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

Focus: Options and ETFs
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MARKET OUTLOOK
While U.S. President Trump’s policy tweets continue to be as erratic as a pinball machine, and his speechmaking ability makes even George W. Bush sound like Winston Churchill, there nevertheless seems to be a thin coalescence around policy implementation. As one journalist wrote, “The adults are back in charge of foreign policy.” His immigration policies have scored a few points both in the courts and at the U.S.-Mexican border. His anti-Obamacare proposal has been compromised to gain further support in the Senate and he continues to stress deregulation, lower corporate tax rates and energy independence. Most importantly, the U.S. economy is continuing to show strength, and business likes nothing better than an increasingly unfettered pathway to growth. While it is tempting to take a little of U.S. assets off the table, I haven’t done so yet, particularly in non-registered accounts where our continuous holdings of VV and XSP have done exceedingly well. I have not been a buyer of the broadly-based Canadian market for some time, although I continue to hold those ETFs. I would like to see a Canadian ETF that is without banks, utilities, materials and energy that instead focuses upon mid-cap growth companies that have been expanding, but in the interim I would recommend Canadian ETFs like XIU amd XIC that have a liquid option market. Other low-cost Canadian ETFs from BMO or Vanguard are equally acceptable. I have also taken on a small five per cent holding in Europe.

TOP PICKS

ISHARES S&P/TSX CAPPED COMPOSITE INDEX FUND (XIC.TO) was purchased at $24 and yields 2.8 per cent. This is a core holding in all client and personal accounts, some of which have been held for 15 years at various prices. It is a little more diversified than XIU. Canada’s economy cannot escape our proximity to the U.S. and the cultural/strategic links among us, despite the noisy prognostications and errant ideas of some politicians. I selected XIC because of options on Montreal should I want to do covered calls or an insurance put.

BMO EUROPE HIGH DIVIDEND COVERED CALL HEDGED TO CAD ETF (ZWE.TO) is a covered call on Europe trading at $22.88 with a yield of 6.5 per cent. PE is about 17x, with price-to-book at 1.75 per cent. Held in client and personal accounts

ENERGY SELECT SECTOR SPDR (XLE) looks dreadful on the charts and everyone hates it, so I’m buying for the long haul. Held in personal, client and corporate accounts.
 

PAST PICKS: FEBRUARY 16, 2016

ISHARES S&P/TSX GLOBAL GOLD INDEX ETF (XGD.TO)
I bought XGD in February 16 and paid approximately $10 and sold at $12.10 in March, but felt that it could go higher. No accounts hold XGD.

• Then: $10.62
• Now: $12.12
• Return: +14.12%
• TR: +14.37%

BMO S&P/TSX EQUAL WEIGHT BANKS INDEX ETF (ZEB.TO)
Very small amount in registered accounts for client, no personal accounts; prefer ZWB.

• Then: $20.35
• Now: $26.90
• Return: +32.18%
• TR: +38.89%

PURPOSE TACTICAL INVESTMENT GRADE BOND FUND (BND.TO)
I continue to hold and have recently purchased BND from Purpose in client accounts at $20. It has an inventive covered call strategy on treasuries as well as some U.S. bond exposure. Yields 3.3 per cent.

• Then: $19.64
• Now: $19.94
• Return: +1.52%
• TR: +6.28%

TOTAL RETURN AVERAGE: +19.84%
 

WEBSITE: www.jchood.com