Mike Philbrick, CEO, ReSolve Asset Management
FOCUS: Exchange-traded funds
Top Picks: Sprott Uranium Miners ETF, Global X Canadian Oil & Gas Equity Covered Call ETF, Invesco S&P 500 Equal Weight Index ETF
MARKET OUTLOOK:
As discussions of a potential “soft landing” continue, many investors hope the U.S. Federal Reserve can manage interest rates without triggering a recession. Historical precedent shows that out of 11 rate hike cycles, only three lead to soft landings, making the current situation uncertain. Recent data, including strong job growth and stock market resilience, suggest a soft landing could be possible. However, the tightening of credit conditions, similar to those seen before past recessions, raises some concerns. If credit conditions ease and employment remains robust, that bodes well for the potential of a soft landing.
The market remains near all-time highs, a pattern often observed before major downturns. Despite the positive short-term signals, investors should remain cautious, as the economy could shift rapidly. Historical patterns show that markets can rally despite underlying negative indicators, only to experience sharp reversals once external shocks or economic slowdowns hit. This was evident in the periods leading up to the 2001 and 2008 recessions, where optimism and strong market performance preceded significant downturns.
In light of this, investors should prepare for potential volatility and downside risks while remaining open to short-term opportunities. Diversifying traditional portfolios with managed futures strategies may serve as a potential solution. Managed futures have a low correlation to traditional asset classes and can potentially enhance portfolio returns by performing well during periods of volatility or market stress. Layering managed futures on top of traditional portfolios—what we call return stacking—can potentially offer a layer of portable alpha and may help investors better manage risk.
- Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
- Listen to the Market Call podcast on iHeart, or wherever you get your podcasts
TOP PICKS:
Sprott Uranium Miners ETF (URNM NYSEARCA)
It provides concentrated exposure to uranium mining companies, making it an attractive option for investors looking to benefit from rising uranium prices. Driven by the global push toward clean energy and the increased demand for nuclear power, URNM focuses on pure-play uranium miners, which are well-positioned to capitalize on this trend. As electricity consumption increases worldwide, fueled by industrialization, urbanization, and the electrification of transportation, nuclear energy is becoming vital for reliable, carbon-free power generation. With nuclear power providing stable baseload electricity, URNM stands to benefit from growing uranium demand in the global energy transition.
Global X Canadian Oil & Gas Equity Covered Call ETF (ENCC TSX)
It tracks an equal-weighted index of major Canadian oil and gas companies, ensuring balanced exposure across the sector. It employs a dynamic covered call strategy, writing options on approximately 50 per cent of the portfolio, with flexibility to adjust based on market conditions. This approach aims to enhance income through premiums while managing volatility. The combination of equal-weighted exposure and flexible options writing makes it attractive for income-focused investors seeking stability and growth in the energy sector.
Invesco S&P 500 Equal Weight Index ETF (EQL TSX)
It provides exposure to all companies in the S&P 500 Index, but unlike traditional S&P 500 market-cap-weighted ETFs, it gives equal weight to each stock, regardless of size. This means smaller market capitalization companies in the index have the same influence as larger ones, offering more balanced exposure to the companies within the S&P 500 Index. If the market rally continues to broaden beyond mega-cap stocks, EQL outperformance could continue by capturing gains in smaller companies within the index which has been the case for the last three months.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| URNM NYSEARCA | N | N | N |
| ENCC TSX | N | N | Y |
| EQL TSX | N | N | N |
PAST PICKS: SEPTEMBER 12, 2023
Horizons Marijuana Life Sciences ETF (HMMJ TSX)
- Then: $8.72
- Now: $10.29
- Return:18%
- Total Return: 21%
Evolve Global Healthcare Enhanced Yield ETF (LIFE.B TSX)
- Then: $20.67
- Now: $22.17
- Return:7%
- Total Return: 17%
Vanguard Communication Services ETF (VOX NYSEARCA)
- Then: US$109.97
- Now: US$146.69
- Return:37%
- Total Return: 38%
Total Return Average: 25%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| HMMJ TSX | N | N | N |
| LIFE.B TSX | N | N | N |
| VOX NYSEARCA | N | N | N |