Mike Philbrick, chief executive officer, ReSolve Asset Management SEZC

FOCUS: Exchange-traded funds 

MARKET OUTLOOK:

Remain calm, conservative, diversified and embrace alternatives.

The dynamics of liquidity, growth and inflation continue to challenge all asset class returns as we enter 2023. These conditions are likely to persist as economic uncertainty and market volatility remain at elevated levels. The markets are responding to how the U.S. Federal Reserve and other global central banks continue to battle inflation, and to what extent those actions will compromise economic growth and employment. The next couple of months will be crucial in determining whether the Fed can navigate a “soft landing” for the U.S. economy or if there are more turbulent times ahead for investors.

There is some good news, as central banks have made it a priority to tame inflation by raising interest rates, investors find themselves with higher interest rate opportunities on various lower-risk fixed investment options. If the rate-hiking cycle continues, more investors may continue to opt for more defensive positioning by allocating to lower-risk assets, such as cash, government bonds and investment-grade bonds given the improvement in yields. These are some of the highest nominal yields investors have seen in over 10 years.

Lastly, market instability generates many opportunities for active management as economic and inflation volatility brings more pronounced winners and losses and that creates opportunities for active managers to make money. Having complementary and non-correlated strategies, like managed futures, in environments like what occurred in 2022 made a difference in the investor experience by helping to smooth out some of the volatility that was coming from more traditional portfolios.

Our thoughts are to remain calm, be a bit more conservative and maximize diversification. Also to consider or embrace non-correlated alternative strategies like CTA Trend and systematic global macro strategies which have low historical and expected correlations with traditional markets. Additionally, all-weather portfolios can make a significant difference to the investor experience potentially smoothing out some of the volatility that might be occurring in more traditional portfolios.

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TOP PICKS:

Purpose High Interest Savings ETF (PSA TSX)

The fund seeks to maximize monthly income for unitholders while preserving capital and liquidity by investing in high-interest deposit accounts. The fund invests substantially all of its assets in high-interest deposit accounts with one or more chartered banks and/or Canadian credit unions. Currently, deposits reside at National Bank, Scotiabank, BMO and CIBC.

Horizons CDN Select Universe Bond ETF (HBB TSX)

Horizons CDN Select Universe Bond ETF seeks to replicate, to the extent possible, the performance of the Solactive Canadian Select Universe Bond Index (total return), net of expenses. The Solactive Canadian Select Universe Bond Index (total return) is designed to measure the performance of the Canadian investment-grade fixed-income market. Investment-Grade Bonds provide exposure to an index, where the constituents must have a minimum credit rating of BBB. HBB is a part of the Horizons Total Return Index family of ETFs (“Horizons TRI ETFs”). HBB uses a total return swap contract to replicate the performance of the index. This structure typically reduces the tracking error associated with replicating an index and increases tax efficiency

BMO Mid-term U.S. IG Corporate Bond Hedged to CAD ETF (ZMU TSX)

 BMO Mid-term U.S. IG Corporate Bond Hedged to CAD ETF has been designed to replicate, to the extent possible, the performance of the Bloomberg U.S. Investment Grade 5-10 Year Corporate Bond CAD Hedged Index, net of expenses. The U.S. dollar currency exposure is hedged back to Canadian dollars. The Bloomberg Barclays U.S. Investment Grade 5-10 Year Corporate Bond Index consists of United States dollar-denominated, investment grade, fixed-rate, taxable corporate bonds between five to 10 years until maturity. Each security in the Bloomberg U.S. Investment Grade 5-10 Year Corporate Bond Index CAD Hedged is weighted by its relative market capitalization and rebalanced on a monthly basis. The U.S. dollar currency exposure is hedged back to Canadian dollars.

PAST PICKS: June 27, 2022

Horizons U.S. 7-10 Year Treasury Bond ETF (HTB TSX)

• Then: $53.11
• Now: $54.95
• Return: 3%
• Total Return: 3%

BMO Short-Term U.S. TIPS ETF (ZTIP TSX)

• Then: $31.55
• Now: $30.81
• Return: -2%
• Total Return: 2%

iShares MSCI Min Vol Canada ETF (XMV TSX)

• Then: $36.13
• Now: $37.13
• Return: 3%
• Total Return: 4%

Total Return Average: 3%