Mike Philbrick, portfolio manager at ReSolve Asset Management
Focus: ETFs

MARKET OUTLOOK

The global pandemic resurgence and its knock-on effects continue to have significant impact: reshaping behaviors of individuals, governments and companies, compressing years of change into a time frame weeks and months. The bifurcation in the performance in new economy versus old economy industries and stocks continues to be pronounced and the “$64,000 question” is whether these unprecedented changes are fully reflected in current asset prices.

The International Monetary Fund and the World Bank estimate that the global economy will contract by approximately 5 per cent, the brunt of which will be felt in advanced economies. Shelter-in-place measures have forced businesses to shut down – many of which will likely never reopen – leading to double-digit unemployment across most developed countries, while inflation expectations have plummeted. In terms of economic activities, much of the world has been brought to a standstill. Policymakers have responded with colossal firepower, led by an almost US$3 trillion fiscal package by the U.S., followed by trillions more among European and Asian economies. The IMF estimates, as of the end of May, that approximately $9 trillion has been deployed by governments around the world in emergency relief. Central banks have kept policy rates near or below zero and find creative ways to buy corporate bonds in the secondary market.

Considering all of this it is hard to envision an economic “V recovery” and suggests more of a drawn-out “L recovery." This means investors should be taking extra care to ensure they have TRUE DIVERSIFICATION in their portfolios by including asset classes that can thrive in a “slower for longer” economic environment.

TOP PICKS

iShares MSCI Min Vol Canada Index ETF (XMV TSX)

XMV tracks the MSCI Canada Minimum Volatility Index (CAD) which measures the performance of Canadian equities, based on market capitalization, that have lower volatility relative to the equities included in the MSCI Canada Index. This is an ETF that should provide participation in equity market upside in Canada with better downside protection than market cap weighting.

Invesco Solar ETF (TAN NYSE)

The ETF tracks the MAC Global Solar Energy Index, comprised of multi-cap companies involved in all aspects of the solar energy industry around the world, though primarily in the U.S. and China. Solar presents a clear alternative for global warming advocates and both U.S. and Canadian government programs are supportive of this industry. AEO 2020 Report shows renewables to be the fastest growth area for electricity and within renewables, solar to be the fastest growing area.

Horizons 7-10 year Treasury Bond ETF (HTB TSX)

HTB seeks to replicate the performance of the Solactive U.S. 7-10 Year Treasury Bond Index (Total Return), net of expenses. The index is designed to measure the performance of the U.S. 7-10 Year Treasury Bond market. Continued deflationary pressures and economic uncertainty could drive yields lower and bond prices higher, helping portfolios maintain balance during the potential equity volatility.

PAST PICKS: AUG. 1, 2019

Horizons Gold ETF (HUG TSX)

• Then: $12.69
• Now: $15.50
• Return: 22%
• Total return: 22%

Horizons AlphaPro Enhanced Income Gold Producers ETF (HEP TSX)

• Then: $28.91
• Now: $38.43
• Return: 33%
• Total return: 40%

WisdomTree Emerging Markets Corporate Bond ETF (EMCB NASD)

• Then: $72.84
• Now: $72.91
• Return: 1%
• Total return: 4%

Total return average: 22%