Terry Shaunessy.Chris Bolin/The Globe and Mail
Terry Shaunessy is president and portfolio manager of Shaunessy Investment Counsel. His focus is exchange-traded funds.
Top Picks:
Horizons Active Preferred Share ETF (HPR.TO)
The preferred share market has been undermined in Canada, not because of credit quality concerns, but because of confusion surrounding dividend reset rates. Consequently, Canadian preferred shares are no longer a homogenous asset class so active management may be the superior approach here. The Horizon ETF yields 4.5 per cent with an MER of 55 basis points, only 5 basis points higher than the passive preferred share index offered by iShares (CPD). This is a good name for tax harvesting or as a new position within an alternative asset class category.
iShares Russell 2000 Index ETF (IWM)
We are very bullish on the U.S. domestic economy and believe that the Russell 2000 small cap index may be the best way to profit from this outlook. Domestic U.S. sales are estimated to be 80 per cent of Russell 2000 as compared to 55 per cent for the S&P 500 so negative foreign exchange effects from a rising U.S. dollar is not an issue.
BMO Equal Weight US Banks Index (ZBK.TO)
We continue to like U.S. Banks and this ETF represents 5 per cent of our holdings. The sector suffered a setback after the Fed's recent rate decision but U.S. banks are cheap and will benefit from the strengthening U.S. housing market. We prefer ZBK to XLF because we want to focus only on banks and equal weighting removes the money centre bias of JPMorgan and Bank of America and elevates super regionals such as U.S. Bancorp and BB&T.
Past Picks: July 22, 2014
Horizons S&P/TSX Equal Weighted 60 ETF (HEW.TO)
New comments: has been reduced in some institutional portfolios and eliminated in most family accounts. Tax trade sell HEW buy HXT.
Then: $12.99 Now: $10.54 -18.86% TR: -16.90%
Vanguard U.S. Total Market ETF (VUN.TO)
New comments: remains a big part of institutional and family portfolios representing approximately 10 per cent of the total portfolio.
Then: $29.92 Now: $36.51 +22.03% TR: +23.93%
iShares S&P/TSX Global Base Metals Index ETF (XBM.TO)
New comments: was sold across our accounts in March 2015 at $12. Threw in the towel on revival of base metals predicated on higher global growth. Rapid rise in the U.S. dollar and plunge in crude cast a pall over all commodities.
Then: $15.54 Now: $8.25 -46.91% TR: -44.70%
Total Return Average: -12.56%
Market outlook:
Our primary investment outlook has not changed – minimum bonds (20 per cent) and maximum equities (70 per cent) with little or no Canadian equity exposure and no Canadian dollar hedges. We expect all capital markets to remain unusually volatile for the foreseeable future. Investors in broad ETF categories must ignore day-to-day fluctuations and focus on long-term returns or risk compromising the future purchasing power of their portfolios. Canadian equities should lag other major developed markets over the next 12-18 months because the energy business remains challenged on a number of fronts keeping many investors on the sidelines. We cite the travails of the mining industry as a harbinger for what the energy sector may face over the next couple of years. Canadian financials are the only sector that looks investable.