Vikash Jain is a portfolio manager with ArcherETF. His focus is ETFs.
We expect market volatility to continue through the third quarter and are maintaining a cautious stance within our portfolios. Most of the volatility is coming from the European credit crisis and the impact that is having on European economic growth and consumer demand. That in turn is affecting emerging markets and the U.S., despite the fact that fundamentals, especially in the U.S., are stable and improving.
After declining for years, U.S. housing is turning around with new home sales up by a third over last year. Auto sales are up too. Recent U.S. corporate earnings have been good and will add to the incredible $1.7-trillion in cash U.S. firms are sitting on. True, earnings growth has slowed from 2011 but we anticipate reasonable growth this year, especially in the information technology, financials and industrials sectors. Some of the extra cash will fund higher dividends, stock buybacks and mergers –– all good news for equity investors.
Past picks: May 22, 2012
Vanguard Utilities ETF
TR: +5.95 per cent
BMO Equal Weight Utilities Index ETF
TR: +1.04 per cent
BMO Long Corporate Bond Index ETF
TR: +10.48 per cent
Total return average: +5.82 per cent
S&P/TSX Canadian Dividend Aristocrats ETF
CDZ is less volatile and more diversified than the TSX 60, with about 60 Canadian companies, each a reliable dividend-payer and with at least $300-million in market cap. It has less financials exposure than the TSX 60 and yields about 3.4 per cent. CDZ is a good equity holding in troubled markets.
iShares iBoxx Investment Grade Corp Bond
A top-ten ETF for several years running, LQD offers better yields without taking too much risk, either on credit or duration. It holds about 230 investment grade bonds without going into junk territory and has an effective duration of about eight years. Even though market rates are low, LQD will benefit as they fall further on economic troubles and also as credit spreads get tighter.
The euro zone credit crisis continues to roil global equity markets. But eventually, a resolution will be found. Keep some cash ready for opportunities for such a time.