Keith Richards is a portfolio manager at ValueTrend Wealth Management of Worldsource Securities. His focus is technical and fundamental analysis.
iShares Japanese fundamental Index ETF (CJP-T)
A Canadian dollar-hedged way of playing the Nikkei average – the ETF tries to screen and hold fundamentally sound stocks from that index, but the differential between the index and the ETF is pretty slim. The Nikkei and this ETF recently broke their downtrend. With stimulus and rising consumer confidence, we think there may be some upside in this trade.
Fomento Economico Mexicano (FMX-N)
Fomento Economico is the Mexican supplier of Coca Cola, bottled water and Heineken beer. They also have gas stations throughout the country. The stock looks to have a pretty rigid trading pattern. We bought at just below $90. We expect to sell somewhere near $100. The stock will also be influenced by the direction of the peso against the U.S. dollar, and the peso seems to be influenced by the election polls (with Trump's potential success considered bearish.) Thus, there is some political risk or upside, depending on how the election goes.
We hold 25-per-cent cash right now. We expect to deploy it in the coming weeks as seasonal and electoral cycles come to their buy points.
Past Picks: August 23, 2016
Horizons BetaPro S&P 500 Single Inverse ETF (HIU-T)
Then: $36.30 Now: $36.56 0.72% Total return: 0.72%
PowerShares Low Volatility CAD-Hedged Index ETF (ULV-T)
Then: $33.07 Now: $31.68 -4.26% Total return: -3.93%
Total Return Average: -1.07%
The S&P 500 seems to be stuck in another holding pattern – moving between 2120 and 2180 since July. Seasonal patterns and electoral patterns suggest the potential for some selling pressure in the coming weeks. The most vulnerable time for stock markets is during the September-October period. Additionally, presidential cycles suggest a historic tendency for markets to weaken in September and / or October as an election approaches.
Having said that, there is no assurance that the markets will correct as November approaches. In fact, September was not such a bad month, which proves that this truly is a game of odds, not absolutes.
We still view that the best strategy is to hold some cash. Yes, we do give up on potential opportunities by doing so. There is no assurance that a correction will happen. In fact, it may not.
A discipline only works if it is followed rigorously. Part of our discipline is to hold a level of cash every summer to in response to seasonal patterns on the markets. This level can vary but tends to be a minimum of 15 per cent. This year we've been holding, on average, about 25-per-cent cash, given the added risk surrounding the presidential cycle. We expect to place that cash into good stocks by early November.