Skip to main content
bnn market call

Jon Vialoux

Jon Vialoux, research analyst, Horizons ETFs Management Canada Inc. His focus is technical analysis and seasonal investing.

Top Picks:

Gilead Sciences (GILD.O)

The biotech industry is approaching a period of seasonal strength and Gilead is the largest in this space. Between June 22nd and September 12th, the S&P 500 Biotechnology index has gained an average of 11.96 percent over the past 20 years with positive results recorded in 85 percent of those seasonally strong periods. The return for Gilead topped the industry, averaging 14.16 percent over the same timeframe. Gilead broke out of a declining intermediate trend in April and has since outperformed the broad market, suggesting that the period of strength is well underway. The stock just charted a new all-time closing high on Wednesday, a milestone that typically draws investors into the stock.

Horizons Active Floating Rate Bond ETF (HFR.TO)

Horizons Active Floating Rate Bond ETF is a great alternative to cash during the summer. The ETF invests in a portfolio of Canadian debt securities and hedges the portfolio's interest rate risk to generally maintain a portfolio duration of less than two years, providing the ability to profit in what could be a rising rate environment through to the end of the year. Bonds seasonally outperform stocks starting from the beginning of May through to October, making this fund an ideal hold to maintain a market neutral portfolio during the period of seasonal weakness for stocks.

Cash

There are a number of seasonal opportunities on the horizon and it is best to keep some powder dry to take advantage. Aside from biotech, which enters a period of strength closer to the end of the month, seasonal plays in fertilizer stocks (end of June to middle of September), gold stocks (end of July to end of September), utility stocks (end of July to end of September), household product stocks (end of June to mid-November), and pharmaceutical stocks (mid-August to mid-November) all offer value during the volatile summer trading environment. Entry points are currently less than ideal, but triggers to buy may be near.

Past Picks: April 24, 2015

BMO Low Volatility Canadian Equity ETF (ZLB.TO)

New comments: The summer is characterized as a period of increasing volatility and investors will want to find ways to hedge themselves. The BMO Low Volatility ETF provides exposure to a low beta weighted portfolio of Canadian stocks, providing less sensitivity to market movements. Reducing beta and correlation to the market in portfolios can allow investors to ride out the rocky trading period ahead, while still participating in the upside potential for stocks.

Then: $27.39; Now: $26.69; -2.56%; Total return: -2.56%

BMO Equal Weight U.S. Health Care Hedged to CAD Index ETF (ZUH.TO)

New comments: Health care is one of the best performing sectors during the off-season for stocks between May and October. Between May 1st and October 25th, the S&P 500 Health Care Sector Index has gained an average of 4.62 percent over the last 20 years, outperforming the S&P 500 Index by 4.29 percent. Health care companies often have a lower correlation versus the market, providing an ideal place to ride out the volatility during the summer months. In addition, health care companies loaded with cash ($237-billion for S&P 500 Health Care companies), creating opportunities for further corporate actions as capital is put to use.

Then: $43.65; Now: $44.42; +1.78%; Total return: +1.78%

Horizons Active Floating Rate Bond ETF (HFR.TO)

New comments: Horizons Active Floating Rate Bond ETF is a great alternative to cash during the summer. The ETF invests in a portfolio of Canadian debt securities and hedges the portfolio's interest rate risk to generally maintain a portfolio duration of less than two years, providing the ability to profit in what could be a rising rate environment through to the end of the year. Bonds seasonally outperform stocks starting from the beginning of May through to October, making this fund an ideal hold to maintain a market neutral portfolio during the period of seasonal weakness for stocks.

Then: $10.16; Now: $10.12; -0.39%; Total return: -0.06%

Total Return Average: -0.28%

Market outlook:

With the range-bound trading, neutral investor sentiment, and a recent pickup in volatility in the fixed income and equity market, it may almost seem unreasonable to start to think about summer rally opportunities. However, we are approaching the time of year when the equity market does just that. Stocks typically rally between the end of June through the middle of July as the low volume run-up to second quarter earnings season causes a drift higher in prices. Between June 27th and July 17th, the S&P 500 Index has gained an average of 1.22 percent over the past 20 years. This implies that near-term equity market weakness may present appealing buying opportunities for the approximately three week period of strength.

Beyond this relatively short-term uptick in the market, a period of volatility typically influences equity prices between July and October, causing erratic trading activity through the remainder of summer. Investors should focus on allocations with less correlation to equity market movements, such as agriculture and health care. One asset that tends to benefit from the increasing volatility is gold, which gains, on average, over the same period. Investors can start to look for entry points now into the commodity, as well as the miners, for a holding period between mid-July and the end of September.

Interact with The Globe