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Top Picks from Hap Sneddon: Market Vectors Biotech ETF, Utilities Select Sector SPDR Fund and Wal-Mart

Tags: Market Call

Hap Sneddon, chief portfolio manager and founder, CastleMoore Inc.

FOCUS: Technical Analysis & Macro Portfolio Strategy

MARKET OUTLOOK:

There is a tug-o-war between the U.S. Fed and global central banks and one between the U.S. Fed and U.S. economic data. These dichotomies show up in portfolio construction where a barbell approach to risk – some pro-cyclical and some defensive – will provide the best mix for positive absolute and relative returns in 2016.

U.S. Central Bank vs. Global Central Banks

While divergent policies are not necessarily negative, the pace of the spread is what is important. With the Fed off hold now, it can claim some credibility back and truly be data dependent in the future. The Dec. 16th rise in the target band was more about market trust and rainy days ahead than imminent inflation.

U.S. Central Bank vs. U.S. Economic Data

U.S. GDP came in at 1.5 percent in Q3, below Q2’s 3.9 percent, but above Q1’s -0.2 percent. Over the last five, years this quarterly figure has been in a band between slightly negative at times and modestly positive for the most part. U.S. inflation averaged 2.07 percent in 2012, 1.47 percent in 2013, 1.62 percent in 2014, and for 2015, it is running at 0.69 percent. Many other metrics in determining how robust the U.S. economy is are also soft, such as retail and capital spending, hourly earnings and hours worked, and both ISM prints. In the positive column are monthly jobs reports and jobless claims, housing prices, and new home construction.

Defensive vs. Pro-cyclical Investments

Our top ranked strong relative performers at the end of November include telecom, consumer staples, consumer discretionary, 20 year bonds, healthcare and technology reflecting this mix between pro-growth and defensive themes.

Top Picks:

Market Vectors Biotech ETF (BBH)

Last purchased Dec. 29, 2015 at $127.25

Market Vectors Biotech ETF, and healthcare in general, are one of the few investment areas in a secular bull market. The recent sell off from the July 2015 high provides an attractive entry point with an initial upside target of $145.00 in a space that has decent earnings growth, and an expanding horizon.

Utilities Select Sector SPDR Fund (XLU)

Last purchased Sept. 10, 2015 at $41.29

Utilities Select Sector SPDR Fund, like both U.S. and Canadian government bonds, have rallied since the U.S. Fed rate rise. In Canada, utilities rank quite high on a relative basis and at the lower end of the rankings in the U.S. With a flat yield curve, this prosaic sector in the U.S. sees first resistance at $45, then the January 2015 high of $48. With stop loss levels near at hand the risk to reward is excellent and the yield 4.61 percent.

Wal-Mart (WMT.N)

Last purchased Dec. 29, 2015 at $61.08

At current levels, Wal-Mart is a value play and a slight call on a weakening or stable U.S. dollar index. Having made a tentative reversal on Dec. 23rd, Wal-Mart is a timely entry at current levels (risk to $59.00 or 3.2 percent from current prices). The company expects international rationalization, particularly in the U.K., Brazil and China, as well as reducing currency headwinds to be positive in 2016.

Disclosure:

Personal

Family

Portfolio/Fund

BBH

Y

Y

Y

XLU

Y

Y

Y

WMT.N

N

N

Y

Past Picks: January 8, 2015

iShares China Large-Cap ETF (FXI)

  • Then: $42.44
  • Now: $35.92
  • Return: -15.36%
  • TR: -13.08%

Consumer Staples Select Sector SPDR Fund (XLP)

  • Then: $49.57
  • Now: $51.22
  • Return: +3.45%
  • TR: +6.64%

PotashCorp (POT.TO)

  • Then: $43.14
  • Now: $24.57
  • Return: -43.05%
  • TR: -40.02%

Total Return Average: -46.46%

Disclosure:

Personal

Family

Portfolio/Fund

FXI

Y

Y

Y

XLP

Y

Y

Y

POT

N

N

N

 

 

 

 

 

 

 

Fund Profile

The Two-Way Portfolio

Performance as of: Sept. 30, 2015

Fund Index*

1 Month -0.90% -3.80%

1 Year 8.15% -8.44%

3 Year 6.95% 4.80%

* Index: ACWI

** Returns are net of fees and include reinvested dividends

Top 5 holdings and weightings

BCE (BCE.TO) - 3.6

Fortis (FTS.TO) - 3.4

Consumer Staples Select Sector SPDR Fund (XLP) - 3.4

Utilities Select Sector SPDR Fund (XLU) - 3.1

iShares S&P/TSX Global Gold ETF (XGD.TO) - 3.0

Twitter: @Hap_Sneddon

Website: www.castlemoore.com

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