BofA Securities investment strategist Michael Hartnett published ‘12 Angry Trades’ in his most recent weekly report, a series of investment strategies that would be successful if some of the most widely held market-related forecasts turn out to be wrong in 2024. Mr. Hartnett is well positioned for this contrarian exercise as he is compiler of BofA’s popular monthly survey of global fund managers.
Among them, Mr. Hartnett noted that countries accounting for 80 per cent of global market capitalization are having elections next year. If they all go more smoothly than expected, lower-than-expected oil prices could be an unexpectedly successful trade, as geopolitical stress is historically evident in higher oil prices.
Only 21 per cent of fund managers expect a hard landing for the U.S. economy and only 7 per cent expect no slowdown at all. The strategist expects a hard landing would result in forced selling of technology stocks as risk tolerance evaporates. Economically sensitive stock in sectors like industrials and consumer discretionary would outperform in the case of no slowdown.
Another one on his list concerns inflation. Higher inflation is expected by merely 6 per cent of fund managers, making the buying of Treasury Inflation Protected Securities (TIPS) an angry trade. Similarly, higher bond yields are also only predicted by 6 per cent of managers, so the selling of companies with higher debt levels would be the expected result.
Slower U.S. fiscal spending would surprise 91 per cent of managers, who would not be ready for the sub-3 per cent bond yields Mr. Hartnett forecasts would be the consequence. Sixteen per cent of money managers believe the U.S. yield curve will flatten next year and if they’re right, a bond market trade known as a bear flattener will be a successful angry trade.
Fully 88 per cent believe the U.S. dollar will weaken in 2024 so a stronger greenback makes selling emerging markets assets another one of his contrarian strategies.
China and the United Kingdom are expected to underperform next year – underweight positioning in China is the second most crowded trade and 86 per cent of surveyed managers are underweight the U.K. Successful overweight trades in these two countries are ‘angry’ according to Mr. Hartnett.
Another angry trade would work if highly indebted companies outperformed. (This seems counterintuitive but historically occurs when economic growth accelerates and value stocks lead the market). REITs will outperform if the consensus is wrong here.
The most crowded trade among global fund managers according to BofA’s is the belief that large cap technology stocks, making a short position in the Nasdaq 100 another angry trade.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Celestica Inc. (CLS-T) Gordon Pape calls this the most intriguing Canadian tech story of the moment. It emerged from nowhere to post the biggest gain on the TSX Composite this year, by far. As of Nov. 17, the stock was ahead 152 per cent in 2023, and still gaining. What’s going on? He explains.
Teck Resources Ltd. (TECK-B-T) The Canadian miner is set to become a pure-play metals producer after announcing a deal to sell its steelmaking coal assets to a consortium led by Glencore PLC. As David Berman tells us, Teck without coal could be an investor’s dream.
The Rundown
Cheer up investors - the economy has defied expectations
A soft landing for the economy is far from certain but it has gone from a faint hope to a strong possibility, particularly in the United States. Investors may want to start thinking about a scenario in which good news outweighs bad. In fact, Ian McGugan says they may want to start thinking about what would be a true shock – the possibility that everything from the 2008 financial crisis onward was largely a bad dream from which we are just now waking up.
Also see: After breathtaking surge, U.S. stocks’ path may rest on economic soft landing
Using GICs to invest for the long term? That’s a mistake
The bright shiny object of the day is the GIC. The safe, reliable, readily available guaranteed investment certificate has become Canada’s favourite financial product. Many are shifting money that’s earmarked for their retirement or legacy into GICs. This is a mismatch, says Tom Bradley. Savings yields shouldn’t be confused with long-term investment returns.
With pace of green transition in doubt, clean energy stocks slump
Clean energy stocks are stuck in a monumental slump in Canada and around the world, with steep losses piling up on the year despite billions in government support and booming demand from countries committed to reducing greenhouse gas emissions. But as Tim Shufelt tell us, the long-term investment thesis behind the green economy is intact.
Others (for subscribers)
The most oversold and overbought stocks on the TSX
Monday’s analyst upgrades and downgrades
Monday’s Insider Report: Multiple executives sell Cameco shares
Argentine ETF trading surges after election, led by small investors
Globe Advisor
Is now the right time to add cryptocurrenices to investment portfolios?
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Ask Globe Investor
Question: My managed account with medium risk has had a return of 6.4 per cent over the last five years. How can I determine if this is a good return compared to other managed accounts and DIY investors?
Answer: To help assess returns, investment companies would ideally provide clients with a blend of stock and bond market indexes that corresponds to their personalized portfolio mix. Indexes are the best benchmarks because you can buy into virtually all the most followed ones using exchange-traded funds with minimal fees. If your portfolio can’t beat ETFs, just buy ETFs.
A quick and easy way for any investor to compare their returns is to use the results of asset allocation ETFs, which are fully diversified portfolios wrapped into a single fund. There are conservative, balanced, growth and all-equity asset allocation ETFs – choose the one closest to your portfolio and use it as a benchmark.
This reader with the 6.4 per cent five-year return didn’t specify a portfolio mix, but his mention of medium risk suggests using a mix of 60 per cent stocks and 40 per cent bonds. The oldest asset allocation ETF with this blend is the Vanguard Balanced ETF Portfolio (VBAL-T), which made 4.8 per cent on an average annual basis for the five years to Oct. 31. For a portfolio closer to 80 per cent stocks and 20 per cent bonds, try the Vanguard Growth ETF Portfolio (VGRO-T). For a 40-60 portfolio, there’s the Vanguard Conservative ETF Portfolio (VCNS-T).
Benchmarking your personal investment returns only works if you match up the end dates correctly. Stock and bond markets are volatile enough that five-year results can vary substantially from month to month. Example: VBAL made 4.2 per cent annually for the five years to Sept. 30.
This reader appears to have done well in the past five years, a period of sharp ups and downs for the markets. Why didn’t his adviser and investment company show him the good news?
--Rob Carrick (Send questions to rcarrick@globeandmail.com)
What’s up in the days ahead
Tax-loss selling season has arrived - and that means some stocks could be on sale at attractive prices. Robert Tattersall will have his annual suggestions on value stocks to consider.
Video: Cost of living data to show easing price pressures in this week’s Advisor Lookahead
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Compiled by Globe Investor Staff