Terry Shaunessy, president and portfolio manager of Shaunessy Investment Counsel
Focus: Exchange-traded funds

MARKET OUTLOOK

Global capital markets continued to perform well in the third quarter notwithstanding periodic disconcerting political headlines emanating from Washington and London. Financial markets (fixed income and equities) have been the primary beneficiaries of accommodative monetary policy as ultra-low and negative interest rates forced investors to pursue “risk assets.” We saw no end to this positive, liquidity-induced investment environment.  To date most of the action has been in the U.S. mega-cap stock market, especially technology, utilities and real estate. However, definitive steps towards gradually resolving the current U.S.-China trade standoff should set the stage for a much broader rally that would include U.S. small-caps as well as international developed and emerging stock markets. Beyond a near-term trade-induced market rally, some sort of Brexit compromise and/or a switch to European fiscal policy from ECB monetary policy could give legs to global equity markets on a sustainable basis. We continue to believe that the greatest investment risk is being on the sidelines in cash.        

TOP PICKS

VANGUARD US AGGREGATE BOND CAD-HEDGED ETF (VBU:CT)
Last purchased at $25.55.

This is the basic U.S. bond index and it is the largest single holding in our institutional accounts. VBU has a slightly higher yield to maturity than the Canadian Aggregate, but it has a much lower duration (six years versus eight years) compared to the Canadian Bond Aggregate. It is Canadian dollar-hedged so that there’s no currency risk.

VANGUARD FTSE DEVELOPED EUROPE ALL CAP ETF (VE:CT)
Last purchased at $27.80.

This European Index ETF is dominated by non-U.S. headquartered multinational corporation, so VE is less a call on Europe than on global growth. Nestle, Novartis, HSBC and Royal Dutch Shell are examples of the worldwide focused constituents. We consider VE a “value”-based index as compared to the technology growth influence of the S&P 500.

VANGUARD GROWTH ETF PORTFOLIO (VGRO:CT)
Last purchased at $25.85.

VGRO is a great “one-stop” stock for TSFA, RRSP or RESP portfolios. It is an 80-per-cent equities/20-per-cent fixed income portfolio with a good exposure to non-Canadian bonds and stocks. It is rebalanced automatically and yields 2 per cent paid quarterly.

PAST PICKS: SEP. 21, 2018

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

• Then: $21.52
• Now: $21.94
• Return: 2%
• Total return: 4%

BMO U.S. PREFERRED SHARES INDEX ETF (ZUP:CT)

• Then: $24.37
• Now: $25.50
• Return: 5%
• Total return: 11%

ISHARES FLOATING RATE INDEX ETF (XFR:CT)

• Then: $20.14
• Now: $20.12
• Return: -0.1%
• Total return: 2%

Total return average: 6%

WEBSITE: www.shaunessy.com