Terry Shaunessy, president and portfolio manager at Shaunessy Investment Counsel
Focus: ETFs

MARKET OUTLOOK

Looking to the quarters ahead, there are three key observations guiding our investment outlook. Firstly, we see little upside in fixed income at this juncture and continue to be mesmerized by the control the world’s central bankers have over all points of the yield curve. We contend that fixed income is no longer a free market and find little compelling reason to move from the broad market aggregate except for lowering our duration somewhat.

Secondly, with the S&P/TSX Composite Index above 16,000 and S&P 500 over 2,800, we think both asset classes are at the top of their ranges. For North American stocks to trade higher, we feel positive news is required. We don’t feel this way about international stocks. We believe there is so much negativity baked into international equity valuations that the slightest turn in global trade or growth could attract significant capital flows to this asset class, resulting in meaningful price appreciation.

Finally, after ten years of experimental monetary policy, inflation is nowhere to be found. Anxiety is building over this realization. Increasingly, we see policy pundits espousing Modern Monetary Theory (MMT) as a possible solution. Simply put, MMT calls for massive fiscal policy (infrastructure spending) paid for by newly printed money. Setting aside whether this is good idea or not, does it sell well in an election year? You bet. If MMT picks-up momentum in the populist world that we live in as we suspect, the impact will be seen in natural resources (particularly base metals) and value-oriented cyclical international equities.

TOP PICKS

SPROTT PHYSICAL GOLD TRUST CDN UNITS (PHYS.TO)

Traditionally, gold bullion has served as a reliable store of value over long periods. In a world of historically low or negative government yields and overly politicized central bank policy, a small allocation to gold seems prudent. We recently added a 5 per cent position to our largest family accounts.  

ISHARES MSCI ACWI EX US (ACWX.N)

U.S. equities have significantly outperformed international stocks due in large measure to the spectacular rise in U.S. technology and technology-related securities. We think that there will be a regional rotation from the U.S. to cheaper international equity indexes in a low/stable interest rate environment. ACWI is a convenient and inexpensive way to take advantage this trend.

ISHARES CORE GROWTH ETF (XGRO.TO)

This is a great way for young investors that are starting with a self-directed RRSP or for parents AND grandparents looking to invest for their children. It’s basically an 80/20 balanced portfolio that automatically rebalances and has a 1.7 per cent dividend yield that compares very favourably with current GIC rates. With a management expense ratio (MER ) of 0.18 per cent this is a great “one stop” investment.

PAST PICKS: JULY 13, 2018

ISHARES CORE MSCI EMERGING MARKETS IMI ETF (XEC.TO)

• Then: $27.18
• Now: $25.86
• Return:-5%
• Total return: -3%

ISHARES S&P/TSX GLOBAL BASE METALS ETF (XBM.TO)

• Then: $13.71
• Now: $11.71
• Return: -15%
• Total return: -13%

INVESCO S&P 500 EQUAL WEIGHT ETF (EQL.TO)

• Then: $21.05
• Now: $21.59
• Return: 3%
• Total return: 4%

Total return average: -4%

WEBSITE: www.shaunessy.com