Mike Philbrick, CEO, ReSolve Asset Management

FOCUS: ETFs 

MARKET OUTLOOK:

In the investment world, just as in basketball, every team player has a crucial role. Consider Dennis Rodman, the lowest scoring inductee in the Basketball Hall of Fame. Despite never averaging more than 11 points per game, Rodman's extraordinary rebounding and defensive skills made him one of the greatest players in NBA history. His impact on the court transcended traditional scoring metrics, demonstrating that success isn't solely measured by points scored. Similarly, in a traditional stock-bond portfolio, managed futures play the “Rodman role,” offering essential support during market volatility and inflationary periods, even though they may not be the primary drivers of returns.

Alternative strategies like managed futures, often underutilized in traditional portfolio construction, can significantly enhance a portfolio's performance, mirroring Rodman's unique skills on the basketball court. These assets, with their low correlation to stocks and bonds, introduce a layer of resilience and diversification, particularly valuable in challenging economic climates. They act as a strategic buffer during inflationary shocks, bringing balance to a portfolio when both stocks and bonds are under pressure.

The year 2022 served as a stark reminder of what rising interest rates and inflation, akin to the 1968-1982 era, can do to traditional portfolios. During such tumultuous times, both stocks and bonds can decline simultaneously. This historical context underscores the critical importance of incorporating assets like managed futures into investment strategies. By doing so, investors can craft a more adaptable, “all-terrain” portfolio, capable of navigating diverse market conditions. For those interested in delving deeper into this strategy, ReSolve Asset Management has published detailed insights and practical approaches on its website.

In summary, just as Dennis Rodman's unique abilities significantly impacted his basketball teams, managed futures can play a vital role in strengthening traditional investment portfolios. They bring a distinct skill set that enhances a portfolio's performance under various economic pressures, ensuring that investors are well-prepared for both prosperous and challenging market conditions.

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TOP PICKS:

The Ether Fund (QETH.UN TSX)

An innovative investment vehicle listed on the Toronto Stock Exchange (TSX), designed to provide investors with exposure to Ethereum, one of the leading cryptocurrencies and blockchain platforms. Ethereum is not just a digital currency; it's a decentralized platform that enables smart contracts and decentralized applications (DApps) to be built and operated without any downtime, fraud, control, or interference from a third party.

Why Add Ether to Your Portfolio?

1. Diversification: adding a small allocation of The Ether Fund to a traditional portfolio offers diversification. Cryptocurrencies like Ethereum have shown minimal correlation with traditional asset classes like stocks and bonds, potentially reducing overall portfolio risk and enhancing returns, especially during periods when traditional markets are underperforming.
2. Growth potential: Ethereum is at the forefront of the blockchain technology space, which is rapidly evolving and has a wide range of applications beyond just financial transactions. Its potential for growth, driven by technological advancements and increasing adoption, makes it an attractive addition for those looking to benefit from innovation in the digital assets space.
3. Accessibility and ease: The Ether Fund (QETH) offers a convenient way for investors to gain exposure to Ethereum without the complexities and security concerns associated with direct cryptocurrency purchases. It provides a regulated, transparent, and accessible means to invest in this emerging asset class.
4. Yield through staking and management fee waiver: the fund is actively using a portion of its Ethereum holdings for staking, generating a yield of approximately one to two per cent on the portfolio. Furthermore, The Ether Fund has a management fee of zero per cent until March 31, 2024, making it an even more cost-effective option for investors interested in digital assets.

In summary, while cryptocurrencies like Ethereum are known for their high volatility, allocating a small portion of your portfolio to The Ether Fund (QETH) can offer diversification benefits, potential for high growth, and an opportunity to invest in emerging blockchain technology, all while generating yield through staking and enjoying a waived management fee.

HURA, the Horizons Global Uranium Index ETF (HURA TSX)

Offers investors a focused avenue to invest in the uranium sector. This ETF tracks the performance of a basket of global companies involved in the uranium industry, including mining, exploration, and development of uranium resources.

Why Consider Uranium for the Explore Segment of Your Portfolio?

1. Growth Potential in the energy sector: uranium is a key fuel used in nuclear power generation. With the increasing focus on clean and sustainable energy sources, nuclear energy is gaining renewed interest as a reliable and low-carbon energy solution. This shift could drive significant growth in the uranium market.
2. Diversification within energy investments: adding uranium exposure through HURA can diversify the energy component of your portfolio. Unlike traditional energy stocks that are often correlated with oil and gas prices, uranium and uranium stocks can provide a different set of market drivers and potential growth opportunities.
3. Benefit from industry cycles: the uranium industry is known for its cyclical nature, with periods of oversupply and undersupply impacting prices. By investing in HURA, investors have the opportunity to benefit from these cycles, particularly if entering the market at a time of potential undersupply and increasing demand.
4. A play on innovation and technology: investing in uranium is also a bet on advancements in nuclear technology, including the development of smaller, more efficient, and safer reactors. This aspect aligns with a forward-looking investment approach, focusing on technologies that could shape the future energy landscape.

Incorporating HURA into the exploratory segment of your portfolio offers a way to participate in the potential upside of the uranium sector while contributing to the diversification and innovation focus of your overall investment strategy. It's an intriguing option for investors looking to add a unique and potentially high-growth component to their portfolio.

The Cambria Emerging Shareholder Yield ETF (EYLD BATS)

offers investors a unique approach to investing in emerging markets. It focuses on the shareholder yield concept, which combines dividend yield with share buybacks and debt reduction. This strategy looks beyond traditional dividend yield to identify companies in emerging markets that are actively returning capital to shareholders, a strong indicator of financial health and growth potential.

Understanding Shareholder Yield

1. Beyond Dividends: while dividends are a well-known form of shareholder return, shareholder yield broadens this concept. It includes share buybacks, where companies repurchase their own shares, reducing the number of shares outstanding and potentially increasing the value of remaining shares. It also considers debt reduction as a form of returning value to shareholders.
2. A Holistic view of shareholder returns: this approach provides a more comprehensive view of how companies manage and distribute their excess cash, offering insights into their financial priorities and stability.

Why Emerging Markets and Shareholder Yield?

1. Addressing underexposure in portfolios: many Canadian portfolios are significantly underexposed to emerging markets. This underexposure means missing out on the diversification and growth opportunities these markets can offer.
2. A prudent approach to emerging markets: investing in emerging markets can be challenging due to their volatility and unique risks. The shareholder yield approach focuses on financially robust companies, potentially offering a more stable entry point into these dynamic markets.
3. Growth and diversification: emerging markets present significant growth potential, driven by factors like demographic trends, rising consumerism, and technological advancements. By investing in companies with strong shareholder yield profiles, the Cambria Emerging Shareholder Yield ETF aims to capture this growth while providing the added benefit of portfolio diversification.

In summary, the Cambria Emerging Shareholder Yield ETF represents an innovative way to approach emerging market investing. It not only offers exposure to the high-growth potential of these regions but does so through a lens that emphasizes financial strength and shareholder value. This strategy can be particularly appealing for investors looking to diversify their portfolios and tap into the opportunities emerging markets present.

Past Picks: November 15, 2022

iShares Core Canadian Short Term Bond Index ETF (XSB TSX)

• Then: $25.68
• Now: $26.04
• Return: 1%
• Total Return: 4%

iMGP DBi MANAGED FUTURES STRATEGY ETF (DBMF NYSEARCA)

• Then: US$31.81
• Now: US$26.82
• Return: -16%
• Total Return: -9%

Horizons Global Lithium Producers Index ETF (HLIT TSX)

• Then: $43.26
• Now: $24.00
• Return: -44%
• Total Return: -43%

Total Return Average: -16%