John Hood, president and portfolio manager at J.C. Hood Investment Counsel Inc.

Focus: Options and ETFs
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MARKET OUTLOOK
Investors seem to be wisely ignoring the melodrama of the Trump presidency and focusing on what matters: consistent economic growth. I remain bullish on the U.S. markets but I retain a solid fixed-income portfolio as a “seatbelt” against volatility and for rebalancing purposes. The firm has retained an overweight U.S. market portfolio for eight years. Investment returns on the TSX have been blunted by the energy sector but other market sectors — financials, automotive, service, etc. — are doing well. One of the difficulties for Canadian investors is finding an ETF that is not so heavily involved in financials, energy and materials. It doesn’t matter so much which broadly-based ETF Canadians purchase since almost all have the same sector allocation: banks 30 to 40 per cent; energy 20 per cent; and materials 15 per cent. As a result, about 65 to 70 per cent of ETF assets are in these three large-cap sectors. I have mentioned this a couple of times on BNN in the hope that an ETF provider would come up with a less redundant ETF, but in the interim I have chosen three Canadian ETFs as Top Picks to assist with diversification.

TOP PICKS

ISHARES S&P TSX COMPLETION INDEX ETF (XMD.TO) – Purchased at $24.44
iShares Completion contains approximately 188 holdings. The sector allocation is not much different from most broad-based ETFs, but at least this ETF adds diversification through mid- and small caps.

VANGUARD FTSE CANADA ALL CAP INDEX ETF (VCN.TO) – Purchased at $30.87
While this EFT is also overweight financials, it includes large, mid- and small caps. And at just five bps, it is an excellent low-cost comprehensive ETF.

ISHARES S&P/TSX CAPPED INFORMATION TECHNOLOGY INDEX ETF (XIT.TO) – Purchased at $15.13
While this ETF accesses the tech sector, 50 per cent is concentrated in just three stocks.
 

PAST PICKS: AUGUST 4, 2016

SPDR S&P 500 ETF TRUST (SPY.US)

• Then: $216.40
• Now: $247.26
• Return: 14.25%
• Total Return: 16.58%

BMO EQUAL WEIGHT US BANKS HEDGED TO CAD INDEX ETF (ZUB.TO)

• Then: $18.61
• Now: $26.80
• Return: 44.00%
• Total Return: 46.01%

BMO S&P/TSX EQUAL WEIGHT OIL & GAS INDEX ETF (ZEO.TO)

• Then: $11.84
• Now: $10.43
• Return: -9.61%
• Total Return: -7.48%

TOTAL RETURN AVERAGE: 18.37%