Mike Philbrick's Top Picks: July 16, 2021

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Mike Philbrick's Top Picks

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Mike Philbrick, CEO at ReSolve Asset Management

FOCUS: Exchange-Traded Funds

MARKET OUTLOOK:

The first half of the year has drawn to a close with an impressive performance by global risk assets, despite mixed economic data and ambiguous messaging by the Fed. ADP and payroll numbers indicated that the positive momentum in jobs growth marches on, with the unemployment rate falling to 5.8 per cent. However, additional data points offered a more nuanced view of labour market conditions. While the participation rate continued its multi-decade decline, the JOLTS report showed job openings grew by more than a million, and voluntary terminations increased to four million in May. This may be partially accounted for by statistics tracked by the Dallas Fed, which suggest that, following a big initial surge in the early stages of the pandemic, retirements appear to have settled on a new, higher trend.

All eyes remained on inflation as May’s five per cent rise in U.S. CPI exceeded expectations and marked the highest level since 2008, with price pressures across multiple categories. Core PCE (Personal Consumption Expenditures) – the Fed’s preferred inflation measure given its broader scope and ability to capture shifting consumption behavior – rose to 3.4 per cent, the highest since 1992. Hawkish remarks by senior Fed officials forced chairman Powell to strike a pacifist tone, claiming “inflation alone” would not be enough to prompt rate hikes. Notwithstanding the most recent Dot Plot pointing to higher interest rates sooner than previously expected and the first hints at a discussion about tapering the current bond purchase program, market action suggests investors have been positively swayed by the Fed’s theatrics, at least momentarily.

Meanwhile the Bank of Canada has announced the tapering of its bond purchases in recognition of the speed of the recovery indicating the central bank may be among the first to begin normalizing interest rate policy.

This begs the question, will global economies face reflation or disinflation in the coming years?

TOP PICKS:

Mike Philbrick's Top Picks

Mike Philbrick, CEO of ReSolve Asset Management, discusses his top picks: Horizons Income Gold Producers ETF, iShares Canadian Real Return Bond Index ETF, and 3iQ CoinShares Ether ETF.

Horizons Enhanced Income Gold Producers ETF (HEP TSX)

The investment objective of HEP is to provide Unitholders with: (a) exposure to the performance of an equal weighted portfolio of North American listed gold mining and exploration companies; and (b) monthly distributions of dividend and call option income.

iShares Canadian Real Return Bond Index ETF (XRB TSX)

This ETF seeks to provide exposure to Canadian federal and provincial real return bonds. Real return bonds are designed to provide protection against unexpected inflation. The inflation protection comes from changes made to the principal value of the bond, which is adjusted for inflation as measured by the Consumer Price Index.

3iQ CoinShares Ether ETF (ETHQ TSX)

This ETF seeks to provide unitholders with exposure to the digital currency ether in U.S. dollars. Ether the second largest cryptocurrency by markets capitalization, second to Bitcoin. This is a very volatile, frontier asset class, so small allocations and a rebalancing regularly must be a part of the allocation thought process.