Mike Philbrick, CEO of ReSolve Asset Management

FOCUS: Exchange-traded funds

MARKET OUTLOOK:

The persistent inversion of the U.S. yield curve for more than 555 days, coupled with the U.S. Federal Reserve’s aggressive rate hikes, mirrors conditions preceding historic recessions such as those of 1929 and 2008. Despite robust current economic indicators—strong stock performance, low unemployment, and solid gross domestic product (GDP) growth—the setup is eerily reminiscent of pre-recession patterns. Adding complexity to this economic landscape is the potential for oil price shocks, which have historically catalyzed downturns by rapidly increasing costs and tightening economic conditions.

In these critical moments, investors are advised to reevaluate their portfolio strategies to ensure they are not overly dependent on a disinflationary growth regime, which favours traditional stock and bond allocations. Instead, considering the possibility of a regime shift to inflationary stagflation, often associated with oil shocks, diversification becomes essential for safeguarding investments. This is where alternative investment strategies like long/short trend-following managed futures, and tangible assets like gold and commodities play a vital role.

These diversifiers act not only as hedges, but also enhance portfolio resilience by providing avenues for growth during economic uncertainties. Implementing a return stacking strategy is particularly prudent; it allows investors to maintain their strategic allocations to stocks and bonds while stacking diversifiers “on top.” This method of diversification by addition rather than subtraction ensures portfolios are robust enough to withstand potential regime shifts without sacrificing existing asset exposure.

As the financial landscape shows signs of strain under the current yield curve inversion and potential oil shocks, now is the time to prepare—before the storm hits. By fortifying portfolios with diversified, strategic additions, investors can navigate these tumultuous times with greater confidence and security.

TOP PICKS:

BMO Equal Weight Oil & Gas Index ETF (ZEO TSX)

It is designed to provide investment results that closely correspond to the performance of an equal weight Canadian oil and gas index. By investing in a diverse portfolio of oil and gas companies, the ETF offers exposure to the entire industry, mitigating the risk associated with individual stocks. Owning this ETF could be rational for investors seeking to capitalize on the growth potential of the energy sector while diversifying across several top companies in a volatile market.

iShares Silver Trust (SLV NYSEARCA)

It is an exchange-traded fund designed to track the price of silver bullion, providing investors with a straightforward way to gain exposure to the silver market without owning physical silver. By investing in SLV, investors benefit from the liquidity and ease of trading an ETF while potentially leveraging silver as a hedge against inflation and currency fluctuations. Owning SLV can be rational for investors looking to diversify their portfolio with precious metals, which often move independently of traditional financial assets like stocks and bonds.

Sprott Physical Uranium Trust (U.UN TSX)

It is a TSX-listed investment fund that holds uranium, primarily in the form of uranium oxide in concentrates (U3O8) and uranium hexafluoride (UF6). The fund's objective is to provide an investment alternative for investors interested in holding uranium as a commodity, with the potential appreciation in the value of its uranium holdings mirroring movements in the uranium market. Owning U.UN can be beneficial for investors seeking direct exposure to physical uranium without the complexities of direct commodity ownership, and it offers a unique opportunity to invest in a resource with critical applications in nuclear energy. Note: U.UN is a closed-end fund, which issues a fixed number of shares, and these shares trade on an exchange like stocks. Unlike ETFs, which continuously adjust their share supply based on investor demand, closed-end funds do not change their share count, leading to potential trading at premiums or discounts to the NAV.

*While this security is not owned, we have exposure to silver via futures markets in our funds.

PAST PICKS: April 3, 2023

SPDR S&P Semiconductor ETF (XSD NYSEARCA)

• Then: US$205.29
• Now: US$224.00
• Return: 9 per cent
• Total Return: 9 per cent

Purpose Gold Bullion Fund ETF (KILO TSX)

• Then: $29.84
• Now: $34.75
• Return: 16 per cent
• Total Return: 16 per cent

WisdomTree Japan Hedged Equity ETF (DXJ NYSEARCA)

• Then: US$70.94
• Now: US$107.41
• Return: 51 per cent
• Total Return: 56 per cent

Total Return Average: 27 per cent