Full episode: Market Call Tonight for Friday, December 1, 2017
Keith Richards, portfolio manager at ValueTrend Wealth Management of Worldsource Securities
FOCUS: Technical analysis
Markets tend to be strong in the final month of the year. The tendency is for the year's big movers to continue to lead until the end of December, while the laggards continue to sell off due to tax loss selling, etc. Come January, stock market participants start to re-examine the prior laggards in an effort to uncover some oversold or underappreciated bargains.
As a result, there can be a noticeable degree of rotation from leaders to laggards at the beginning of the year. The well-known "Dogs of the Dow" strategy is designed to benefit from this phenomenon. Same with the small-capped rotation strategy in January.
One strategy that might make sense is to take gains on anything you suspect has run too high - and may be vulnerable to a period of underperformance - as year-end approaches.
For example, technology stocks or the NASDAQ index have gone up in value significantly. If you think those markets might take a breather in the new year, you could realize some profit by selling some of your positions as the year comes to an end.
Then you can buy a stock or ETF in an underperforming sector that has a good chance to rebound in January. It's a game of odds, but those odds are somewhat in favour of a rotation of the guard from strong to weak sectors for the first month of the year.
Recent examples of good value stocks include recent BNN top picks, plus the oil sector and the U.S. banks.
We are moving some allocation to outside of North America via ETFs.
BMO EQUAL WEIGHT U.S. BANKS HCAD ETF (ZUB.TO)
The big bank names are breaking out. They underperformed in the year while the NASDAQ flew. Time to rotate into the banks.
FREEHOLD ROYALTIES (FRU.TO)
We have been buying Canadian oil producers a bit at a time. This one is considered a “safer” play within the sector, and has been in an uptrend.
In an uptrend. We bought a couple of weeks ago on the test of the trendline.
PAST PICKS: OCTOBER 31, 2017
VANGUARD FTSE DEVELOPED ALL CAP EX-NORTH AMERICA HCAD INDEX ETF (VI.TO)
- Then: $29.12
- Now: $28.85
- Return: -0.92%
- Total return: -0.92%
FAIRFAX FINANCIAL (FFH.TO)
- Then: $679.41
- Now: $686.58
- Return: 1.02%
- Total return: 1.02%
BMO LOW VOLATILITY CANADIAN EQUITY ETF (ZLB.TO)
- Then: $30.70
- Now: $30.82
- Return: 0.39%
- Total return: 0.39%
TOTAL RETURN AVERAGE: 0.16%