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bnn market call

Jon Vialoux

Jon Vialoux's focus is technical analysis and seasonal investing.

Top Picks:

BMO Low Volatility Canadian Equity ETF (ZLB.TO)
This is a top pick that I last provided during my appearance on BNN Market Call in the spring and since that time price has been flat, however, performance relative to the market has been firmly positive. 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. Investors seeking the U.S. alternative can look to the BMO Low Volatility US Equity ETF (TSE:ZLU).

Xcel Energy (XEL.N)
Xcel Energy, a utility holding company based in the U.S., operates a very seasonal business with a large share of annual earnings generated in the third quarter. The company benefits from increased demand for electricity during the warm summer months, the impact of which becomes evident in shares of XEL. Between July 29 and the end of the year, the stock has gained an average of 12.13 per cent, with positive results recorded in 76 per cent of the seasonally strong periods over the past 25 years. The utilities sector typically acts as a proxy for the bond market, moving inversely to the direction of borrowing rates. Should treasury yields remain under pressure though the next couple of months, as is seasonally typical, utility companies should continue to benefit.

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. Disclosure: Horizons Active Floating Rate Bond ETF is a product of Horizons ETFs Management Canada Inc.

Past Picks: June 11, 2015

Gilead Sciences (GILD.N)

Then: $119.13; Now: $115.60; -2.96% Total return: -2.60%

Cash

Horizons Active Floating Rate Bond ETF (HFR.TO)

Then: $10.12; Now: $10.07; -0.49%; Total return: -0.16%

Total Return Average: -1.38%

Market outlook:
Markets on both sides of the border are entering the weakest and most volatile time of the year, from a seasonal perspective. Lack of fundamental catalysts and lacklustre trading volumes contribute to the volatile trading activity. While investors wait for the U.S. Fed to start raising rates, there may be little reason in the near future for broad equity benchmarks to break above the recent trading range that has spanned much of the year. However, opportunities to invest in seasonal positions continue to exist. Recently, the consumer staples sector in the U.S. broke out to all-time highs and the utilities sector has begun to show outperformance versus the broad market. The rotation towards these defensive sectors of the market suggests risk aversion, a scenario that has often preceded broad market declines.

Investors should seek to maintain a low beta portfolio until signs of improving market breadth and momentum emerge.

All positions mentioned on BNN Market Call Tonight and held in the fund (Horizons Seasonal Rotation ETF) are bought and sold within the year due to the seasonal nature of the trades. Average holding period is approximately three months.