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

Focus: Options and ETFs
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MARKET OUTLOOK
Despite the eccentricities of U.S. President Trump, I remain cautiously optimistic about the U.S. market; after all, there has not been a more pro-business administration since the Reagan years. Overregulation has been an enormous encumbrance to growth and Trump seems determined to eradicate as much as possible whether in the banking sector, health care or environmental issues. For that reason I am focusing on U.S. sectors that I believe will outperform the S&P. These include U.S. energy, XLE (which I recommended on the last show), as well as U.S. banking and health care. As a whole, the U.S. market is growing and it’s not just the FANG stocks, although they have accounted for about half the market gains this year. Manufacturing is growing as a result of an increase in productivity driven by technology. As the Canadian dollar appears to be strengthening, I recommend the hedged version of any U.S. sector play when possible (hedged against a decline in the USD relative to CAD).

In Canadian markets, despite Prime Minister Trudeau’s prolific deficit spending and the abysmal performance of the TSX this year, I am starting to buy the broader Canadian market again. As David Rosenberg has described, many sectors of the Canadian economy are strong including machine manufacturing, metal fabricating, technology, financial services and even some retail sectors like electronics, groceries and trucking. One issue for investors is that ETF providers are not structuring ETFs to include most of these sectors. Canadian ETFs all appear to be cut from the same loaf whether index based or “smart beta,” so I will look for cheap ETFs at 10bps.

TOP PICKS

BMO EQUAL WEIGHT U.S. BANKS HEDGED TO CAD INDEX ETF (ZUB.TO)
Bought recently in client accounts at $25.56. Currently $26.80. P/E 17 per cent, P/B 1.3 per cent. USD hedged. Holds equal weight major U.S. banks. Looking for Trump to dismantle Dodd-Frank.

HORIZONS ENHANCED INCOME EQUITY ETF (HEX.TO)
Covered call overlay on Canadian equities. Yields 5.4 per cent. Not held in any accounts, looking to add to client accounts.

ISHARES CONSERVATIVE SHORT TERM STRATEGIC FIXED INCOME ETF (XSC.TO)
Actively managed bond fund holding other ETFs and includes some emerging markets (six per cent). High yield at six per cent. To provide diversification from index-based bond ETFs. Held in client accounts at $19.95.
 

PAST PICKS: JUNE 2, 2016

BMO S&P/TSX EQUAL WEIGHT GLOBAL BASE METALS HEDGED TO CAD INDEX ETF (ZMT.TO)
ZMT was bought last year in client and personal accounts in March and sold at $8.00 for a gain of 30 per cent.

• Then: $6.57
• Now: $10.20
• Return: +55.25%
• TR: +56.93%

VANGUARD U.S. TOTAL MARKET INDEX ETF (CAD-HEDGED) (VUS.TO)

• Then: $41.92
• Now: $48.21
• Return: +15.00%
• TR: +17.20%

QUESTRADE FIXED INCOME CORE PLUS ETF (QCP.TO)

• Then: $20.38
• Now: $20.65
• Return: +1.34%
• TR: +3.83%

TOTAL RETURN AVERAGE: +25.98%