Mike Philbrick, president of ReSolve Asset Management
Focus: ETFs

MARKET OUTLOOK

The month began with yet another announcement of additional U.S. tariffs on Chinese goods, taking investors by surprise given the recent truce announced during the G20 Summit in May. China responded with retaliatory measures of their own, which caused the U.S. president to immediately double down and reply with another increase in existing levies. While the two superpowers faced off, Britain and the European Union continue to suffer from their respective existential crises and the possibility of a no-deal divorce. This is having a real effect on global growth.

The numbers: The Institute for Supply Management (ISM) index showed a reading of 49.1, down from 51.2 in July. Above 50, the manufacturing industry is growing. Below 50, it’s contracting. A key gauge of U.S. manufacturing activity showed that the sector declined in August for the first time since 2016, breaking a 35-month run of expansion. Economists had expected the index to show a slight gain for August.

Combined with the inversion of the yield curve, we have pretty substantial evidence that the U.S. economy is slowing. Further, manufacturing activity declined in Japan, Taiwan, South Korea and Indonesia, while German manufacturing reports the industry is in “freefall.” In fact, 70 per cent of the world’s major PMIs are in contraction (sub-50) territory. A global slowdown is occurring and gold and bonds are telling investors this.

Trade was “the most significant issue” among respondents surveyed by the ISM, showing the U.S.-China conflict is causing disruptions for global supply chains.

The price of copper is considered a bellwether for the global economy because of its uses in construction and industry and thus the price action in the metal reveals the markets views on global growth and in particular China, the world’s biggest consumer of the metal. On Sep.3, it hit its lowest level since mid-2017.

TOP PICKS

ISHARES EDGE MSCI MIN VOL GLOBAL INDEX ETF (XMW:CT)

HORIZON GLOBAL RISK PARITY ETF (HRA:CT)

This is an ETF we manage at Horizons, which tracks the ReSolve Global Risk Parity Index. It’s maximally diversified and risk-balanced across exposures in stocks, bonds, real estate and commodities. Doing this allows for a smoother trajectory.

ISHARES MSCI BRAZIL ETF (EWZ:UN)

This ETF offers exposure to one of the only economies still growing and has had a pullback for an interesting entry. Potentially it could have significant returns depending on how central banks approach monetary policy.

PAST PICKS: AUG. 31, 2018

ISHARES CURRENCY HEDGED MSCI JAPAN ETF (HEWJ:UW)

• Then: $32.36
• Now: $29.78
• Return: -8%
• Total return: -6%

SPDR S&P AEROSPACE AND DEFENSE ETF (XAR:UN)

• Then: $96.07
• Now: $109.22
• Return: 14%
• Total return: 15%

INVESCO S&P 500 EQUAL WEIGHT INDEX ETF (EQL:CT)

• Then: $21.47
• Now: $21.83
• Return: 2%
• Total return: 3%

Total return average: 4%

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