI NYSE)
Perhaps a bargain P/E 3.5. Not big on ESG with 20 per cent in aerospace and defense (example, Ratheon/Lockheed Martin), also Union pacific, machinery 20 per cent (example Caterpillar and John Deere), electrical equipment (example, GE)

PAST PICKS: November 9, 2020

Vanguard U.S. Dividend Appreciation ETF (VGG TSX)

• Then: $60.22
• Now: $67.92
• Return: 13%
• Total Return: 14%

BMO Covered Call U.S. Banks ETF (ZWK TSX)

• Then: $19.45
• Now: $22.16
• Return: 14%
• Total Return: 20%

BMO Equal Weight U.S Healthcare Hedged to CAD ETF (ZUH TSX)

• Then: $69.41
• Now: $83.97
• Return: 21%
• Total Return: 21%

Total Return Average: 18%