Mike Philbrick, CEO of ReSolve Asset Management SEZC (Cayman)

FOCUS: Exchange-traded funds (ETFs)

MARKET OUTLOOK:

In the investing arena, expectations significantly influence both individual and institutional investors' strategies and outcomes. The S&P 500's recent surge, with a five-year compound return exceeding 15 per cent, has set the stage for heightened expectations of future gains. This optimism, however, breeds a recency bias, leading to overestimated future returns and potential overconfidence in financial planning.

It's crucial for investors to understand that periods of outperformance often mean future returns have been anticipated in today's valuations. Despite the favourable trend for U.S. stocks, the high valuations necessitate diversification and enhanced risk management across portfolios, highlighting the delicate balance between trend and valuation in investment decisions. Historical lows, like those in 2009 and 2003, when trends and valuations align, present prime opportunities for long-term investment, despite investor pessimism often overshadowing it.

The exceptional market performance of recent years suggests that future returns may already be reflected in current valuations. The positive trend for U.S. stocks, coupled with high valuations, demands a strategic approach to diversification and risk management. This underscores the importance of aligning trend and valuation insights to navigate market volatility with informed decision-making.

As we navigate today's optimistic yet volatile market, the need for vigilance and strategic diversification has never been more critical. High recent returns necessitate a reassessment of portfolio risks, underlining the importance of preparing for varying market conditions. Adopting a proactive stance, balancing potential gains with prudent risk management, is essential for securing long-term financial success, especially today.

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TOP PICKS

Horizons Seasonal Rotation ETF (HAC TSX)

The Horizons Seasonal Rotation ETF “HAC” uses a proprietary, seasonal rotation investment strategy which seeks to deliver absolute returns in all market conditions. The strategy’s core position consists of broad markets at seasonally favourable times of the year, and money market securities at seasonally unfavourable times of the year. The strategy allocates from the core portfolio to various sectors when those sectors offer favourable opportunities. Rotating a portfolio in anticipation of these opportunities is designed to deliver returns that are superior to a static investment in broad markets. As seasonal periods are never the same, this investment strategy is supported by additional fundamental and technical analysis.

Cambria Foreign Shareholder Yield ETF (FYLD CBOE BZX)

Cambria Foreign Shareholder Yield ETF “FYLD” focuses on free cash flow and investors have long emphasized it as a key predictor of a company’s strength. Companies that pay cash dividends, one indication of strong free cash flow, have historically outperformed the broader market. Focusing strictly on dividend payments, however, misses two key indicators of strong free cash flow: net share repurchases and net debt paydown. The manager believes that a focus on all three factors - dividend payments, net share repurchases and net debt paydown, a trio collectively known as shareholder yield - produces a portfolio of companies that offer strong free cash flow characteristics. The Cambria Foreign Shareholder Yield ETF is comprised of the 100 companies with the best-combined rank of dividend payments and net stock buybacks, which are the key components of shareholder yield. The ETF also screens for value and quality factors, including low financial leverage.

Harvest Healthcare Leaders Income ETF (Unhedged) (HHL TSE)

Harvest Healthcare Leaders Income ETF (Unhedged) “HHL.B” is an equally weighted portfolio of 20 large-cap global healthcare companies, selected for their potential to provide attractive monthly income and long-term growth. In order to generate an enhanced monthly distribution yield, an active covered call strategy is engaged. To achieve lower overall volatility of portfolio returns, the ETF will generally write covered call options on up to 33 per cent of the portfolio securities. The level of covered call option writing may vary based on market volatility and other factors.

PAST PICKS: JANUARY 9, 2023

Purpose High Interest Savings ETF (PSA TSX)

Then: $50.06
Now: $50.19
Return: 0.2 per cent
Total Return: 5 per cent

Horizons CDN Select Universe Bond ETF (HBB TSX)

Then: $45.26
Now: $49.94
Return: 1.5 per cent
Total Return: 1.5 per cent

BMO Mid-term U.S. IG Corporate Bond Hedged to CAD ETF (ZMU TSX)

Then: $12.69
Now: $12.63
Return: - 0.5 per cent
Total Return: 3.9 per cent

Total Return Average: 3.5 per cent