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Top Picks from Jon Vialoux: BMO Low Volatility Canadian Equity ETF, Xcel Energy, and Horizons Active Floating Rate Bond ETF

Tags: Market Call

Jon Vialoux, research analyst, Horizons ETFs Management Canada

FOCUS: Technical Analysis & Seasonal Investing

MARKET OUTLOOK:

Markets on both sides of the border are entering the weakest and most volatile time of the year, from a seasonal perspective. Lack of fundamental catalysts and lackluster trading volumes contribute to the volatile trading activity. While investors wait for the U.S. Fed to start raising rates, there may be little reason in the near future for broad equity benchmarks to break above the recent trading range that has spanned much of the year. However, opportunities to invest in seasonal positions continue to exist. Recently, the consumer staples sector in the US broke out to all-time highs and the utilities sector has begun to show outperformance versus the broad market. The rotation towards these defensive sectors of the market suggests risk aversion, a scenario that has often preceded broad market declines. Investors should seek to maintain a low beta portfolio until signs of improving market breadth and momentum emerge.

*All positions mentioned on the show and held in the fund (Horizons Seasonal Rotation ETF) are bought and sold within the year due to the seasonal nature of the trades. Average holding period is approximately three months.*

Top Picks:

BMO Low Volatility Canadian Equity ETF (ZLB.TO)

This is a top pick that I last provided during my appearance in the spring and since that time price has been flat, however, performance relative to the market has been firmly positive. The summer is characterized as a period of increasing volatility and investors will want to find ways to hedge themselves. The BMO Low Volatility ETF provides exposure to a low beta weighted portfolio of Canadian stocks, providing less sensitivity to market movements. Reducing beta and correlation to the market in portfolios can allow investors to ride out the rocky trading period ahead, while still participating in the upside potential for stocks. Investors seeking the U.S. alternative can look to the BMO Low Volatility US Equity ETF (ZLU.TO).

Xcel Energy (XEL.N)

Xcel Energy, a utility holding company based in the U.S., operates a very seasonal business with a large share of annual earnings generated in the third quarter. The company benefits from increased demand for electricity during the warm summer months, the impact of which becomes evident in shares of XEL. Between July 29 and the end of the year, the stock has gained an average of 12.13 percent, with positive results recorded in 76 percent of the seasonally strong periods over the past 25 years. The utilities sector typically acts as a proxy for the bond market, moving inversely to the direction of borrowing rates. Should treasury yields remain under pressure though the next couple of months, as is seasonally typical, utility companies should continue to benefit.

Horizons Active Floating Rate Bond ETF (HFR.TO)

Horizons Active Floating Rate Bond ETF is a great alternative to cash during the summer. The ETF invests in a portfolio of Canadian debt securities and hedges the portfolio’s interest rate risk to generally maintain a portfolio duration of less than two years, providing the ability to profit in what could be a rising rate environment through to the end of the year. Bonds seasonally outperform stocks starting from the beginning of May through to October, making this fund an ideal hold to maintain a market neutral portfolio during the period of seasonal weakness for stocks.

Disclosure: Horizons Active Floating Rate Bond ETF is a product of Horizons ETFs Management Canada Inc.

Disclosure:

Personal

Family

Portfolio/Fund

ZLB

N

N

Y

XEL

N

N

Y

HFR

N

N

Y

 

 

 

 

 

 

 

Past Picks: June 11, 2015

Gilead Sciences (GILD.O)

The Biotech industry remains in a period of seasonal strength and Gilead is the largest in this space. Between June 22 and September 12, the S&P 500 Biotechnology index has gained an average of 11.96 percent over the past 20 years with positive results recorded in 85 percent of those seasonally strong periods. The return for Gilead topped the industry, averaging 14.16 percent over the same timeframe. Gilead broke out of a declining intermediate trend in April and has since outperformed the broad market. Recently, the stock has consolidated around its all-time highs, waiting for a catalyst to resume its upward trajectory.

  • Then: $119.13
  • Now: $115.60
  • Return: -2.96%
  • TR: -2.60%

Cash

Major equity benchmarks have remained relatively unchanged since my last appearance on the show, consolidating following strong gains recorded since 2011. However, there are a number of seasonal opportunities that are available to take advantage of. Seasonal plays in gold stocks (end of July to end of September), utility stocks (end of July to end of September), household product stocks (end of June to mid-November), and pharmaceutical stocks (mid-August to mid-November) all offer value during the volatile summer trading environment. Keeping some powder dry to take advantage of these seasonal opportunities when technicals turn positive continues to be a prudent course of action.

Horizons Active Floating Rate Bond ETF (HFR.TO)

Horizons Active Floating Rate Bond ETF is a great alternative to cash during the summer. The ETF invests in a portfolio of Canadian debt securities and hedges the portfolio’s interest rate risk to generally maintain a portfolio duration of less than two years, providing the ability to profit in what could be a rising rate environment through to the end of the year. Bonds seasonally outperform stocks starting from the beginning of May through to October, making this fund an ideal hold to maintain a market neutral portfolio during the period of seasonal weakness for stocks.

Disclosure: Horizons Active Floating Rate Bond ETF is a product of Horizons ETFs Management Canada Inc.

  • Then: $10.12
  • Now: $10.07
  • Return: -0.49%
  • TR: -0.16%

Disclosure:

Personal

Family

Portfolio/Fund

GILD

N

N

N

CASH

HFR

N

N

Y

Total Return Average: -1.38%

Fund Profile

Horizons Seasonal Rotation ETF (HAC.TO)

1 Month: Fund 1.69%, Index* -0.58%
1 Year: Fund 12.76%, Index* -5.62%
3 Year: Fund 32.70%, Index* 24.04%

Peformance as at: July 31, 2015

* Index: S&P/TSX Composite
** Returns do not include distributions and are after fees.

Top 5 holdings and weightings:

Horizons Active Floating Rate Bond ETF (HFR.TO) - 21.30%

Horizons US 7-10 Year Treasury Bond ETF (HTB.TO) - 17.00%

Horizons Cdn Select Universe Bond ETF (HBB.TO) - 16.80%

iShares Nasdaq Biotechnology ETF (IBB.O) - 9.90%

Consumer Staples Select Sector SPDR Fund (XLP.US) - 9.90%

Twitter: @EquityClock

Website: www.EquityClock.com

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