John Hood, president and portfolio manager at J.C. Hood Investment Counsel
Focus: Options and ETFs

MARKET OUTLOOK

Unlike the third quarter of 2018, tax-loss selling evaporated last year. After the January recovery, markets remained torpid until the fourth quarter, with the S&P 500 finally rising to 3,221 and beating the October 2018 high of 2,930 basis points.

Throughout the year, analysts were preoccupied with chances of a recession, an inverted yield curve and trade wars, not to mention Donald Trump’s impeachment, which the markets ignored. Why has the market been rising? Of the 500 stocks on the S&P, 75 per cent exceeded analysts’ expectations despite indications of slowing growth. Many sectors are doing very well: housing is robust and consumer spending ,through the ease of shopping through Amazon, is setting records (look at Black Friday, Cyber Monday and Christmas sales). Unemployment remains at 50-year lows and wage demands are rising.

Some market pundits claim that the rise is due to panic buying, fear of missing out or the Fed rate cuts. I’m more inclined to believe Brian Ashbury at First Asset, who says that markets are rising due to increased productivity created by technology (cloud computing, online services, data harvesting, 3D printing and so on). Sam Stovall, who we regard highly, called for the S&P to rise 7 per cent between November and April.

Back in Canada, the TSX is being touted as a “value proposition,” with price-to-earnings ratios and price-to-book values lower than in the U.S. Despite his annoying bluster and personal peccadilloes, Trump is the most pro-business U.S. president since Ronald Reagan. Canada, however, appears to be closed to foreign investment and even Canadian energy companies are fleeing south. That being said, I recently bought XEG, an energy ETF, at around $8.10 and it is doing well. What I expect to happen is that the TSX will parallel the U.S. market, as it often does. Unfortunately, many investors and their advisors have adopted the credo of overweighting global and Canadian markets and ignoring the U.S., where the buoyant consumer represents 70 per cent of the market.

UPDATE: Sold partial position in the BMO Equal Weight industrials ETF (ZIN) at $29.36 for a lack of performance. Bought the BMO Equal Weight Global Base Metals ETF (ZMT) as a replacement.

TOP PICKS

ISHARES MSCI UK ETF (EWU:UN)

The choice is based upon Boris Johnson’s election victory and a successful Brexit.

VANGUARD LARGE-CAP ETF (VV:UN)

VV’s core holdings are slightly broader than the S&P 500. All mega-cap stocks.

BMO EQUAL WEIGHT GLOBAL BASE METALS ETF (ZMT:CT)

A riskier tactical trade for 5 to 10 per cent of my portfolio. Recently added.

PAST PICKS: DEC. 4, 2018

INVESCO QQQ TRUST (QQQ:UW)

• Then: $165.72
• Now: $ 216.16
• Return: 30%
• Total return: 32%

VANGUARD U.S. DIVIDEND APPRECIATION ETF (VGG:CT)

• Then: $47.70
• Now: $ 55.46
• Return: 16%
• Total return: 18%

ISHARES FLOATING RATE INDEX ETF (XFR:CT)

• Then: $20.14
• Now: $ 20.13
• Return: 0%
• Total return: 2%

Total return average: 17%

WEBSITE: jchood.com