Terry Shaunessy, president and portfolio manager at Shaunessy Investment Counsel
Focus: ETFs


MARKET OUTLOOK

Focus on asset classes: Asset allocation rather than single security investing is the key to rising above the daily gibberish from financial pundits and the media. The biggest risk in the current environment still is being out of risk assets because of volatility. Basic, inexpensive ETFs are perfect vehicles to accomplish this goal.

Maintain maximum equity exposure: Volatility, while uncomfortable, is no reason to abandon a healthy allocation to stocks if you use index-tracking ETFs. In the wake of 2018’s correction, major equity indexes offer compelling value at current forward price-to-earnings ratios and dividend yields when compared to returns on cash and government bonds.

Attractive entry points outside U.S. equities: Uncertainty prompted indiscriminate selling of Canadian, European and large-cap Asian equities in 2018. This has resulted in an attractive entry point. We believe non-U.S. equity indexes will outperform the S&P 500 considerably over the next 12 months and that the U.S. dollar index will peak, which could lift non-energy commodity prices

Shift from narrow to broader market leadership: Over the past two years, the U.S. technology sector has accounted for most of the rise in equity index values. We expect a more broadly-based rise in global equity markets to support our bullish position on international stocks in 2019. Consider equal weight index ETFs for maximum breadth.

Focus on your investment time horizon: Experiencing negative annual investment returns is not pleasant but is quite rare for balanced portfolios. Remember that a minimum investment horizon should be three to five years. Periods following market turbulence generally initiate new investment cycles that are best captured through portfolio rebalancing.

TOP PICKS

Terry Shaunessy's Top Picks

Terry Shaunessy of Shaunessy Investment Counsel shares his top picks: ZMU, EQE and XBAL.

BMO MID TERM US IG BOND (CAD-HEDGED) ETF (ZMU)
Recently purchased at $14.29.

This ETF is a good addition to the fixed income allocation of any portfolio. It’s currency-hedged, so foreign exchange volatility is not a factor. The dividend yield is about 1 per cent above Canadian Bond Universe (XBB) and 0.75 per cent better than the Canadian Corporate Bond Index (XCB). It has a lower management expense ratio (MER) than XCB (28 compared to 44 basis points for XCB) and broader array of industry issuers (20 per cent banking, 20 per cent consumer staples, 10 per cent energy and 10 per cent tech). In contrast, XCB industry issuers are 42 per cent financials and 20 per cent energy.

INVESCO S&P EUROPE 350 EQUAL WEIGHT ETF (EQE)
Recently purchased at $18.25.

The Europe 350 Index lists some of the largest global companies outside the U.S. (Nestle, HSBC and Shell, for example), which makes it a call on global growth rather than a specific focus on Europe. It’s equally weighted, which gives it breadth and a value bias.

ISHARES CORE BALANCED ETF PORTFOLIO (XBAL)
Recently purchased at $21.75.

We talked about the importance of having a balanced portfolio as the “foundation” of any well-thought-out investment plan. XBAL fits that bill as the classic 60/40 benchmark.  It can be a one-stop solution or the biggest single allocation in a variety of investments. It’s cheap at 18 basis points and there’s no need to worry about re-balancing.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
ZMU Y Y Y
EQE Y Y Y
XBAL Y Y Y

 

PAST PICKS: MAY 15, 2018

Terry Shaunessy's Past Picks

Terry Shaunessy of Shaunessy Investment Counsel reviews his past picks: XEC, XBM and RSP.

ISHARES CORE MSCI EMERGING MARKET INDEX ETF (XEC)

  • Then: $28.11
  • Now: $26.20
  • Return: -7%
  • Total return: -4%

ISHARES S&P/TSX GLOBAL BASE METALS ETF (XBM)

  • Then: $14.88
  • Now: $11.87
  • Return: -20%
  • Total return: -18%

GUGGENHEIM S&P 500 EQUAL WEIGHT ETF (RSP)

  • Then: $101.25
  • Now: $100.74
  • Return: -1%
  • Total return: 1%

Total return average: -7%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
XEC Y Y Y
XBM Y Y Y
RSP Y Y Y

 

WEBSITE: shaunessy.com