Brooke Thackray, research analyst, Horizons ETF Management Canada
 
Focus: Technical analysis and seasonal investing

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MARKET OUTLOOK:

The S&P 500 has rallied strongly after the U.S. election and it's now become extended, reaching all-time highs with a trailing price-to-earnings (P/E) ratio of 25 and a forward P/E of 18 (Wall Street Journal Feb. 17, 2017). Although it can remain extended for a long period, investors should be cautious at this time. The primary reason the stock market has rallied is the expectation that Donald Trump’s pro-business policies will be implemented and effective. The rally has had very little to do with stronger earnings or economic numbers, as it's difficult to justify its magnitude using these metrics. The stock market may pause at this point as investors start to question whether Trump’s policies may stumble or be watered down. We're still in the favourable six-month period for stocks that lasts from the end of October to the beginning of May. From a seasonal basis, the stock market is expected to be higher over the next two months.

TOP PICKS:

HORIZONS S&P/TSX CAPPED ENERGY INDEX ETF (HXE.TO)

Bought Feb. 21, 2017 at $21.32

The energy sector has struggled since late December despite oil prices remaining fairly flat. A lot of investment commentators have blamed the decline on the possibility of a border tax, but U.S. energy stocks have suffered a similar decline in the same time frame. Recently, energy stocks have been showing signs of strength just as the seasonal period for the sector (Feb. 25 to May 9) is starting.

MAGNA INTERNATIONAL (MG.TO)

From a fundamental perspective Magna is valued-priced, trading at seven times 2018 earnings estimates. This is substantially less than the automotive parts and equipment sector, which comes in at 10 times. Although the U.S. automotive sector had a strong 2016 with record setting sales of approximately 18 million, there still may be some life left in the sector during its strong seasonal period, which lasts from Feb. 24 to Apr. 24.

MATERIALS SELECT SECTOR SPDR ETF (XLB)

Bought Jan. 20, 2017 at $51.09

The American Chemistry Council just released their Chemical Activity Barometer showing a strong positive result for February (americanchemistry.com). Their barometer is a leading indicator and bodes well for the U.S. materials sector over the next two months. From 1990 to 2016 during the period of Jan. 23 to May 5, the U.S. materials sector has produced an average return of 7.7 per cent and has been positive 78 per cent of the time (Thackray’s 2017 Investor’s Guide, p183).

Disclosure Personal Family Fund/Profile
HXE N  N  Y 
MG  N  N  N 
XLB  N  N  Y 

 

PAST PICKS:  DECEMBER 13, 2016

FINANCIAL SELECT SECTOR SPDR FUND (XLF)

  • Then: $23.58
  • Now: $24.56
  • Return: +4.16%
  • TR: +4.03%

ISHARES RUSSELL 2000 ETF (IWM)

  • Then: $136.86
  • Now: $136.86
  • Return: +1.00%
  • TR: +1.42%

HORIZONS NASDAQ-100 INDEX ETF​ (HXQ.TO)

  • Then: $35.91
  • Now: $38.91
  • Return: +8.02%
  • TR: +8.02%

TOTAL RETURN AVERAGE: +4.49%

Disclosure Personal Family Fund/Profile
XLF N  N  N 
IWM  N  N  N 
HXW  N  N  Y 

FUND PROFILE

HORIZONS SEASONAL ROTATION ETF (HAC.TO)

Performance as of: January 31st, 2017

  • 1 month: Fund 1.4%, Index* 1.2%
  • 1 year: Fund 17.0%, Index* 24.1%
  • 3 year: Fund 10.2%, Index*8.2%

* Index: S&P/TSX 60™ Composite Index Total Return

* Returns provided must be net of fees!

TOP HOLDINGS

  1. Horizons S&P/TSX 60™ Index ETF - 29%
  2. Horizons NASDAQ-100® INDEX ETF - 15%
  3. Horizons S&P 500 Index ETF - 10%
  4. Horizons Cdn High Dividend Index ETF - 10%
  5. Materials Select Sector SPDR - 10%

TWITTER: @BrookeThackray

WEBSITE: horizonsetfs.com/HAC