John De Goey, portfolio manager at Wellington-Altus Private Wealth
Focus: Personal finance and ETFs

MARKET OUTLOOK

My sense is that we are in the bottom half of the ninth inning of economic expansion. As such, I am hoping there are no problems until 2020, but I’m also planning to take profits (2019 has been a good year) and re-position portfolios to make them more conservative at the first opportunity in January. There are a number of reasons why I believe there will soon be a need to “play defence”. These include:

• The yield curve inversions that began in Q2 of this year (both sides of the border), which often portend a market downturn six to eight months thereafter.
• The Shiller CAPE index at the third highest point in history (meaning stocks are “expensive” based on historical metrics).
• The fact that this is already easily the longest stock market expansion in history.

I agree with Ray Dalio that easy money is being pushed on to the public, but isn’t creating real economic growth because those who are getting it want to invest it rather than spend it. This is creating a “pushing on a string” dynamic: asset prices are being artificially inflated, but there’s very little impact on the real economy. I’m looking at using inverse products (things that go up when markets drop in value) for a large portion (but less than half) of my clients’ portfolios in early 2020. I firmly insist that this is a case of risk management, not market timing. 

Notwithstanding my earlier comments, I don’t purport to know exactly when markets will peak. I’m simply saying that, in my view, there’s considerable risk to the downside and limited opportunity to the upside today. People who stay in equities, but move to low-volatility or dividend-paying or value products and strategies are still likely to lose money if there’s a meaningful pullback. You need to build an ark when there’s a potential storm on the horizon. Forecasting showers isn’t good enough.

TOP PICKS

PURPOSE BEHAVIOURAL OPPORTUNITIES FUND (BHAV AQL)

SMARTBE GLOBAL VALUE MOMENTUM TREND INDEX ETF (SBEA AQL)

BMO ULTRA SHORT TERM BOND ETF (ZST/L TSX)

PAST PICKS: JULY 23, 2019

PURPOSE BEHAVIOURAL OPPORTUNITIES FUND (BHAV AQL)

• Then: $21.15
• Now: $21.07
• Return: -0.4%
• Total return: -0.4%

VANGUARD FTSE EMERGING MARKET ALL CAP ETF (VEE TSX)

• Then: $33.73
• Now: $33.88
• Return: 0.4%
• Total return: 1.0%

FRANKLIN LIBERTY CANADIAN INVESTMENT GRADE CORPORATE DEBT ETF (FLCI TSX)

• Then: $19.88
• Now: $19.60
• Return: -1%
• Total return: -0.1%

Total return average: 0.2%

TWITTER: @STANDUP_Today
WEBSITE: www.standupadvisors.ca