Robert ‘Hap’ Sneddon.Deborah Baic/The Globe and Mail
Hap Sneddon is portfolio manager, technical analyst and founder of CastleMoore Inc. His focus is technical analysis and macro portfolio strategy.
Top Picks:
BMO India Equity ETF (ZID.TO)
Last Purchased on Dec. 19, 2014 at $ 17.20
India, as is China, is benefiting from lower commodity costs (inputs) while also having the added fortune of flexible monetary policy from the Reserve Bank of India. The question in Asia and South East Asia in particular, is to what degree should the regions' central banks provide the markets a tailwind? On our proprietary global country heat mapping India ranks near the top of both trading and investing time-frames.
iShares 20+ Year U.S. Treasury Bond ETF (TLT)
Last Purchased on Dec. 19, 2014 at $125
Bonds continue to be an unloved asset class as they were throughout all of 2014, and well, for a long time before that too. Last year this unit delivered 25 per cent plus, to investors not to mention any currency benefits from a weakening Canadian dollar. For investors looking for a tactical balanced approach to asset allocation, this unit has downside protection close at hand with the unit ($125.13) or the U.S. 10-year bond yield (2.10 per cent). Consensus expectations are for Fed funds rates to rise a couple times in 2015, though the market has gotten this wrong before. That said, one or two rate rises on the short end protects investors from inflation expectations. The Fed controls the very short term, the market the long term.
Consumer Staples Select SPDR Fund (XLP)
Last Purchased on March 20, 2014 at $ 42.66
After a great run up in this defensive and reliable sector consumer staples are in the midst of a correction that should be bought though further weakness is expected. Most of the components are U.S.-based multi-nationals who were affected by a strengthening U.S. greenback be it from hedging or pure currency exposure. The sector's focus on cash generation and dividend income bodes well for the next two years as inflation is expected to remain low, the U.S. dollar to pause or pullback and emerging market growth to pick up.
Past Picks: Jan. 3, 2014
Enbridge (ENB-TSX)
Then: $46.06; Now: $60.79 +31.9%; Total return: +35.56%
Fortis (FTS-TSX)
Then: $30.42; Now: $39.93 +31.26%; Total return: +36.5%
TransAlta (TA-TSX)
Then: $13.52; Now: $10.95 -19%; Total return: -14.17%
Total return average: +19.3%
Market outlook:
Investors are currently entertaining the pro-cyclical sector moves we saw last week in the markets, with energy, financials and materials moving up, and the defensives, utilities, consumer staples, telecom and bonds moving lower. The strong U.S. employment figures underpinned both, however, it is not clear whether the price action in these two spaces are not just corrective in nature with the themes of deflation in Europe (and North America?) and lowered 2015 corporate guidance front and centre. The next month will show whether the Fed's quiet concern from its balance sheet expansion of $186-billion in November and December vs. the decline of $245-billion from August through October warrants following the markets front running of cyclical themes. Today, there appears to be no catalyst for changing the profitable defensive posture of 2014. The exception would be for assuming positions in India and China, and other developing nations in the East that have flexibility in monetary policy.