Brooke Thackray of Horizons ETFs Management (Canada) Inc.The Globe and Mail
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It’s a good season to be invested in the stock market, says Horizons ETFs Management (Canada) Inc. research analyst Brooke Thackray – but it depends on which sector you’re buying.
Mr. Thackray, who runs the $200-million Horizons Seasonal Rotation ETF HAC-T, is bullish on cyclical equities right now in sectors such as industrials, materials and energy, which he says generally outperform in the first five months of the year. He’s less keen on gold and uranium equities, which tend to weaken heading into the spring. While there are always exceptions to this seasonal strategy, the ETF’s disciplined approach has delivered a strong performance in recent years.
Horizons Seasonal Rotation ETF has returned 14.3 per cent over the past year. Its three-year annualized return is 10.4 per cent and its five-year annualized return is 7.7 per cent. The performance is based on total returns, net of fees, as of Feb. 9.
The Globe and Mail spoke with Mr. Thackray recently about his seasonal investment approach and what he’s been buying and selling.
Describe your investing style.
Horizons Seasonal Rotation ETF, which includes equities, fixed income, commodities and currencies, invests primarily in securities based on seasonal trends in the market. While other factors can come into play, on average, certain sectors tend to perform well at certain times of the year. We also look at fundamental and technical analysis to fine-tune our decision process.
What are some examples of your seasonal trades?
One example is fixed income, which tends to perform well from May to October owing to the bond issuance cycle and investors’ preference to reduce investment risk at that time of the year. We currently have no fixed income and will start buying in the spring. How much we own depends on the market environment.
For example, last summer we didn’t hold as much fixed income as we normally do because bonds didn’t develop a positive momentum trend. After establishing an initial tranche, the performance wasn’t strong enough to warrant an additional tranche. We exited the position earlier than anticipated owing to the weak performance.
Other examples include the gold sector, which tends to perform well from early July to early October, ahead of increased demand in the fourth quarter of the year. The energy sector tends to perform better from February to May, ahead of the busy summer driving season.
What’s your take on the current market environment?
The economy is in pretty good shape despite the slowdown that many predicted throughout 2023. There are a lot of mixed signals in the market today between the higher interest rates and relatively strong employment and gross domestic product numbers, making it hard for central banks to cut interest rates. The stock market has been trading higher based on the more positive economic data, but there’s a lot of uncertainty ahead. One near-term concern is what will happen with the U.S. presidential election. As we know, investors don’t like uncertainty, so that could cause some market volatility in the coming months.
What have you been buying?
We started adding back some of our cyclical names in sectors such as industrials, materials and energy after selling most of them last fall and into the end of last year. These sectors tend to perform better from late January to early May. In energy, we’ve been adding Horizons S&P/TSX Capped Energy Index ETF HXE-T. In industrials, we bought Industrial Select Sector SPDR Fund XLI-A, which includes companies such as Caterpillar Inc. CAT-N, Union Pacific Corp. UNP-N and General Electric Co. GE-N.
We also took a small position in Canadian banks after exiting the position in October through Horizons Equal Weight Banks Index ETF HBNK-T. The banks have their latest earnings coming up shortly. Their earnings were better than expected in the most recent quarter, and they had some dividend increases, so we expect more strength from them in the near term.
What have you been selling?
In the fall, we were gung-ho on the small-cap sector and bought iShares Russell 2000 ETF IWM-A. The sector did well in November and December, benefiting from expectations that interest rates would decrease. But we exited that position in January when the sector started to underperform. It’s hard to say goodbye to position, but you have to stick to your discipline. We did well, but the drivers may not be there for it to continue to outperform.
We’ve also been selling precious metals as a seasonal trade. The sector tends to perform well from December to mid-January into mid-February. We entered into bullion a bit earlier but started to exit the sector. We sold our position in BMO Equal Weight Global Gold Index ETF ZGD-T but still hold Horizons Gold ETF HUG-T and Horizons Silver ETF HUZ-T.
In mid-January, we also sold our uranium position, Horizons Global Uranium Index ETF HURA-T. Uranium is a great long-term story, and the sector did very well in 2023. There’s nothing negative to say about uranium’s fundamentals and the role it plays in the shift toward a low-carbon economy. But for us, it’s a seasonal investment, and we can’t make an exception, so we exited the position.
Name a stock or sector you wish you owned or hadn’t sold.
I wish we owned the technology sector throughout 2023, not just during its typically strong seasonal period from October to January. There are always stocks you wish you owned, but you can’t get emotional about it. You have to have to remain disciplined.
What advice do you have for new investors?
Don’t get caught up in a couple of stocks. Have a more diversified and disciplined approach. Also, be cautious about where you’re getting your information from and have a full understanding of what the risks are. Many investors don’t understand the risks.
This interview has been edited and condensed.
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