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Terry Shaunessy. (Chris Bolin for The Globe and Mail)
Terry Shaunessy. (Chris Bolin for The Globe and Mail)

BNN Market Call

3 top picks from Shaunessy Investment’s Terry Shaunessy Add to ...

Terry Shaunessy is president and portfolio manager at Shaunessy Investment Counsel. His focus is on exchange traded funds (ETFs).

Top picks:

iShares Russell 2000 Index Fund (CAD-Hedged)
We expect that the U.S. domestic economy will perform well as housing and employment improve. The Russell 2000 Index is the primary benchmark for U.S. small cap stocks. This index is weighted toward financials (23 per cent) and consumer discretionary (15 per cent). We have been buying at current levels ($18.80) with a target allocation of 5 per cent.

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Vanguard Canada S&P 500 Index ETF
We have been using currency-hedged U.S.-focused ETFs listed in Canada for the past five years. We think that the Canadian dollar will top out at $1.04 (U.S.) so we have started to move a part of our U.S. equity allocation to un-hedged Canadian-listed ETFs. We recently switched one-third of our clients’ U.S. allocation (10 per cent) at $25.

ishares S&P/TSX Global Base Metals Index Fund
This is a recent addition to our aggressive accounts and complements our tilt toward materials in the Canadian equity allocation. I particularly like base metal mining stocks given my bullish outlook; the Canadian market tends to be dominated by large-cap gold stocks. XBM gives an investor exposure to world-class miners such as BHP Billiton Ltd., Rio Tinto and Freeport-McMoRan Copper & Gold Inc. and a wide variety of base metals. Initial purchases have been made at $14.

Past picks: Sept. 5, 2012

BMO Equal Weight US Banks Hedged to CAD Index ETF
We still like this stock and have a 5-per-cent position in all of our portfolios. It is a direct play on the U.S. housing market and the continued recovery of U.S. banks.
Then: $13.45
Now: $15.03
Total return: +12.65 per cent

BMO Dow Jones Industrial Average Hedged to CAD Index ETF
We recently switched ZDJ for VFV (Vanguard S&P 500 non currency hedged) because we wanted to begin the process of removing a part of the Canadian dollar currency hedge at a Canadian dollar greater than $1.01.
Then: $22.46
Now: $23.16
Total return: +4.30 per cent

ishares S&P/TSX Materials Index Fund
We switched our 5-per-cent tilt in the Canadian equity market from XFN to XMA in the fourth quarter of 2012. We are very positive on global economic growth prospects in 2013 and believe that basic materials stocks will outperform after a poor 2012.
Then: $17.57
Now: $17.80
Total return: +1.83 per cent

Total return average: +6.26 per cent

Market outlook:

It is our view that the U.S. housing market will continue to strengthen and herald the return of robust U.S. consumer spending as the single biggest factor influencing global economic growth and corporate profits in 2013.

Corporate cash balances are at record levels ($1.5-trillion-plus for S&P 500 companies) and a large contingent of cautious cash-rich investors remain on the sidelines despite near-zero returns. If financial and economic conditions continue to improve, confidence will return and liquidity will be redeployed into capital spending and job creation. That, in turn, will encourage even higher levels of global prosperity. For this reason, we remain at maximum equity allocations with a particular emphasis on U.S. and international cyclical sectors (such as banking and technology), including emerging markets and U.S. small caps. Canadian resource stocks will benefit from higher commodity prices but a lethargic Canadian housing sector may cool demand for financial stocks, which collectively represent almost 33 per cent of the TSX Composite Index. Consequently, the broad Canadian equity index may once again trail its global peers. Volatility will persist but above-average investment returns will reward focused and committed investors.

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