Mike Philbrick, CEO, ReSolve Asset Management
FOCUS: Exchange-traded funds
Top Picks: Global X Gold Covered Call ETF, BMO Equal Weight US Banks Index ETF, Roundhill Magnificent Seven ETF
MARKET OUTLOOK:
The December consumer price index (CPI) report delivered a better-than-expected print, providing a dose of optimism for investors. Inflation metrics, including producer price index (PPI), suggest a cooling trend, setting the stage for yields to soften after brushing five per cent. While U.S. Federal Reserve policy remains a key focus, the current data supports a narrative of stability rather than imminent economic strain. With the Fed having paused rate hikes for 17 months and domestic banks loosening lending standards since the third quarter of 2023, recession risks appear to be receding, bolstering hopes of a soft landing.
The market is reflecting this cautious optimism, with the S&P 500 Index up approximately two per cent so far this year. While this measured start contrasts with more exuberant rallies in prior years, it underscores the resilience of equities amid elevated bond yields. Historically, the largest stock market declines have coincided with recessions, and with a downturn looking increasingly unlikely in 2025, corporate earnings could continue their upward trajectory, supporting further gains.
Market uncertainty and fear have returned in some corners, but this is not a time for panic. By focusing on quality and diversification, investors can build resilient portfolios that thrive in challenging conditions. Persistent inflation risks and elevated interest rates may contribute to volatility but staying disciplined and prioritizing robust portfolio construction can position investors to benefit from longer-term opportunities as economic conditions stabilize.
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TOP PICKS:
Global X Gold Covered Call ETF (GLCC TSX)
The Global X Gold Covered Call ETF (GLCC) combines exposure to gold through major gold mining companies with an income-enhancing covered call strategy. The ETF focuses on large-cap, dividend-paying miners, balancing the potential for capital appreciation with monthly income generation from option premiums. This approach provides a unique way to access gold while generating consistent cash flow.
Gold miners have historically acted as a hedge against economic uncertainty and inflation, offering diversification benefits during volatile periods. GLCC’s active covered call strategy further enhances income potential and helps mitigate downside risk, providing a balanced risk-return profile compared to traditional gold mining ETFs.
In the current environment, GLCC offers a compelling combination of gold exposure and income generation. Its monthly distributions and diversified holdings make it an attractive option for investors seeking both income and a measure of defensiveness in their portfolio.
BMO Equal Weight US Banks Index ETF (ZBK TSX)
ZBK offers Canadian investors equal-weighted exposure to a diversified portfolio of U.S. banking giants. By focusing exclusively on U.S. banks, this ETF captures the growth potential of the financial sector, which benefits from economic expansion and rising interest rates. The equal-weight strategy ensures no single bank dominates the portfolio, reducing concentration risk and providing balanced exposure to industry leaders.
As the U.S. economy remains resilient, the banking sector stands to gain from stable loan growth, increasing net interest margins, and strong balance sheets. ZBK includes prominent banks such as JPMorgan Chase, Bank of America, and Citigroup, giving investors access to institutions that are central to the global financial system.
One key consideration is currency exposure, as ZBK is unhedged, meaning returns are impacted by CAD/USD exchange rate fluctuations. For investors seeking diversified, equal-weight exposure to U.S. banks with growth potential, ZBK is a compelling choice.
Roundhill Magnificent Seven ETF (MAGS NASD)
The Roundhill Magnificent Seven ETF (MAGS) provides equal-weighted exposure to seven of the most influential U.S. technology companies: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. These companies, collectively known as the “Magnificent Seven,” are leaders in innovation, spanning sectors like artificial intelligence, cloud computing, electric vehicles, and digital advertising.
With U.S. large-cap indices becoming increasingly concentrated, it has become difficult to outperform the market without significant exposure to these top-performing names. MAGS allows you to directly add this concentration to your portfolio while benefiting from an equal-weighted approach that avoids over-reliance on any single stock.
Offering an expense ratio of 0.29 per cent, MAGS delivers cost-effective access to this dynamic group of tech leaders. While the ETF offers strong growth potential, its focus on the technology sector means performance can be volatile, making it best suited for investors with a higher risk tolerance and a bullish outlook on these transformative companies.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| GLCC | N | N | Y |
| ZBK | N | N | N |
| MAGS | N | N | N |
PAST PICKS: January 26, 2024
Horizons Seasonal Rotation ETF (HAC TSE)
- Then: $28.38
- Now: $31.64
- Return: 11%
- Total Return: 11%
Cambria Foreign Shareholder Yield ETF (FYLD CBOE BZX)
- Then: US$26.09
- Now: US$25.60
- Return: -2%
- Total Return: 3%
Harvest Healthcare Leaders Income ETF (Unhedged) (HHL.B TSE)
- Then: $8.98
- Now: $9.41
- Return: 5%
- Total Return: 12%
Total Return Average: 9%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| HAC TSE | N | N | N |
| FYLD CBOE | N | N | N |
| HHL.B TSE | N | N | N |
