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Terry Shaunessy.Chris Bolin/The Globe and Mail

Terry Shaunessy is president and portfolio manager at Shaunessy Investment Counsel. His focus is exchange-traded funds.

Top Picks:

Horizons S&P/TSX Equal Weighted 60 ETF (HEW TSX)

We are looking for leadership to shift in the Canadian market from financials to cyclicals so the significant difference in energy and materials weightings in the TSX 60 Equal Weight Index appeals to us. HEW represents 50 per cent of our Canadian equity allocation. This stock is held in client, corporate and personal accounts.

Vanguard U.S. Total Market ETF (VUN TSX)

We like the U.S. equity market and VUN is a great one-stop ETF that includes small, mid and large cap stocks – all for an MER of 15 basis points. Vanguard also offers this TSX-listed ETF in a Canadian dollar hedged version (VUS –TSX) if you think that the loonie will remain strong in the second half of the year. This stock is held in client, corporate and personal accounts.

iShares S&P/TSX Global Base Metals Index ETF (XBM TSX)

The mining industry has taken a beating and we think that the big global players (BHP, Rio and Freeport) have bottomed. Expectations for the group are low and many commodity prices could surprise on the upside with renewed demand. We also think that base and precious metals stocks are prime M&A targets. This stock is held in aggressive and personal accounts.

Past Picks: July 24, 2013

Horizons S&P/TSX Equal Weighted 60 ETF (HEW TSX)

Then: $11.21; Now: $12.99 +15.88%; Total return: +18.77%

Guggenheim S&P 500 Equal Weight Index ETF (RSP NYSEARCA)

Then: $64.38; Now: $76.90 +19.45%; Total return: +21.17%

iShares MSCI Europe Financials ETF (EUFN Nasdaq)

Then: $21.69; Now: $24.29 +11.98%; Total return: +15.16%

Total return average: +18.37%

Market outlook:

We expect that global economic growth will accelerate in the second half of 2014 led by a strong recovery in U.S. housing starts. In fact, we see the domestic U.S. economy as the global bright spot that will have very a positive benefit on employment, commodities and cyclical industries. We remain at maximum equity in our clients' portfolios (70-75 per cent) with the U.S. representing half the allocation (35 per cent) while Canadian and international allocations are equally weighted at 20 per cent. Mid- and long-term government bonds have seen the lows and should begin to rise noticeably in Q4. Therefore, we have reduced interest rate exposure with short term bond ETFs and increased credit exposure through Canadian preferred share index and U.S. mid-term corporate index ETFs.

After the Q2 rally, we expect the Canadian dollar to settle back down into a range between 90-92 cents (U.S.) in the second half of the year. The overall mood of investors remains very cautious so a major market top is nowhere in sight since tops are made on exuberance not fear. The U.S. market, as measured by the S&P 500, could finish 2014 in the 2,000-2,100 range led by strong earnings, rising dividends and corporate activities. The TSX trading range is harder to call as we think that a cooling Canadian residential housing market will limit the earnings prospects for Canadian financials which represent more than 35 per cent of the TSX composite. Energy looks good and materials could regain investor attention led at first by M&A activity. The biggest single risk that investors face is being out of this global equity rally so buy U.S. market dips.

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